Netflix: The New Era of Distribution
In 1997, Netflix opened as a DVD-rental-by-mail company that was struggling to pay the bills and was being smothered by companies such as Blockbuster. In fact, in 2000 Netflix offered to be bought out by Blockbuster for 50 million dollars, but Blockbuster declined the deal. Now, after two decades, Netflix has evolved into a Goliath in the production and distribution industry, as well as a cornerstone of millennial culture, while Blockbuster has become a relic.
According to their respective websites, Netflix has accumulated over 47 million subscribers; compared to Cox, which currently has slightly over 6 million subscribers. Netflix has noticed this dominance over cable companies, explaining on its business website that, “People love TV content, but they don’t love the linear TV experience, where channels present programs only at particular times on non-portable screens with complicated remote controls. Now Internet TV — which is on-demand, personalized, and available on any screen — is replacing the linear TV experience.”
With streaming sites’ ability to see what shows you are watching, they can have the ability to create a custom experience for the consumer and provide them with a multitude of shows they might enjoy that they can view whenever they want to. This is a huge advantage over cable companies, as is pointed out by Firat Demir, an economics professor at the University of Oklahoma.
“It’s a huge marketing tool, now they know who watches what kind of movies and they can differentiate like Facebook does to understand if you are watching more of certain types of movies. And if Amazon gets their hands on that data they can target ads based on that, they probably already do.” Demir said.
This millennial generation has all been known as the “cord-cutters”, a generation of people ending their relationships with cable companies to view their favorite shows online via sites like Netflix, Hulu and Amazon Prime. In 2015 alone, nearly one in five households in the United States ended their cable subscription, according to an article in Fortune. This trend in the decline of traditional cable companies and the rise of online streaming has put the future of cable in question.
“For consumers it is great, and for cable companies it is great too. It is overdue, [cable companies] are over charging consumers already and have been for a long time. They have a duopoly pretty much in the market. In Oklahoma you have Cox and AT&T, both charge the same price very coincidently, and in the United States it’s a known fact we pay the highest price for the lowest speed. Every German gets faster speed for a lower price than we do. And the same goes for cable. So the competition would be great. It would lower their profit margin for sure, but they are already doing to much in the first place,” Demir said.
Netflix played a big role in the evaporation of DVD distribution companies like Blockbuster and Redbox, and it seems cable companies are the next to take a hit. But while Netflix is ushering in a new era of streaming and forcing a change in modern media distribution, it is also creating new competition for itself, as Tyler Graham, a film student at the University of Oklahoma, points out.
“Its impact on the “cord cutter” generation is that it has caused network television to lose viewership. And more and more younger people are no longer buying cable and satellite packages. Ironically this massive media takeover has also caused Netflix to create it’s own rivals. Other streaming services such like Hulu and Amazon Prime are creating their own original content as well, now.” Graham said.
But while Netflix has made new rivals, its old ones in traditional cable companies are still fighting for an advantage. Net neutrality has risen as a recent issue, where Internet providers like AT&T and Cox are fighting for the right to control the speed of Internet provided depending on the sites you are visiting and what you are doing. So essentially, that would give them the ability to seriously hinder the service provided by streaming companies like Netflix and Hulu.
“They are trying to monopolize on their existing market power. If they can control the speed at which customers can reach their sites then they can become a monopoly,” Demir said.
After displaying such dominance in the United States, Netflix’s growth has begun to slow significantly. According to an article from Forbes, Netflix posted “disappointing” second quarter earnings in 2015. Much of this is due to just how large Netflix has grown in the United States; they’re simply running out of new domestic subscribers. So the next step for Netflix is to expand outside of the United States. As stated on their website, Netflix is now available in almost every industrialized country, with China being the only exception for the time being.
Aside from expanding their audience to increase growth, Netflix is also expanding their own production. After building a strategy around providing previously aired movies and shows from television via streaming, Netflix has now begun producing their own movies and shows that are only available exclusively through a Netflix subscription. And many of these shows, such as their Marvel series and hit shows like Stranger Things have received rave reviews. So not only are they putting out their own material, but a lot of it is also really good.
Netflix has ushered in a new era of media distribution. As the VCR era was terminated by the rise of DVDs, Internet streaming has begun to establish itself as the future. And Netflix has put itself firmly at the head of this new broadband arms race. While branching out into their own production and to distribution around the world, they are constantly coming with new was to expand. Few doubt Netflix’s potential as a company anymore, the only question now is just how big they can become.
