🎥 Building a $240B empire

In 1997, a small movie rental company was fighting to stay in business.

Almost 30 years later this small company would become the biggest movie streaming platform in the world. 

This is the story of Netflix and how two founders built a $240B empire by staying flexible in a constantly changing market.

Here’s what we got for ya:

• 🥷 Netflix vs Blockbuster

• ⏩ Staying ahead of the game

• 🔮 The Future of Netflix

Read time: 5 min 10 sec

🥷 Netflix vs Blockbuster

I still remember the days of Blockbuster…

Going in with my family, looking for the perfect movie. (If you chose wrong, tough luck.) In the checkout line, I would look up at my parents with puppy-dog eyes and ask “Wouldn’t this movie be so much better with chocolate?” And we’d add a bag of peanut M&Ms to the purchase. Those were good old days, but they were never meant to last.

Blockbuster unwittingly created its own demise…

In 1997, Netflix entered the scene.

Co-founder Reed Hastings got the idea for Netflix after he was charged a late fee from Blockbuster. Annoyed, he envisioned a world where he wouldn’t be punished for being busy (or lazy.) And so, Hastings and his friend Marc Randolph decided to create one.

Netflix began with DVD rentals by mail.

Three years later, they released a subscription service: a flat fee for unlimited rentals, no due dates, late fees, and free shipping. 

But it wasn’t clear at first if Netflix would be a success.

It was your classic David vs Goliath. 

In 2000, Netflix made $5M in revenue. Blockbuster made $800M in late fees alone.

And that same year, something tragic happened for Netflix: the dot-com crash.

Founders Hastings and Randolph didn’t know if Netflix would survive, so they made a drastic move. 

Netflix turned to its enemy Blockbuster and begged for mercy. They wanted Blockbuster to buy Netflix for $50M. But instead of saying yes, Blockbuster CEO John Antioco had to physically hold back his laughter. He thought Netflix’s online model would never be successful. 

Still, Netflix didn’t give up. They continued to adapt to the market and fight for their survival. Blockbuster? They didn’t adapt fast enough. 

David beat Goliath.

Today Netflix has over 260M subscribers, and Blockbuster has one store left, whose business runs more on nostalgia than movies. 

But how exactly did Netflix innovate itself to the top?

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⏩ Staying ahead of the game

Since its beginning, Netflix has been a leader.

Here are a few ways they’ve adapted to stay at the top of the game: 

#1- The algorithm: In 2000, Netflix released the first movie recommendation algorithm. They did this before we started watching movies online. It was called Cinematch. Users would rate the movies they watched and then Cinematch would recommend new ones.

Not only did this help users find movies they would like, but it also helped Netflix get users to rent movies that weren’t just the most popular. They couldn’t afford to send out millions of the same movie at the same time. So Cinematch could recommend users less known movies that they will still love.

#2- Streaming: In 2007, Netflix created the first video streaming service. 

At first, DVDs were still their main business. But once streaming became popular, it opened a whole new world for Netflix.

#3- Netflix goes international: When their business was restricted to DVDs, they were constrained to the USA. It would be difficult to send DVDs internationally. But with streaming, it became 10x easier.

So, in 2012, Netflix launched internationally.

Now international streaming makes up a good chunk of Netflix's revenue.

Netflix is in over 190 countries. 

#4- Original Content: When Netflix buys licenses for movies and TV shows, there is always a risk that the license won’t be renewed. So in 2011, Netflix started creating original content.

The first original, House of Cards, made Netflix a powerhouse. It was the first online series to win an Emmy Nomination.

Netflix doubled down. Now 55% of Netflix’s content is original.

Not only does original content keep Netflix safe from licensing scandals, but it also gives them exclusive ownership of content. 

If you want to watch what everyone’s talking about, like Stranger Things or Squid Games, you have to subscribe to Netflix.

But in some ways, this has backfired. SNL made a skit about how Netflix is mass-producing shows, and that they stopped caring about the quality.

So where does Netflix go from here?

🔮 The Future of Netflix

There are more than 200 streaming platforms worldwide. 

And Netflix is still at the top.

But there are questions about the future of Netflix and if it’s in decline.

One article went as far as saying Netflix isn't dying, it's already dead…

So what’s really going on?

In 2022, Netflix lost subscribers for the first time in a decade. 

Like Blockbuster, Netflix started squeezing money out of their customers while giving them a worse-quality product. 

They did this for the first time in 2011. Netflix used to cost $10/month for both DVD rental and streaming. Then Netflix separated them, created two separate logins, and charged $8/month for each. They increased the price by 60% and made it more complicated to use, all during a recession…

But then it seemed they learned their lesson. After backlash, Netflix CEO Reed Hastings publicly apologized.

Now, it seems they are opening themselves up for more public shaming.

Here’s what they’re doing wrong:

#1- Cracking down on sharing passwords: Netflix used to encourage users to share. They even tweeted about it in 2017.

I’m still on my parents’ Netflix account, but that probably won’t last much longer…

#2- Increasing prices: In 2023, Netflix increased the Basic plan price from $9.99 to $11.99. And there may be more price hikes coming soon...

#3- Ads: One of the reasons Netflix is so popular is because they’ve never had ads. In 2019, Netflix’s CEO confirmed that “Netflix will never have ads.” Then 3 years later they launched a $6.99/month with ads plan.

While customers aren’t happy about Netflix’s changes, the punishment for Netflix likely won’t be as drastic as death. 

Yes, Netflix lost subscribers. But had they not suspended their service in Russia, forfeiting 700K subscribers to protest Russia’s war on Ukraine, they would have remained in the positive.

Netflix has always adapted when times get rough. So let’s watch and learn from their next move.