Netflix: an exceptional success story

Posted: Monika Žilaitytė Date: 2017-08-16 08:40

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Netflix © Planet News

There are not that many companies in the world that really amaze us with their massive sales, prices of shares, marketing and their success story, of course. One of those is the world’s leading Internet television network Netflix.

190 countries and 70 million subscribers – these are the numbers the company can be proud of today.

However, as well as the majority of the stories of various global companies, the one of Netflix began not with millions of users or a turnover reaching a billion.

Netflix was established in 1997 in California by 2 colleagues Marc Randolph and Reed Hastings. Both of them have previously worked in Pure Software company, the founder of which was Hastings and two of his colleagues. Marc Randolph was the co-owner on MicroWarehouse, afterwards he occupied the position of the vice president of marketing at Borland International.

Before Pure Software was founded, Reed Hastings worked as a teacher of mathematics. Later on, he sold his company Pure Software for $700 million and invested $2.5 million in the establishment of Netflix, anticipating to make a great profit out of it one day.  At that moment, this company had no specific philosophy, but its founders knew that they would like to sell something via the Internet, which was getting more and more popular not only in America, but in Europe as well.

One day, Reed Hastings went to the video store Blockbuster to return the borrowed movie “Apollo 13″ and he had to pay a 40 dollar fee, as he was late to give it back. That was the day when he realized that DVD movies can be rented online too. For the viewers they can be sent and returned via mail, which is simple and cheap. Taking into account the fact that there were hardly any such type of services, it turned out to be a good idea for the entrepreneurs.

As Netflix started its business, there were 30 people working in the company and in 1998 they created their first website. In 1999 Netflix began offering a monthly subscription fee for movie rental, before this, every costumer had to pay a one-time fee for each movie they rent. According to Barry McCarthy, who is a former Netflix finance chief, Reed had a great insight and he realized at the right time the fact that the possibility to subscribe will be much more attractive to the users, this decision helped to expand the variety of services. For the monthly fee they could have watched anything they wanted to, instead of paying for each movie separately. As stated by the same Barry McCarthy, Reed Hastings created a model of the website’s subscription and after this change Netflix grew almost overnight. Based on the memories of a former Netflix finance chief, the turnover of the company in 1998 reached $1 million, a year after the introduction of the subscription it increased five times, in 2000 it was $35 million, later, in 2001it reached $75 million and then it jumped dramatically to $150 million.

As Reed Hastings had an ambiguous experience regarding former movie rental giant Blockbuster, in 2000 he offered them to sell 49% of their content, in order to publish it on Netflix, however, the company refused this offer. It is quite ironic considering that five years later Netflix had 4,5 million members, while Blockbuster has never had that much of them. During one interview, Barry McCarthy, who is a current Spotify chief financial officer, claimed that Reed having a lot of insolence offered Blockbuster a collaboration, under this agreement, Netflix would have distributed their movies online, while Blockbuster would have advertised Netflix at their stores. Blockbuster only laughed at this suggestion and refused it most probably due to the fact that it seemed only as a niche business to them. In 2013 Blockbuster went bankrupt and as the headline of the article published on Forbes.com says, “The Internet Didn’t Kill Blockbuster, The Company Did it to Itself”.

Netflix reached its highest success, since the company offered to watch movies online. In 2010 the number of active members of Netflix reached 16 million.

When it presented the first original series “House of Cards” in 2013 that was nominated for 9 Emmy Awards, the company became unbeatable. In the end of the same year the price of Netflix shares tripled.

Throughout the recent years, the company’s growth was the highest in its history. In 2013 international streaming amounted to 15% of Netflix value. In the same year 30% of American households were subscribed to Netflix. Later, in 2014 Netflix services expanded to such countries as Austria, Belgium, France, Germany, Luxembourg and Switzerland. As video streaming services were available in France, it was feared of cultural differences that prevails between America and France. Therefore, the latter country was the first one with an exclusive content on Netflix. Subsequently, Netflix released a French series “Marseille”, the plot of which was alike to “House of Cards”, with a context adapted specifically to this country and it had a great success.

In 2015 internet television giant Netflix reached Australia, New Zealand, Japan, Portugal, Spain and Italy. By the end of the year, Netflix content was available in 17 different languages, from now on, 3 more languages are supported: Korean, Arabic and Chinese. Throughout 2016, Netflix plans to release at least 20 new series and programs.

At the beginning of 2016, Netflix expanded its streaming service to an additional 130 countries, Lithuania included. Moreover, it announced its partnership with LG in Asia, Europe and Middle East. Since the company became global, its content is not adapted to each country separately, also, not in all the countries subtitles are available so far. The direct marketing is not applied in small countries, where the level of interest is not that big.

When asked about how particular movies are chosen and adapted to new markets, Reed Hastings said that it is done by finding out the most illegally downloaded movies in a certain country. According to him, it is a lot easier to simply press ‘Play’ instead of looking for a particular movie online for free, especially that it also takes time till it is finally downloaded.

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