Netflix: the business with over $5 billion dollars in profits, 220 million subscribers and history that involved constant innovation.

Their story is one of beating their competitors, becoming dominant and then being under threat from the competition once again but this time whether they will come out on top is less certain.

The story of Netflix began in 1997 as a phenomenon known as ‘the internet’ was sweeping the business world and Reed Hastings and Marc Randolph wanted a piece of the action.

Irked by a late fee from Blockbuster (who would later become their foe) Hastings and Randolph decided to utilise the power of the internet and DVDs to revolutionise video rental.

It worked rather well with Netflix attracting the attention of Jeff Bezos and Amazon who wanted to buy the fledgling business. Netflix resisted the buyout but made a deal with Amazon to ‘share’ customers for DVD rentals and sales although if wasn’t that successful for either party.

Some years later, Netflix decided to move away from rentals and sales for a fixed fee to a subscription-based model that involved no late fees and unlimited DVDs for a flat fee (something they still offer now).

This move was the beginning of the end for their biggest rival Blockbuster as late fees were a large part of their profits and pressure from Netflix and the wider industry led to them being forced to reduce these.

The paradox in all this is that things could’ve been so different. In 2000, Blockbuster was offered the chance to buy Netflix for $50 million but laughed the internet business out of the room. Imagine how different things could’ve been if Blockbuster had gone through with the deal, would either company still exist?

In 2007, Netflix took another innovative step that ultimately set them on the path to becoming the company they are today and having an almost insurmountable lead on the video industry: streaming content.

In the beginning this new service was bundled in with the DVD rentals but as internet speeds improved and Netflix expanded their digital content library as a pioneer in that market they began to make streaming their core product as it became clear that was the future.

Failing to adapt to this market shift, Blockbuster filed for bankruptcy in 2011 leaving Netflix victorious and the dominant brand for a long time.

Since then, Netflix has realised the key to success in the streaming market is to produce original content. Last year Netflix spent $17 billion on producing the content that keeps people hooked including Stranger Things, Squid Game and Wednesday.

Following this success, Netflix has faced a barrage of new competitors including the likes of Amazon Prime Video, Disney+, Discovery Plus, Apple TV+ and HBO.

Although the pandemic brought new subscribers and higher profits for Netflix, the constant external threats from the expansion of the streaming industry has eaten away at its dominant position and market share.

Coupled with Netflix losing subscribers at the end of 2022 for the first time in its history it leaves the once innovative business in a precarious position.

The cost of living crisis, the withdrawal of licenses for external content and influx of competition have all caused shareholders to panic, Netflix’s share price to plummet and for concern about the state of the business to spread like wildfire.

To combat this, Netflix is trying to make its operations more profitable by increasing prices, adding an advert-supported option, cracking down on password sharing and limiting the funding of original content.

Although these decisions are likely to have a positive impact on Netflix’s gross profit margin, they aren’t the best for customers and are eerily similar to the choices Blockbuster made in its final years as it prioritised the financial health of the business over its customers.

Despite this, Netflix is still the biggest player in the streaming market and is likely to remain that way. It has legions of loyal subscribers who eagerly anticipate new content while the company has changed business model multiple times and still remained successful suggesting it can overcome this bump in the road and be victorious in the streaming wars.

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