How Netflix Changed the Game
How Netflix Changed the Game
By: Faiyaz Hasan
A few years ago everybody relied on the blockbuster down the lane for their move rentals. Everybody had a Blockbuster card in their wallet and a certain day of the week that they would dedicate to renting a movie. With over 7,000 stores and more than 6,000 public DVD vending machines it was simple to understand why Blockbuster was considered the center of the movie rental industry. They had a 500 million annual cash flow and the company was valued at over 8 billion dollars.
During the same time the postal service was being used by Netflix to distribute DVD’s. Netflix was founded in 1977 and its stock was considered “a worthless piece of crap.” by Wall Street analyst. So how did Netflix become the head of the movie rental entertainment business?
Down to the fundamental aspect of it, the company understood the trend of wanting things instantly, people don’t send letters the send emails, people don’t leave their houses to shop they would rather shop online with a few clicks of a button, the game was changing and people either had to adapt or sink. Netflix developed a strategy of online streaming and easy to use customer system. When news of faster broad brand and better video compression abilities around the corner they knew it was time to capitalize on this change.
Without the burden of retail outlets and operating online Netflix truly created a distribution company on the web. The company realized that streaming videos were the business was moving. Blockbuster was charging 5$ a movie with late fees, so Netflix decided t implement a monthly subscription with no late fees to focus on the customer instead of the money.
At this point Netflix had set a new standard for the market, this stunning success propelled Hastings, who was the mastermind behind Netflix’s business strategies straight to the top of Fortune’s “2010 Businessperson of the Year” award.
So how does this all relate to economics? This shows just how important it is to capitalize on new technology advances that are always emerging, and how much technology can transform a business or industry, Netflix new that it would be very possible to stream movies soon, but they also realized how important the timing of implementing this had to be. Making a change too early could be drastic for the company and could allow bigger companies to capitalize on their ideas.
Fun facts about Netflix:
- Netflix is watched more than any TV network in the U.S.]
- It is estimated that the average user watches around 87 minutes in a day
- Blockbuster turned down many offers to buy Netflix even for as low as 50 million dollars. Netflix is now worth at around 20 billion dollars
- Netflix’s “Instant Streaming” is the single largest contributor to internet traffic accounting for about 1/3 it
- “Breaking Bad” is the most watched show on Netflix (2014)
Sources:
http://www.trefis.com/stock/nflx/articles/146469/the-u-s-netflix-story-evolving-competition-threatens-growth/2012-10-16
http://www.google.com/url?sa=i&rct=j&q=netflix+vs+blockbuster&source=images&cd=&cad=rja&docid=vV9KXbIJjxHLGM&tbnid=BLuQYWsHEODuPM:&ved=0CAUQjRw&url=http%3A%2F%2Fwww.trefis.com%2Fstock%2Fnflx%2Farticles%2F146469%2Fthe-u-s-netflix-story-evolving-competition-threatens-growth%2F2012-10-16&ei=oqMDU_nhGeO0yAHCl4CQDg&bvm=bv.61535280,d.b2I&psig=AFQjCNHFZg8KnobXd1wIahE3wl9LvDsOgQ&ust=1392833820278653
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