The History of Netflix
A couple of days ago, Reed Hastings, the co-founder and long-time CEO of Netflix, stepped down from his role at the streaming giant.
In the US, renting VHS (Video Home System) tapes was the definition of entertainment. People would just walk into their local video store, peruse the selection, and choose what they wanted to see.
As a result, Blockbuster was the industry leader in the US for renting movies. They had over 9,000 locations and almost $6 billion in sales at their height. Its power was irresistible.
Let’s meet Netflix’s creator, Reed Hastings. Hastings had borrowed a copy of Apollo 13 on VHS. In the meantime, Blockbuster was anxiously monitoring this delay. It assessed a $ 1-day late fee. In reality, Blockbuster made roughly $800 million a year from late fees, which made them very profitable.
You can understand Hastings’ displeasure when he had to pay a $40 late fee. Netflix was created following a brainstorming session with a friend. Even at the start, Randolph’s mother handed them $2,500.
Even with the money they had raised, Netflix was no longer able to establish physical sites and challenge Blockbuster’s market dominance. It appeared to be impossible. They decided that it would be better to mail the DVDs to them. It would have been challenging to mail VHS tapes now. They were large and cumbersome, and sending them would have been expensive.
They had another thought, though—a membership! similar to what we currently pay for Netflix.
A client might rent three DVDs at once from tens of thousands of titles for just $17.99 per month. Additionally, they have unlimited time to keep the rental. No more obnoxious late charges!
It was revolutionary.
After three years of development, Netflix only had 300,000 customers and was losing over $50 million annually. Physical rentals were still available, even though online rentals may have been the “future.”
Therefore, Hastings and Randolph made the following offer to Blockbuster: “Buy us out for $50 million.” You concentrate on the actual stores. And we’ll manage the web company. combine the forces into one. The phrase “the whole is larger than the sum of its parts” will truly apply here.
John Antioco, the CEO of Blockbuster, laughed about it. He didn’t consider the modest Netflix to be a danger to the enormous Blockbuster.
In the meantime, Netflix continued to develop steadily and slowly. In 2002, it went public, and in 2003, it achieved a million subscribers. It was expanding.
Blockbuster required a shift in tactics. One of the most despised things on the earth was its late fees. As a result, Blockbuster Online was born in 2004, and the late fee industry was terminated. Now, it was simple for people to rent DVDs online.
Blockbuster’s Decisions Gone Wrong
The first nail: Blockbuster would have lost millions of dollars in income without the lucrative late fees. It also needed to invest an additional $200 million in the brand-new web business. The media behemoth Viacom, who owned it, decided this wasn’t a good idea and sold its stock.
The second nail was when Blockbuster introduced a program in 2006 that allowed internet subscribers to swap a DVD for free at a Blockbuster location. Its 9,000 stores gave it power. Additionally, 90% of Americans resided within a short drive of these establishments. It, therefore, made sense. And at first, it was successful. Blockbuster gained subscribers away from Netflix.
Needless to say, it was a failure. It was a colossal failure.
The 2008 financial crisis caused Blockbuster’s debt to spiral out of control. As a result, the company was delisted from the New York Stock Exchange and subsequently filed for bankruptcy in 2010.
Blockbuster did poorly. The rest is history, as they say.
The more accurate interpretation of this is that Netflix wasn’t the cause of Blockbuster’s demise. Massive debt and the desire for extremely rapid growth were to blame.
Today, Netflix has become the epitome of keeping up with the changing dynamics of the world and identifying your target audience in the right market.