Netflix: the story behind one of the most successful media startups of all time
Netflix was founded in August 1997, when Reed Hastings decided to invest 2.5 million dollars of his earnings from the sale of his programming company Pure Software in order to create an online film pay-per-rental service. Netflix’s website launched in April 1998 with a workforce of 30 people and in its early stages Hastings’ company looked exactly like a traditional film rental store.
Today Netflix is a whole different company. The evolution of the internet made them to focus almost exclusively on online streaming. As of 2018, Netflix is available in nearly every country in the world and has changed the way millions of consumers access video media.
Netflix’s business model is relatively simple for an entertainment company of that success. In every phase of its operation Netflix has been appealing to a mass-market. Initially they targeted to take customers away from video rental stores, but since 2007 their target base includes everyone in the world with a high-speed connection.
Value propositions are another important piece in Netflix’s successful run. In their early years operating as a postal-rental company their relied on convenience, affordability and a decent range of films. Since online streaming took off, in the last ten years, their value propositions have slightly changed. Netflix’s platform is one of the most established and reliable web-streaming online media platforms in the world with a wide selection of video content and an extremely competitive pricing without advertisements for their subscribers. These features have helped Netflix to build its status as a media company of pioneering and well-funded developers.
Netflix’s main channel to reach their customers has always been their website. Nowadays, subscribers stream video directly from their website or their mobile app. TV boxes provide another option for the consumers to watch Netflix’s media content. The company maintains its relationships with its customers on a monthly subscription fee basis. Its self-service and easy to use online platform helps to give the users a better experience.
The company’s key activities have shifted from mail-order processing to focus on developing online video player software, content licensing and original content development. Netflix’s original key resources were its massive inventory of DVD ’s and efficient mail-order processing capabilities. Today its key resource have switched to the rights it owns to stream virtual content. They have made deals with more content producers than their rivals and they have been operating a user-friendly and reliable online platform. Its original content also provides another very lucrative capital resource for Netflix’s company. Furthermore, content providers have always been key partners as their entire business model is dependent on third-party video content. The company have negotiated deals with studios all over the world to obtain rights for streaming the content they offer. As streaming has taken over, internet service providers form also some key distribution partners.
Netflix’s cost structure is cost-driven. Their biggest expenditure is paying for the rights to stream third-party content. Their business is based on selling cheap streaming content to a mass market. Of course, the popularity of the platform have helped them to negotiate more favorable licensing deals than its competitors. Another key expenditure is the salaries of its 3,700 employees which work for the company.
Since its very early stages, Netflix’s main revenue source has been the monthly subscription fee its users pay. When they were still primarily a mail-order rental company, they made some additional revenue form advertising on the DVD envelopes they would post out, but today this is no longer a revenue stream.
This is the business model of Netflix, one of the most profitable media enterprises in the world right now. A small online film pay-per-rental service that began its work in 1997 has managed to transform into the most popular online media platform with subscribers all around the globe.
