How Netflix is making use of the “Long tail” theory to attract new subscribers

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We all know Netflix, but only few know its onerous story it went through to become one of the most known streaming platforms worldwide. Not many people are aware that a few years ago, Netflix was on the verge of bankruptcy as a result of a fierce market competition against its former rival, “Blockbuster”. Looking at the market competition, Netflix as a video-based platform decided to add the option to watch movies online on demand, known as “online streaming,” an option that granted Netflix subscribers unlimited access to the content on the platform. This change not only managed to lower the company’s costs, but was a profitable business move against Blockbuster. Today, Netflix is ​​one of the leading players in the video-art industry, employing 3,500 people and counting over 135 million subscribers worldwide.

Looking at market developments and the entrance of new competitors like Amazon or Hulu, being able to watch movies from home conveniently was not enough to attract new subscribers. Thus, to diversify its services portfolio, Netflix aimed at cable channels, using a variety of content sets to build its subscriber network.

How did Netflix manage to have a steady increase of subscribers from quarter to quarter ?

Among other reasons, I would like to point out one expansion strategy. Netflix’s strategy is based on the rules of the so-called “Long tail” theory, which argues that products with lower market demand or low sales volume may constitute a market share that rival or surpass the bestselling movies and current blockbusters, but only if the movie distribution channel is large enough. The theory developed by Chris Anderson in 2004, which is based on the term “long tail”, which means expanding a company’s product list, focuses on less popular products that have lower demand from subscribers. Anderson argues that these products can increase the profitability of platforms such as Netflix because consumers in recent years have shifted their attention to unusual markets by distancing themselves from ordinary markets.

In the case of Netflix, these “products” are movies and TV shows. In addition to the exclusive rights to TV or movie shows such as “House of Cards” and “Narcos”, Netflix also offers its subscribers relatively unknown movies or TV shows targeting small markets. In the last years, Netflix has launched several differentiated movie formats such as a documentary on the football club “Juventus” or anime movies, to target small markets and build its new subscriber base. This also includes producing TV shows in different languages for different markets. The idea behind this is by expanding the portfolio of products / services they attract new subscribers who are part of these small markets that together form a large marketplace. Offering these less-popular movies (less popular compared to “cash cows” such as Narcos or House of Cards), Netflix covers a group of subscribers who may not find their favourite showcase in the portfolio of products on any other platform. With the merge of many small markets involving less popular movies or series, Netflix managed to create a large community of subscribers making Netflix one of the largest providers of online streaming services in the world

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A passionate fellow of Entrepreneurship and a PhD candidate at VU Amsterdam

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