Naperville Business Law Attorney Looks at the Success Story of Netflix
Today, the name “Netflix” is synonymous with streaming entertainment as a viable alternative to cable, satellite, or over-the-air broadcast programming. When the company first started nearly 20 years ago, however, there was little indication that it would quickly become global entertainment leader.
As a business law attorney, I recognize the importance of evolving with the times to remain relevant. In any competitive industry, companies that do not adapt to meet the changing needs of consumers will quickly become obsolete. The story of Netflix provides a good example of how adaptability and perseverance can pay substantial dividends over the long term.
Mail Order DVD
When Netflix first launched in 1998, the company had 30 employees and catalog of 900 DVD titles that subscribers could rent for seven days for $4 plus shipping. They also offered new movies for sale at a discount compared to brick-and-mortar retailers. Their main issue at the time was that relatively few homes had DVD players, as the technology was still largely emerging. By the end of that year, Netflix discontinued DVD sales, as Amazon began offering videos at even deeper discounts.
By 2000, the company had changed to a subscription model, charging a flat monthly rate for unlimited DVD rentals—still by mail—with a limit of three discs at a time. Customers used the internet to create a rental queue, and as they returned each batch of rentals, Netflix would use the customers’ queues to send the next round. Membership soon reached a quarter of a million and the company was processing 100,000 orders each week.
The End of the Road?
While the company was growing, it was still not profitable, as royalties and other costs remained high. It was around this time that the founders offered to sell nearly half of Netflix to Blockbuster Video. Under the terms of the deal, the fledgling mail-order service would become Blockbuster.com and provide similar services under the name of the video rental giant. Blockbuster declined the offer, a move that would ultimately prove disastrous for the brick-and-mortar franchise. The chain struggled over the next decade, finally going out of business for good in 2013. Netflix, in the meantime, would go on to bigger and better things.
A New Frontier
In 2007, Netflix introduced streaming video as a bonus to its DVD rental services. Customers had about 1,000 titles to choose from compared to about 70,000 available at the time on DVD. Streaming quickly became the most popular way for customers to enjoy movies, and the addition of numerous television shows only increased the company’s dominance of the streaming market.
When Netflix first acquired the rights to stream TV shows, each one was a show that had originally aired on another network. In 2013, Netflix began producing its own programs for release in a season and series format—similar to entire seasons of a network show. Beginning with House of Cards, Netflix original content introduced the public to the idea of “binge-watching,” which would continue with other wildly popular shows like Orange is the New Black and Narcos. Today, it is not unusual for fans of a particular show to watch an entire season or more in a single weekend.
As other companies like Amazon, Hulu, and HBO have entered the streaming industry, Netflix continues to look for ways to grow. Recently, Netflix announced a plan to spend $7 billion on developing original content in 2018. The goal marks an increase from $6 billion in 2017 and $5 billion in 2016. With more than 100 million subscribers worldwide and a stock price that is 5000 times higher than it was when the company launched streaming video, Netflix is poised to remain at the forefront of the entertainment industry.
Seek Legal Guidance
While your company may never operate on the scale of businesses like Netflix, it is still important to be aware of the industry around you and to take steps to stay relevant. An experienced Naperville business attorney can help you conduct a full market analysis and determine the best course for your company. Call 630-756-1160 for a confidential consultation today.
Please note: These blogs have been created over a period of time and laws and information can change. For the most current information on a topic you are interested in please seek proper legal counsel.