24 Apr NETFLIX OWNS BINGE-WATCHING
From its roots as a DVD-by-mail service to the number one streaming service in the world, Netflix’s primary goal has always been to reduce friction in accessing entertainment. When Reed Hastings and Marc Randolph founded Netflix in 1997, DVDs were never their endgame. Rather, they saw an opportunity to utilize the emerging internet to decentralize entertainment and pry it from the jaws of Big Cable. Realizing that this ambition was decades away from reaching actualization, Netflix would for now focus on gaining a foothold in an intensely competitive industry by becoming the best home entertainment distributor on the market. Part of this strategy was to implement a subscription model, which was the key to much of Netflix’s early growth and what set the company up to transition seamlessly into the streaming platform and proprietor of binge-watching that it is today.
During its first 10 years of business, Netflix enjoyed consistent growth in terms of revenue and number of subscribers. However, the company as a whole was operating at an overall loss, to the tune of $4.5M in Q1 of 2002 alone. While this would have spooked most founders, Hastings and Randolph had unwavering faith in their vision of what Netflix could one day become. So rather than pull back the reins, they decided to double down on user experience by integrating an algorithm called Cinematch that gave customers personalized recommendations for movies based on their viewing history. This was the first utilization of technology that helped differentiate Netflix’s platform and kept its growing subscriber base eager for their next at-home movie night. A few years later, Hastings and Randolph’s patience and perseverance finally paid off; Netflix had become profitable. By the end of 2006, 6.3M subscribers were generating more than $80M in profits, giving the company an impressive 7-year CAGR of 79%.
In 2007, binge-watching officially entered the building when Netflix launched its streaming service, Watch Now, which held thousands of titles that subscribers could watch on demand. However, there was still one major problem: the current streaming technology left much to be desired in the areas of speed and quality. Once again undeterred, Netflix’s bold founders invested a hefty $40M in the development of technology that would allow subscribers to stream content just as, if not more, quickly and crisply as if they had rented a physical DVD. At the time, competitors were skeptical that the concept of streaming would even work – let alone grow to eclipse DVDs – and were therefore unwilling to invest time and money to rival Netflix’s business model. But Hastings and Randolph had been waiting for this moment for a decade, and they capitalized on the white space by developing the best streaming technology, the largest library of titles, and the biggest subscriber base. Between 2007 and 2011, Netflix increased its number of subscribers by a whopping 283%, from 6M to 23M.
Once Netflix had cemented its place as the go-to streaming service, it shifted its focus to original content creation, beginning with the critically acclaimed political drama, House of Cards. The show and foray into original content production marked a crucial turning point in Netflix’s impressive cycle of growth as a company. The more popular content Netflix churned out, the more subscribers it attracted. More subscribers equaled more revenue, and more revenue meant more funding for original content production. Netflix quickly became a household name synonymous with binge-watching thanks to its innovative release strategy where entire seasons of its original shows were made available all at once, thereby transforming the way people consumed television.
Netflix’s transformation into one of the largest home entertainment companies in the world in less than 20 years is nothing short of remarkable. From the start, Netflix has consistently innovated verticals that industry experts had previously deemed technologically impossible and financially impractical. Were it not for founders Hastings and Randolph’s audacious (and at times even foolhardy) perseverance and forward thinking, the company would likely be resting in a grave alongside BlockBuster, rather than growing to own the category of binge-watching worldwide.