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How do you pivot your business to stay relevant?

The story behind the global entertainment giant

In this fast-moving world of technology, a once thriving business model can turn into an outdated and unprofitable one in no time. Adapting is important to stay relevant. Welcome to the captivating journey of how Netflix, once a humble DVD rental service, evolved into the global entertainment giant we know today.

From the days of waiting for red envelopes to the now ubiquitous phrase "Netflix and chill," this is a story of streaming, binge-watching, and the clever maneuvers that made Netflix a household name. Grab your popcorn! We're about to dive into the binge-worthy tale of Netflix's rise to success.

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How do you disrupt the movie rental industry?

We all know Netflix as the leading streaming platform in the US, but some might remember that this wasn’t the business model they started with.

Founded in 1997 by Reed Hastings and Marc Randolph, Netflix began its journey as a disruptor in the movie rental industry. At the time, brick-and-mortar rental stores like Blockbuster dominated the market. Netflix dared to be different by leveraging the power of the internet.

Subscribers could order DVDs online and have them mailed to their homes in recognizable red envelopes. Unlike brick-and-mortar rental stores, DVDs from Netflix could be returned whenever you were finished watching them, without worrying about due dates or annoying late fees. 

People loved this customer-friendly policy, as well as the convenience of ordering online. As Netflix quickly skyrocketed to success, the popularity of traditional movie rental stores started to decline. 

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At its height at the turn of the millennium, Blockbuster had over 9,000 stores with a worth well over $5 billion. In 2000, Netflix offered itself for acquisition by Blockbuster for $50 million, but the latter declined. 

Sales steadily declined after that, and even the launch of Blockbuster Online in 2004 couldn’t help save the business. Blockbuster was already years behind Netflix, and the company eventually filed for bankruptcy in 2010.

Meanwhile, Netflix was struggling to keep up with its growth. In the first years, employees were stuffing hundreds of DVDs in red envelopes by hand each day. However, as the company surpassed 1 million subscribers before 2005, it urgently needed to invest in automation processes.

Netflix continuously maintained an impressive growth rate each year, but Hastings and Randolph saw the writing on the wall. In 2005, one of the first popular video-streaming platforms – YouTube – launched onto the scene. 

The partners agreed they should learn from Blockbuster’s mistakes. Even though their business model still performed at an unbeatable level of success, they wanted to remain ahead of the game. They recognized early on that the future of entertainment was not in physical DVDs; it was in the digital realm.

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How do you pivot your business at the right time?

Netflix researched the shift in consumer behavior and technological advancements early on, understanding that people wanted content on their own terms, instantly and without the hassle of physical rentals.

In 2007, Netflix made a bold move that would reshape the entire industry – it introduced its own streaming platform with videos on demand. This streaming service finally allowed subscribers to watch unlimited movies and TV shows online for a flat monthly fee.

The pivot wasn't without challenges. Traditional studios were skeptical, and many doubted the sustainability of a streaming-only model. However, Netflix persisted, investing heavily in its streaming infrastructure and striking deals with content creators to build an expansive library.

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Netflix's consumer behavior findings were confirmed, as its streaming service instantly captivated audiences who were now able to indulge in their binge-watching tendencies whenever they wanted. The term “Netflix and chill'' first gained popularity among social media communities in 2009, developing various ambiguous meanings in the following years.

The company took 16 years to slowly phase out its DVD rental service, while subscriptions for the streaming service continued to grow. Inside the very last red envelope sent out on September 29th of 2023, was a Blu-ray disc of “True Grit,” a 2010 western film.

The fact that this transition phase wasn’t rushed shows that Netflix pivoted at the right time; long before their original business model started losing steam. But the rat race is never over…

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How do you deal with competition?

As streaming competitors emerged, Netflix next faced the need to differentiate itself. Enter original content. The company took a massive leap by producing its own shows and movies. “House of Cards,” released in 2013, was Netflix's first original series, and its success proved that the streaming giant could compete with traditional networks.

Original content not only attracted new subscribers but also retained existing ones. Iconic series like “Stranger Things,” “The Crown,” and “Narcos” became cultural phenomena, creating a devoted fan base and setting new standards for storytelling.

But Netflix's quest for relevance didn’t stop at its home turf. By providing content in multiple languages, including dubbing and subtitles, and tailoring its library to diverse cultures, Netflix became a truly global entertainment powerhouse.

Popular series like the Spanish “La Casa de Papel” (titled “Money Heist” in the US) and the Korean “Squid Game” are great examples of foreign language titles that most probably wouldn’t have crossed borders without Netflix.

How do you maintain a high-quality user experience?

Netflix hasn't rested on its laurels in terms of technology either. The platform consistently implements innovations, from optimizing streaming quality with adaptive streaming algorithms to introducing features like offline viewing for mobile users.

The company continues to invest in high-quality visuals, including 4K and HDR content, while also exploring interactive storytelling with shows like “Black Mirror: Bandersnatch,” which allows viewers to make decisions that impact the storyline.

One of Netflix's other secret weapons is its data-driven approach. The platform analyzes user data to understand viewing habits, preferences, and behaviors. 

This wealth of data is used to recommend content tailored to individual tastes, enhancing the overall user experience. The more you watch, the better Netflix becomes at suggesting what you might enjoy.

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How do you stay ahead of the curve?

While Netflix remains a dominant force, challenges persist. Competition from other streaming services and the re-entry of traditional media companies remain a huge threat. 

The list of strong competitors keeps getting longer, including Apple TV+, Amazon Prime Video, Hulu, HBO Max, Disney+, Peacock, Paramount+ and more. Besides that, the rise of short-form videos and the ever-changing preferences of viewers have made platforms like TikTok all the rave.

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However, Netflix's ability to adapt and innovate has helped to stay ahead of the curve. The company is doubling down on investments in international markets, experimenting with different content genres, and exploring new technologies like virtual reality.

As of 2022, the Netflix VR App became available for iOS and Android, allowing anyone with a compatible VR headset to play their favorite video games in virtual reality, or convert their favorite Netflix shows into the VR realm.

The company has also announced its plans to explore partnerships with the opportunity to produce and distribute exclusive gaming and VR content that will truly transport viewers into another dimension. Could this be the next pivot that keeps Netflix at the forefront of the entertainment industry?

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