Tech Giants: Netflix How Netflix took over the streaming industry

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Part 2 of the Tech Giants series is about Netflix. Netflix started out as a small DVD mail rental service on the verge of being crushed by its competitor, Blockbuster. Nowadays, Netflix is worth 213.2 billion USD, and Blockbuster is bankrupt and out of business. Curious to how these turn of events took place? We’ve got you covered.
Netflix was founded in August 1997 by current CEO Reed Hastings and Marc Randolph in Scotts Valley, California. It begun purely as a DVD-by-Mail rental service, which sent DVDs to customers by post. This was seen as a benefit to people who did not have a video rental store nearby.
After significant growth, Netflix shifted to a subscription model. Subscribers were able to keep DVDs for as long as they liked, however they could only purchase a new movie after returning the existing one. This subscription service meant that Netflix would become a competitor to brick and mortar rental giants such as Blockbuster. In 2000, Reed Hastings contacted Blockbuster about a chance to create a partnership. Blockbuster rejected this deal, oblivious of the potential growth of Netflix, and this would prove to be one of their biggest mistakes in the future. Blockbuster had a chance to purchase Netflix for $50 million, however they passed up on the opportunity, and in 2010, Blockbuster filed for bankruptcy while as of 2020, Netflix has a market cap of $209.74B.
In January 2007, Netflix announced the launch of their video streaming service, and started to move away from their original mail-by-DVD service. This shift meant that Netflix were facing some serious competition, such as Amazon Video, HBO and Hulu. In order to justify their decision and grow into the ultimate alpha streaming service, they needed a big hit. House of Cards was a big budget drama starring Kevin Spacey and directed by David Fincher. This show was a big name amongst the whole of the streaming industry, and every media company declared interest to it. Surprisingly, House of Cards approached Netflix to stream their show, and Co-CEO Ted Serandos thought “Why would they do this show with us? Everyone was bidding on it. We’ve never made or released an original anything.” This move by House of Cards came as a big shock to everyone in the streaming industry as every other company had at least one big name show to boast about, whereas Netflix had nothing. Ted Serandos recalls, “If the show didn’t work, we will have dramatically over-payed for one show. If it did work it could’ve fundamentally changed our business.” In 2013, Netflix payed $100 million to prepare and stream 2 seasons of the show. House of Cards proceeded to be a runaway hit, winning an Emmy award, and receiving praise from the likes of Barack Obama.

After this extremely triumphant marketing gamble, Netflix took off, streaming hugely successful shows such as Orange is the New Black, Bird Box, Stranger Things and Extraction, all in the space of 7 years. However this bid isn’t the only reason why Netflix is the biggest streaming company in the world today. The investment in House of Cards was a big money move, however Ted Sarandos only informed Reed Hastings of this decision after the money had been paid.
This is an example of Netflix’s internal culture of freedom and responsibility. The fact that Ted Sarandos made that big of a decision without running it by his boss shows how much responsibility Netflix give its employees and this freedom is one of the biggest factors to Netflix’s growth. “It was him [Hastings] creating the culture that empowered me to do that... and knowing if I thought that I was going to get fired if it didn’t work, I probably would’ve missed it.” One slightly disturbing value of Netflix’s culture is that they are always looking for someone better to replace their employees, which ultimately leaves any employee at Netflix in constant fear of losing their job. Sure, you get high income from the jobs at Netflix, however you must be perfect at your job otherwise you will be replaced. This can be argued as quite a hostile working environment, but it does push Netflix employees to work as hard as possible and boosts the company’s value and efficiency. This culture ages deep into Netflix’s history, and was shaped by Reed Hastings and his long time head of HR, Patricia McCord. In 2001, Patty and Reed laid off a whole third of the company. “We ran out of money. Reed said, “Today is the day we’re gonna say goodbye to some of you.”” As McCord says, this lay-off begun a high performance culture in Netflix, and the company managed to get twice as much done with two thirds as many people. This lay-off caused the employees to go about their jobs in a different way, not with enjoyment but with fear, and helped boost the efficiency of their employees and the quality of their work. This culture still exists today, and even people at the top of the company like Ted Sarandos still work in fear of getting fired one day.
Netflix’s Artificial intelligence makes ‘binge watching’ possible and activates an addictive tendency in the human brain. For example, if you have watched one episode of a tv show, it automatically starts playing the next one for you. It stores data like how many episodes you watched of a show in one go, and it then recommends more episodes from that show next time you visit Netflix. This strategy proved successful during the coronavirus pandemic, as many people were in lockdown, and because people didn’t have much to do, they watched a whole lot of Netflix. In fact, as of April 2020 Netflix gained 16 million new subscribers.
The timing of Netflix's decision to shift to a streaming service proved to be perfect. If they had made this move in 2002, for example, due to the bandwidth available in most homes at the time, and the poor television technology, you would have never heard of Netflix. The Faang acronym probably would've been Faag.
Netflix’s big marketing gambles, their hostile culture, AI, a little bit of luck in Blockbuster’s decision against buying out the company and the pure timing of their genius shift to streaming have made them into one of the biggest technology superpowers today. Reed Hastings has a net worth of 6.3 billion USD, and Netflix is the go-to streaming service for the large majority of viewers, beating out the likes of Amazon prime video, HBO and Hulu. Also, props to Netflix for their growth, as 'Amazon prime video and chill' just doesn't have the same ring to it.