Netflix Journey From $2.5 M To $148.6 B in 22 Years
Netflix is the worlds fourth- best regarded company after Visa, Ferrari and Infosys and the first in the category of Internet Catalog Retail with a market cap of $157.3B.
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Netflix was founded in 1997 as a $2.5M trifling startup. What people expected from a staff of nearly ten people was nothing bigger than a meager profit. But today's story is different since Netflix has successfully conquered the largest share of the filmed entertainment with a base of more than 7,000 employees and 158 million subscribers. What is more surprising is the fact that Netflix is able to retain its subscriber base despite charging the highest over-the-top (OTT) service rates in the country (almost double the rates of local competitors). People around the world stream 125 million hours of content on Netflix every day.
According to Forbes Report published in September 2019, Netflix is the worlds fourth- best regarded company after Visa, Ferrari and Infosys and the first in the category of Internet Catalog Retail with a market cap of $157.3B.
For any entertainment business, it is difficult to beat the challenges of fast- growing technology, heavy demand, and fluctuating internet traffic. But statistics indicate that Netflix had to come up with dynamic strategies and smart solutions to penetrate the internet market. Forbes stated that Netflix operates its business through domestic streaming, International streaming, and Domestic DVD. It collects content from various content providers through fixed-fee licenses, revenue sharing agreements, and direct purchases. It hosts its service through various channels, including online advertising, television, and radio and various partnerships.
Netflix carried out its journey of experiments and challenges to reach where it is today. Here are some methodologies that worked for Netflix to create a vast niche.
Adoption of Subscriber-based Model
Netflix originated with a modest idea to rent DVDs online. Users would browse and order the films they wanted on their website and Netflix deliver them at their door. The DVDs would be posted back when the renter wished. When Netflix started earning revenue, it took the next step by converting from rent-by-mail DVD service into a subscriber-based model that let subscribers keep the DVDs for as long as they liked but could only rent a new DVD after returning their previous one. So far, Netflix maintains the Subscription model with an added free monthly trial feature in which users can see all the premium content on the app free of cost and can make an experience-based decision for a paid membership.
Netflix has kept away from hosting unnecessary advertisements on the app. This is also how Netflix has pulled most of the traffic from YouTube because viewers prefer uninterrupted entertainment which they cannot find on another medium. In 2020, YouTube’s net advertising US revenues are expected to reach 5.5 billion U.S. dollars which Netflix has forsaken completely in exchange for more subscribers. This smart choice along with the others detailed further has begotten the first position for Netflix in terms of downstream traffic (15% of the world's internet bandwidth) while YouTube being the third.
Stakeholder analysis is a smart business key to know what customers want. We know it but Netflix used it!
A fascinating but true story is that Netflix subscribers in California were telephoned by the company’s staff to give their reviews about the software interface. Later, the real- time experience of those users was analyzed. The search algorithms of Netflix were carved out as per the user needs to enhance their experience.
In 2000, Netflix started a personalized movie recommendation system on the bases of viewers’ ratings to accurately predict choices for all Netflix members. This can be called the turning point for Netflix which raised the subscriber base from 0.29 Million to over 4.18 million during the next 5 years.
In 2011, Netflix launched eleven-minute test footage to gather frame rates and how their streaming service handles different kinds of content. The test film can be searched by typing example show in the search engine.
Netflix knows consumers’ interests and tailors the content it offers to each subscriber based on the data it has about them. Every year, the company spends over $160 million on improving its recommendation system, sorting the shows based on what viewers might like. Netflix devotes considerable time in understanding the search pattern and the types of shows a user likes to watch based on their viewing habits. It uses this information to market similar content to the subscriber later.
A gigantic leap could be traced back to the year 2007 when Netflix launched an on- demand streaming video. During that time, no mass-streaming service existed other than YouTube which led to a sharp rise in Netflix’s annual revenue from 1.37 billion in 2008 to around 15.8 billion in 2018. The number of Netflix subscribers has followed a similar trend, growing from less than 22 million in 2011 to nearly 150 million in 2019.
Originally based in the U.S, Netflix first opted for universal presence in 2010. It launched its services (in chronological order) in Canada, Latin America, and the Caribbean, Nordic Countries, United Kingdom, Ireland, Austria, Belgium, France, Germany, Luxembourg, Switzerland until it reached 50 countries by 2015 and 190 countries by 2017.
But to spread quickly, Netflix had to adopt smart and unique strategies such as securing content deals region by region, and sometimes country by country, language translations for different countries and resolving the issues of national regulatory restrictions related to content availability.
Netflix knows the importance of the mobile market for content. It enabled viewers to watch movies and shows on smartphones by marking its availability on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, few Android phones and other Internet- connected devices. In July 2019, Tesla founder Elon Musk informed Tesla owners they would soon be able to watch Netflix in their cars. As of now, the services only work when the cars are parked. But the feature will be available in newer-model cars with more availability.
Netflix is even optimizing its content for a mobile-only subscription streaming plan in some countries. In India, Netflix has already announced a new mobile plan at INR 199 per month in which members will be able to enjoy Netflix’s content in standard definition (SD) on one phone (or tablet) at a time. This plan, being the cheapest of the existing three plans is expected to raise the subscription figures above 2 million in India.
Creating Fascinating Content
Netflix knows that its subscribers like to binge-watch certain series. It tailors its content according to create the maximum curiosity amongst the subscribers. It makes its own high-quality shows where it designs interesting characters and engaging stories and often breaks the shows into series to maintain viewership.
Another huge benefit for Netflix in creating its own shows is ownership. By creating original content, one can establish the brands credibility and expertise. Some of the most talked-about Netflix shows include Stranger Things which received over 64 million views and Umbrella Academy with approximately 45 million views. As a smart promotion strategy, Netflix screened films in thematically-correct locations for a 2006-2007 publicity tour. For example, Field of Dreams was shown in the “real” Iowa cornfield-slash-baseball diamond featured in the movie. The company also approached actors like Kevin Costner, Bruce Willis, Dennis Quaid to make appearances in its public shows which enhanced its brand image.
Netflix does not irritate its subscribers with app breakdown. The reason being a systematic approach called “Chaos Engineering”. In this model, the software system is tested well in advance during production against its capability to withstand turbulent and unexpected conditions. Netflix particularly started the use of a tool named Chaos Monkey (Apache 2.0 license) in 2012 to test the resilience of its IT infrastructure. It works by disabling one of the three data centers in Netflix's network and redirects the traffic to two other regions to test how they respond to the failure.
The adoption of such effective practices is what has made the app an absolute favorite of users.
Considering the above facts about the Netflix approach to make a strong footing in the streaming business, it seems the company has even more potential to unfold for expanding its audience base. The strategies and business models can become an inspiration for related marketers to help their business grow to greater heights.
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