Veles
Ira Veles,
editor of Laba
Founded in 1997 as a DVD-by-mail service, Netflix has come a long way to become one of the key players in the global entertainment platform market. By the end of 2022, the platform served over 230 million subscribers worldwide, completely changing the landscape of the film and television industry.
In our article, we tell how Netflix, through risk, innovation and an unwavering vision, irreversibly changed the landscape of modern entertainment.
Early years: 1997-1999
The idea for Netflix came to Reed Hastings and Marc Randolph in 1997. The two founders of the future entertainment giant met at work, namely at Pure Software, where Hastings was a co-founder and Randolph was list of georgia cell phone numbers a marketing specialist. The biggest influence on the creators' new idea at that time was the rapid development of the Internet and the potential of a new technology: DVD. These compact discs provided much higher quality and durability compared to VHS tapes and were small enough to be sent cheaply by mail.
In August 1997, Netflix was founded – a DVD rental service operating by mail. The company was then called Kibble – it was not until 2002 that the name of the future corporation was changed to “Netflix”.
Netflix’s original business model was pay-per-rental . Customers would select movies from the NetFlix.com website and then receive them in the mail. After returning the watched DVDs in the prepaid envelopes provided, customers could order more titles. This model was a clear departure from the traditional video rental stores that were common at the time. The staff at the time numbered about 30 people and the rental store had about 925 titles, almost everything that was available on the market at the time.
Netflix ad, 1998
Netflix's early years were undoubtedly full of challenges. In 1997, the DVD market was still small, and DVD players, relatively expensive and not widely available, were a barrier to entry for potential customers. What's more, competition was fierce. Blockbuster, the dominant video rental company, had a strong presence throughout America thanks to its network of brick-and-mortar stores.
However, Netflix had already used its viewers' propensity to binge-watch as a competitive advantage - while most rental companies at the time required viewers to return rented discs after 24 hours, Netflix allowed viewers to keep discs for up to 7 days.
As a business, Netflix also struggled financially . The high costs associated with purchasing DVDs and maintaining a fast, reliable delivery system were a challenge—in 2000, just three years after its founding, Netflix was still not generating a profit and its cash was depleting at an alarming rate.
However, the company's co-founders did not give up. They believed in their vision of an online service that would offer a more convenient and wider selection of films than traditional rental stores.
In 1998, Jeff Bezos offered Amazon a takeover of Netflix for about $16 million. Fearing competition from Amazon, Randolph initially considered the offer fair, but Hastings, who owned 70% of the company, disagreed.
In his book That Will Never Work, Randolf writes, "Selling the company now would solve all these problems—or at least transfer them to a larger company with deeper pockets. But . . . we felt we were getting very close to something big. It didn't seem like the right time to give up."
Innovations: 1999-2007
The early 2000s were a time of true innovation for Netflix. It not only saved the company from bankruptcy, but also revolutionized the way viewers access and discover movies.
Netflix website, 1999
In 1999, the subscription model was introduced to the market – from that moment on, customers could pay a subscription to rent any number of DVDs, provided that they owned a certain number of discs at that time. This significantly changed the company's business model and allowed Netflix to stand out from the competition. By guaranteeing unlimited rentals without having to pay late fees, shipping costs or fees for renting individual titles, Netflix gave movie lovers the highest value for the price of the subscription.
Compared to the current offer, which allows for unlimited viewing of hundreds of titles for less than $10 per month, the first subscription offer was not as attractively priced. For $15.95 per month, users could enjoy four movies for as long as they wanted. A year later, an unlimited option was introduced for $19.95 per month.
Source: Wikimedia Commons.
Another significant achievement for Netflix during this period was the implementation of the movie recommendation feature . Using a proprietary algorithm called Cinematch, Netflix created personalized recommendations, recommending movies to users based on their previous ratings and viewing history.
This groundbreaking feature, introduced in 2000, revolutionized the user experience by making the process of discovering movies intuitive and enjoyable. To continue improving this technology, in 2006 Netflix launched the Netflix Prize, a competition to find the best recommendation system based on machine learning and data analysis.
Netflix Prize competition website.
The grand prize was a million dollars – it was to be received by the first creator of a video recommendation algorithm that could beat Cinematch in predicting customer ratings by more than 10%. This was no small feat – only three years after the competition was launched, out of over 30 thousand applicants , the prize was awarded to the team "BellKor's Pragmatic Chaos".
But the most groundbreaking change in the company’s trajectory came in 2007, when Netflix abandoned the DVD format in favor of streaming. Recognizing the potential of faster internet speeds, Netflix launched a streaming service that allowed subscribers to watch TV shows and movies instantly on their personal computers.
