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The Novel Success Story of Netflix



Netflix
Netflix (Picture credit: freestocks.org from pexels

Welcome to Youth Motivator. I would like to tell you the success story of Netflix.
This is a very interesting and inspiring story of how an embarrassment resulted in the formation of Netflix, the world's biggest online subscription video service provider.
The co-founder of Netflix, Reed Hastings was embarrassed when a late fee of 40 dollars was levied upon him for not returning a DVD on time.
Netflix has revolutionised the entertainment industry and now is present in 190 countries.
This article is also the biography of Reed Hastings.

Introduction-

On October 1991, Reed Hastings co-founded Pure Software along with his friends, Mark Box and Raymond Peck.
This company provided debugging software to the UNIX systems.
On August 1997, Pure Software was acquired by Rational Software for 750 million dollars.
This deal made Hastings a millionaire and provided him the funds to start a new company, Netflix.

The embarrassment out of which Netflix was born-

During 1990s, people used to either visit a movie theatre or rent cassettes to watch movies.
In the year 1997, Hastings rented an Apollo 13 cassette from a video store.
Later, he misplaced the cassette and failed to return it on time.
Hastings returned the cassette after a period of six weeks, so he was levied a late fee of 40 dollars.
He was very embarrassed by this and so he hid this incident from his wife, Patricia Ann Quillin.

An idea which changed everything-

On one day, Hastings was working out in a gym where he realised that the payment model of gym is fair when compared to that of the cassette rentals.
In the gym, one can exercise as much as he wants after paying a monthly membership fee.
Then, an idea sparked in his mind by which he wanted to apply this payment model to the cassette rentals.

Learn to question-

When we don’t question a situation, we will never find answers to the problems caused by those situations.
The solutions arise only when we learn to question the situations.
Hastings saw a problem (late fees) and understood the future (cassettes were replaced by DVDs) and this gave the birth to a new business model, Netflix.
Hastings shared his idea with his friend Marc Randolph.
During that time, Marc Randolph was very impressed by the online book selling business model of Amazon.com and longed to start a new business model similar to that of Amazon whereas Hastings wanted to find a solution to the high fees charged at the local video store.
But he had no idea regarding what to sell online and so he was convinced with the idea of Hastings to rent DVDs online.

About Netflix-

We are witnessing that the entertainment industry is shifting towards the digital platform, thanks to the companies like Netflix, YouTube, etc.
Netflix has revolutionised the way we consume media in the digital age and provided an answer to the hassle of visiting the video stores and it allowed the users to select the movies they like and delivered them the movie DVDs, mostly within one business day.
Before Netflix we had only very limited options like some television channels and DVDs (digital versatile disc) or VCRs (videocassette recorder) but now we can watch any video at any time at the convenience of our home, thanks to Netflix which introduced the Video on-demand (VOD) to masses.
Netflix also produces its own digital content.
It allows us to view premium high quality videos on any device connected to the internet.
Netflix could be viewed on many devices like computers, mobile phones, tablets, video game consoles, Blu-ray Disc players, smart TVs, etc.
Unlike YouTube, Netflix is not a free service as one need to pay a membership fee to enjoy the Netflix videos.
On Netflix, many exclusive videos are present which cannot be found elsewhere.

The birth of Netflix-

Netflix was founded by Wilmot Reed Hastings Jr. and Marc Bernays Randolph on August 29, 1997 in Scotts Valley, California with only 30 employees.
Hastings provided an initial investment of 2.5 million dollars.
Netflix started as an online DVD rental store and was the first one in the world to do so.
During that period, the VHS-cassettes were getting out-dated and were getting replaced by the much better, DVDs.
DVDs in comparison to the VHS tapes were lightweight, sturdy and economical.
Initially, they posted a DVD to the Reed Hastings’s house and ascertained that the DVD reached the house in the right condition.
Hastings and Marc Randolph decided to distribute DVDs directly through the mail to the customers.

The right nomenclature-

As Netflix was doing the business by renting DVDs, the founders could have named the company by including DVD term in it, like DVD by mail, etc. but instead they chose to name the company Netflix.
Because they were very well aware that the future belongs to the internet and in future, everything will be related to internet.
The founders also knew that in future, majority of the people will watch movies on internet and will also pay through online.
So, Hastings and Randolph named their company very futuristically, as Netflix, by combining two words- net and flick, where net refers to the internet and flix refers to flicks, meaning movies and this name helped immensely in the branding of the company.

Starting small-

Initially, Netflix had 925 titles and 30 employees and it worked on pay-per-rent model.
On September 1999, they introduced the monthly subscription model.
By subscribing to this model, one could borrow several DVDs and become free from the headaches of due date, shipping charges and late fee.
By the year 2000, Netflix gained 300,000 subscribers, thanks to their excellent service.

The IPO-

On May 29, 2002, Netflix offered its initial public offering (IPO) and its each share was sold for US$15.00.
In the year 2004, Randolph retired from Netflix.
This made Hastings the face of Netflix.
By the year 2005, Netflix had 35,000 films and was shipping 1 million DVDs on a daily basis, this mirrors its popularity at that time.

The impact of internet-

Around this time, the world was getting accustomed to the internet and so, Netflix decided to provide an online streaming service.
But this decision was delayed for a few years owing to the slow speeds of internet during those times.
Finally, Netflix introduced the subscription based online video streaming and video on demand services during the year 2007.
With the passage of time, Netflix became very popular thanks to the great internet speeds and advancements in technology.
Netflix discontinued the pay-per-rental system in the year 2000 when they noticed that many consumers were switching online.

Facing rejection-

In the year 2000, Netflix was operating at a loss even though it acquired 300,000 subscribers.
So, Reed Hastings offered to sell Netflix to Blockbuster for 50 million dollars.
And he also offered to rename Netflix to Blockbuster.com and maintain their online business.
But Blockbuster rejected this offer.
Netflix became profitable in the year 2003. During this same year, it crossed one million subscribers.
Blockbuster finally realised that Netflix was its real threat after Netflix went public.
In order to compete with Netflix, Blockbuster announced its own DVD by mail program in the year 2004.
And in April of the same year, Blockbuster announced its plan to expand into the Video on-demand market.

The importance of right timing-

If Blockbuster would have started this business two years earlier than Netflix, they would have easily surpassed Netflix.

Starting the video streaming service-

Netflix wanted to start its internet video streaming service in the year 2005, but it got delayed until the year 2007.
The internet streaming feature was offered for free of cost as a bonus to the Netflix subscribers.
In the initial days, the content was restricted to 6 to 18 hours per month based on the subscription plan.
During the year 2007, the subscribers rose to 7.5 million and Netflix made a profit of 1.2 billion in the same year.

The first mover advantage-

As Netflix was the first company in the internet video streaming field, it succeeded in securing many exclusive deals with several media companies.
Its first contract was made on October 1, 2008 with Starz, an American premium cable and satellite television network for 20 million dollars.
Thanks to this deal, Netflix gained access to stream more than 2500 new films, which included many hit Hollywood films.
During the same year, Netflix was also made available to the Xbox 360.
PlayStation 3 played an important role in popularising Netflix.
By the year 2010, Netflix accounted for almost 30 per cent of the internet usage during the peak hours in America and during this same year, Netflix started to expand globally starting with Canada.
In 2011, they expanded to South America and Caribbean and a year later they expanded to Europe.

Hulu and Amazon-

From the year 2010, Netflix began to face stiff competition from Hulu and Amazon with Hulu offering the Hulu Plus program and Amazon offering the Amazon Prime Video.

Creating original content-

Hastings was inspired by the cable networks which initially started on the others content but eventually grew to produce their own originals.
In the year 2005 itself when Netflix was shipping DVDs, Reed Hastings wanted to produce the own original content but was unable to do so because at that time Netflix was a small scale company.
In the year 2011, Netflix decided to produce its original content as the costs for licensing the content was going uphill.
On 15 March 2011, Netflix announced its first production, House of Cards, a political thriller.
For the first two seasons of House of Cards, Netflix spent one hundred million dollars.
HBO (an American premium channel) competed with Netflix for House of Cards.
Netflix gained huge popularity thanks to the success of House of Cards and many people started to associate House of Cards with Netflix.

The idea which failed within a month-

On September 18, 2011, Hastings announced a new company, Qwikster to handle the DVD-by-mail service of Netflix.
This was not well received by the people because it required paying two membership fees if one wanted both DVDs and online streaming services of Netflix.
Qwikster was a failure and was shut down just after one month of its announcement.
During the year 2011, Netflix lost around 800,000 subscribers which caused its stocks to plummet.

Winning with originals-

On February 1, 2013, House of Cards season 1 was released and on 11 July 2013 Netflix also released Orange Is the New Black web television series.
These shows were a huge hit and they garnered many positive reviews.
Thanks to these hits, Netflix tasted a huge success once again and was proved as a competent content creator.
Netflix also made a deal with Marvel Television as part of its content expansion plan.

Entering into movies-

Netflix ventured into the film industry by producing Beasts of No Nation, an American-Ghanaian war drama film.
Netflix is planning a whopping 8 billion dollars to develop content around the world to compete with the other great shows on the other networks.

Crossing 100 billion dollars-

By the year 2018, Netflix garnered more than 137 million subscribers.
Now, Netflix has one of the largest user bases in the world and its market cap has crossed 100 billion dollars.
Apart from streaming third party content, Netflix also produces its own content.
Now, Netflix is worth more than 127 billion dollars.

Binge viewing-

Unlike regular cable televisions, Netflix releases all the episodes of a show at a time.
This gives the freedom to the viewer to watch all the episodes of a show at a time.
With the regular television, the viewer must wait for a week or so to view the next episode of the show but with binge viewing Netflix did something different and empowered the consumer.

Smart algorithms-

Netflix employs smart algorithms to recommend videos to the consumers based on their interests.
Netflix invested a huge sum of money in the algorithms so that the right content is featured to the right people and this algorithm also makes it easier to explore the video library.

Philanthropy-

After completing his college education, Hastings served as a high school math teacher in Swaziland, a country in Southern Africa.
Later, he became a philanthropist when he became a business man.
On July 11, 2006, Hastings donated $1 million to Beacon Education Network, a non-profit charter management organization and has also donated millions of dollars for the betterment of the education system.
In the year 2012, he has also signed up for The Giving Pledge founded by Warren Buffett and Bill Gates and committed to give more than half of his fortune to this charitable organization.

The most dangerous words-

The most dangerous words which curtails our progress are- we have always done it that way.
So, you must adopt new strategies to accomplish your work and to attain success.

The secret of success-

The success of any company mainly depends on two factors, the work put by the employees and the farsightedness of the employer.    
Netflix is a perfect example for the fusion of these two factors.
The huge success of Netflix can be attributed to the Hastings’s different and impressive way of thinking.
This story proves that to become successful, an innovative and out-of-box thought is a pre-requisite.
Like in the case of Hastings who related gym with movies and knew the potential of internet and named his company accordingly as Netflix.

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