RISE OF NETFLIX
Founded in 1998 by Reed Hastings and Marc Randolph, the history of
Netflix founding must be situated amidst the dot com bubble. This was
a time when online businesses would sell consumer goods directly via
their dot com domains. Amidst the excitement around internet-enabled
delivery of services and goods, companies like [Link], WebVan and
[Link] offering to sell goods directly to consumers raised funding
from venture capital firms. However owing to flawed business models
which meant losses at each sale, these companies burned cash from the
outset. The dot com bubble crashed in due time.
In September 1999 Reed Hastings implemented a subscription-based
business model. Netflix, although unprofitable until the mid-2000s,
survived the dot com bubble. The company offered DVDs via US Postal
Service, and had put up their catalogue online. Relying on US Postal
Service’s delivery meant that Netflix could focus on their core offerings
of a curated and personalised catalogue.
Netflix’s unique offering was its web-based catalogue of films. Instead of
having storefronts, the primary means by which customers could access
the catalogue was online. This meant that every user in every part of the
country could have access to the full library that Netflix possessed,
rather than being limited to the titles the nearest stores carried. This also
meant that users could shop around for the films they wanted to watch
in the leisure of their homes
Netflix’s response to these problems was reflective of how the
management was focused on building a sustainable business model, as
opposed to growing up too fast. Instead of focusing on building a hugecontent library the
company instead optimised their DVD-on-mail
VsdoluotiConifporhtheerir existing library. This business decision was what
helped the company survive the crash that followed the dot com
bubble.
Netflix launches Video on Demand
Netflix put further pressure on competition when they announced the
launch of their streaming service in January 2007, as Watch Now. At the
time the streaming service was expected to be of use only for power
users with broadband internet connections, which were not all that
VcdomomConipaththeertime. Users were required to have a 1 mbps internet ☰
connection to be able to stream movies, with a 3mbps connection
required for streaming DVD-quality films.
Netflix’s approach to starting its streaming video service was a gradual
process. Launched in January 2007, the company did not roll out its
services for all its users at once, instead gradually scaling up the service
offerings, completing it for all customers in June 2007. In hindsight,
seeing Netflix’s experimentation with its video delivery infrastructure in
terms of optimising for the cloud, this slow and steady approach
definitely makes a lot more sense than offering a full fledged streaming
service and then dealing with downtime and error rates.
Netflix soon started entering into content licensing deals with television
studios. For television studios the income from Netflix’s streaming
videos supplemented other geographical licensing deals. Television
studios only make episodes of previous seasons available, in the belief
that showing the episodes from the last aired/ currently airing season
would through online video streaming services would lead to them
losing users from the cable platforms, who were the primary
monetisation channel for television studios. Netflix would later turn this
☰monetisation scheme on its head when they started licensing original
VcdonoteCnt,ibpehcoemring a major revenue channel for television studios in ☰
their own right.
As more people began tuning into Netflix, content providers found that
Netflix helped build audiences for their shows. Cable networks making
past seasons and episodes of their television series available on Netflix
enabled content discovery.