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Innovation always requires a spark of genius, a break from routine, and a mind not afraid to cause a disruption. History has always been kind to those who embrace the future, understand the changing consumer behavior, and give freedom to the consumer. This principle helped Netflix become the pinnacle of success in the entertainment industry.
Failure and success are two sides of the same coin. Calculating the spin and making midcourse adjustments makes or breaks start-up. Twenty years ago, Read Hastings and Marc Randolph founded Netflix as a DVD rental business. The unique value proposition was on-demand, mail-delivered DVDs at customers' doorstep.
Fast forward to the 2020s, Netflix has become $100 billion and revolutionized the subscription and rental of TV shows and movies.
Here’s what made Netflix a success case and a curious study of rapid growth.
Futuristic Vision: Randolph and Hastings had a clear vision that the future of their business won't be based on the order-to-mail movie rental model. The founders knew the future was digital, and the shift to digital was imminent, rendering the DVD rental subscription model obsolete.
Marc Randolph himself said, "One of the biggest challenges that we had, which I think is also one of the things we did very well, is recognized very early on that if we were going to be successful, we had to come up with a premise for the company that was delivery agnostic. But if we were to come out and say, 'This is all about downloading or streaming,' and we said that in 1997 and '98, that would have been equally disastrous. So we had to come up with a positioning which transcends the medium."
Identifying the need: The origin story of Netflix is disputed between founders, but both aimed to change how we rented movies in the late 1990s, and they challenged the costly movie-rental vertical of Blockbuster – who were charging humungous late fees – and rendering their model obsolete.
Embracing the tech: Hastings and Rudolph might have never considered becoming the most prominent entertainment distribution company. They only visualized breaking the monopoly of the big TV and movie-rental mafias by decentralizing the entertainment with the help of tech. The use of AI and suggestion algorithm made Netflix what they are today.
Update with time: Netflix, as a company, never thought of movie rental as their true north.
Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. – Reed Hastings
Netflix ditched late fees in favor of monthly subscriptions in the 2000s. From 2003 to 2006, Netflix improved its user experience with the Cinematch ranking algorithm for personalized suggestions. By the end of 2006, the company registered more than 6 million subscribers with annual growth of 79% and an annual profit exceeding $80million.
Companies rarely die from moving too fast, and they frequently die from moving too slowly. – Reed Hastings
Know what users want and how they change: Netflix is often considered one of the vanguards of SVOD (Streaming video-on-demand). Netflix launched online streaming “Watch Now” in 2007 which was radical but became the cash cow of the company.
People turned to at-home entertainment for peace, excitement, and social interaction in 2020. Online streaming services are in higher demand since Covid social limitations.
According to Ofcom, the communications regulator, adults in the UK spend 40% of their waking hours in front of a screen. 60% of Americans, according to Adobe's 2020 Streaming Video Report, are subscribers to at least one streaming service. Netflix increased its membership base by more than 26 million people worldwide in the first half of 2020, above both Wall Street predictions and internal projections.
As we advance in this article, we will consider the competitive edge of Netflix, how it fares in the competition of Netflix vs Cable, and the overall impact of streaming services on society.
We live in an age where people watch movies based on what Netflix recommends. It learns your taste, and they understand viewer habits. - Eli Roth
Let me take you back to 2007; the internet was growing exponentially. Netflix was doing great, Blockbuster was biting the dust in competition, and Netflix decided to revolutionize the future by streaming on-demand video content. They embraced the future and tech.
In 2007, the company decided to permanently redesign its model by launching the first "Watch Now" streaming product.
For that era, the debut of streaming was revolutionary. As we'll see, Netflix's decision to shift its focus to streaming wasn't all that innovative; instead, it was a natural continuation of what the firm had previously been doing. However, it was radical that Netflix was prepared to stake the entire business on streaming effectively. You can understand the stance better in the founder’s own words.
"We named our company Netflix in 1998 because we believed Internet-based movie rental represented the future, first as a means of improving service and selection, and then as a means of movie delivery." – Reed Hastings.
The reliance of Netflix on tech helped them in multiple ways; first, they used machine learning to hook people with clever suggestions and then used the data to understand what to make and how to make it.
Netflix understood that getting high-quality content was essential to having a successful streaming service. The continuous effort to persuade content owners to grant Netflix a license to use their work started at that point. Many Hollywood people began to perceive Netflix as a direct rival even though none of them had any streaming services.
The decision to produce their content now appears quite simple, given the instant success of Netflix's content approach. The company hasn't stepped its foot off the gas since House of Cards and Orange is the New Black swept the market.
Data-driven ingenuity played a significant role once more. Netflix opted to publish entire seasons of shows all at once after analytics revealed that consumers preferred "binge-watching" shows.
Cable TV had no chance against Netflix once high-speed internet became common. Cable TV had a lot of outdated features that consumers quickly moved on from, including waiting for episodes, annoying ads, unwanted content, and objectionable quality of service. Cable TV can also not have freedom of choice and watch-at-will feature for people's favorite shows.
The only advantage now remains live channels. You cannot get news, sports, and music channels on Netflix. Primarily, people are now using Cable TV to keep up with news and watch live sports.
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