Netflix's Success Story: How did a DVD rental business become a staple around the world?

Netflix Success Story: Turning Long $4 Share to $590

One of the many benefits of the lockdown was that people had enough spare time to indulge in self-care. After long working hours, people jumped from their desks to the bed or couch (except for those who never left their bed at all). They used to switch from zoom to OTT platforms like Netflix quickly.

The company saw a surge in the number of subscribers in early April 2020. Almost 16 million new accounts were created, nearly double that of the previous quarter. Netflix was one of the media company which Covid-19 least impacted. From America to India to Ireland, everyone followed the same slogan 'Netflix and chill'. The presence of Netflix in a variety of consumer markets is very significant. So, what's the secret behind Netflix's success?

Foundation

Netflix is an American OTT (over-the-top) platform based in California. Reed Hastings and Marc Randolph had founded it in the year 1997. Initially, the duo started Netflix as a DVD and Bluray rental company, and it was in the year 2007 that the founders pivoted and introduced streaming media while also retaining their rental business.

History

Before turning into entrepreneurs, the two founders, Reed Hastings and Marc Randolph, used to work for Pure Atria and MicroWarehouse, respectively. Mr Hastings, a scientist, and mathematician was the company's marketing director, whereas Mr Rondolp was the co-founder of MicroWarehouse.

During the commute between their homes, the duo came up with the idea of Netflix.

Hastings invested $2.5 million in the startup as capital. They wanted to build an e-commerce website just like Amazon to sell portable items. They considered the sale of VHS tapes, but since these tapes were too expensive and delicate, they opted out of this plan as it was too risky.

With the introduction of DVDs in the United States in March 1997, the pair decided to test the concept of selling or renting DVDs by mail. After a successful attempt at this concept, they decided to invest $16 billion in this industry.

Subsequently, Hastings and Randolph launched Netflix, a DVD rental store with only 30 employees. To rent a title, one had to a certain fee. It was later, in September 1999, that the startup announced the monthly subscription plan. After paying for a month, one could rent unlimited title for that month.

By 2000, the company was able to attract as many as 3,00,000 subscribers to whom titles were delivered via the US postal services. Despite this being a unique concept, the company made a considerable loss of $57 million, and to combat the situation, they offered Blockbuster to acquire their enterprise, but the company denied their offer. Although the company saw fast and steady growth in 2001, the 9/11 attack crumbled their business.

As the DVDs became more affordable, Netflix's business took off, and they saw a large number of subscriptions.

Expansion

It was only in 2010 that Netflix started offering its services in Canada. Even though the price for the services provided by the company was nominal, the number of titles provided in Canada was five times less than that provided in the United States. Regardless the company was able to attract 1 million subscribers from Canada. This count kept on increasing. In 2014 over 5.8 million Canadians had subscribed to Netflix.

Later in 2011, Netflix started expanding its operation in South America, and this remains the largest expansion to date. By September 2011, the company began expansion to 43 countries in the continent, Brazil being the first. They offered content in different languages like English, Spanish and Portuguese. But the company was not a success as it had estimated. The reasons being low broadband Internet connection.

The following year the company extended to Europe and the United Kingdom. These were the fastest-growing markets. In fear of losing potential consumers, Netflix decided to focus on culturally specific media in some parts of Europe. In 2016, Netflix launched in India, and thanks to the drastic drop in mobile data prices, Netflix was able to penetrate the Indian market.

In few years, the company also started to establish itself in Asian countries like Japan and China and the African continent.

Funding and IP0

At first, the company secured $30 million from Group Arnault, a French luxury goods investment firm. Netflix used that investment to fund new brand-building and marketing endeavours. Over the years, Netflix raised around $3.1 billion in 12 rounds from investors like WS Investments, Comdisco Ventures, and many others.

Although it had planned to roll out its IPO of $86.25 million in May 2000, it withdrew its plans in July. The reason cited was that the investors were sceptical about the company's business model and lack of profits.

Eventually, in May 2002, Netflix launched its IPO after subscribers reached the 5,00,000 mark. The company successfully sold 5.5 million shares and received $82.5 million, out of which $14.4 million was used to pay off the debt and promotional expenses. Later in June, the company sold more than 8,25,000 worth $12.37 million. It was during the launch of the IPO that the company tweaked its name to Netlflix Inc.

After its debut in the stock market, the price didn't rally upwards. In 5 months, the stock was trading at $4.85, and after two years, the stock price was able to hit $71.96.

Today, in mid-April 2021, the stock is valued at $550. In around 19 years, the stock's value has increased by over 36 times, and the company I'd valued at 240.742 billion.

Marketing Strategy

With innovation and the use of the latest technology in marketing, the company is growing steadily. The company is effectively using its social media platforms to connect with the audience. Almost every country has its Instagram page or YouTube account wherein the admin posts relevant content concerning the content that they stream. Netflix's official YouTube account has over 19.5 million subscribers.

Netflix Inc. is also exploring the potential of email marketing to get more information about the consumers' demands.

It offers personalized content to its users. No two users' home pages will be similar. If you enjoy from-coms and watch them often, it will customize your Netflix homepage around it, and the same goes for other genres. The unpredictable and experimental marketing strategies worked out perfectly for Netflix.

Challenges faced by Netflix

• Competition:There are many players in the OTT market. Apple+, Disney, Amazon Prime Video. In India alone, the company competes with 35 different streaming services. This increasing competition makes it difficult for Netflix to stay put. Being priced a little on the higher end than its competitors, the company loses its leverage.
• Securing rights: To ensure the rights of popular sitcoms like FRIENDS and The Office, the company pays a hefty amount. It results in losses, and the company have to eventually give their rights up, which doesn't sit well with some consumers.
• Digital piracy: Why would someone pay someone to purchase a Netflix subscription when he can watch pirated versions of movies/ series online for free? This problem has troubled the company for many years. With advancements in technology, access to pirated movies is readily available. This problem has caused Netflix a loss of $192 million per month.
• Problems of Password Sharing: Consumers often pool their money together to buy a single Netflix account collectively. With this, they save a lot and are still able to stream content. Initially, the company didn't mind that, as it gave them exposure, and it also encouraged potential users. Still, the company has started looking for solutions for the same to crackdown on this practice.

Final words

Even after above the mentioned difficulties faced by the company, it has created a brand for itself. Netflix has become a staple for a few, and binge-watching content is the new trend. Even during a global pandemic, Netflix's revenue remained intact and even saw an increase of $4,996 million. The hype for Netflix is accurate, and its growth is inevitable. Also, chill without Netflix sounds incomplete, right?