The purpose of this paper is to assess Netflix. Specifically, the paper will examine the video on demand industry, its pros and cons, and the extent by which Netflix works within it. Moreover, the paper will delve into how the company’s profitability has increased since its initial beginnings in 1997. The paper also seeks to highlight the number of subscribers to Netflix against its competitors, and feasibly determine whether the company is truly making money or simply existing. Additionally, the paper will also explore the amount of money being spent on marketing annually and how this is affecting its place within the streaming services industry. It is the ultimate goal of this paper to analyze the company’s nooks and crannies, and construct a microeconomics argument surrounding their continued viability in the VOD arena, and future profitability.
History of Netflix
Netflix (2016) writes that it is a provider of both movies and television shows via a streaming platform, and a DVD by mail service. The company started in Los Gatos, CA in 1997 and has since grown into a streaming programming giant. Founded by Reed Hastings and Marc Randolph, the company in its initial start sought to proverbially weed out the competition through an unconventional model of movie rentals. To this end, the company introduced a subscription model that subsequently, allowed consumers to pay a flat fee to rent movies on a continual basis without any kind of penalties such as shipping and handling, late or due dates (p.1). Essentially, consumers for the first time in the latter part of 1997 were able to take full advantage of something that was unprecedented within the rental industry. At the time, Blockbuster dominated, and consumers were arguably tired of paying substantial fees for lateness, or having to return the movies within a specific time period. As such, Netflix corrected this issue. Netflix (2016) goes on to state that the company began adopting an even more strategic approach through the use of a streaming platform in 2007, which not only allowed it to capitalize on reaching consumers in roughly, more than 190 countries, but also provide consumers with a different concept of movie and television rentals. Presently, the company reaches close to 70 million people, with the majority being within the United States. The company also attracts those that visit the site to observe its product offerings. The company supports multiple platforms and devices including but not limited to: iPods, Android phones, Amazon Kindle, Google TV, TiVO and of course, the traditional DVD and Blu-Ray players. Also, the company weaved itself in the video game rentals as of 2008 and started producing its own programming for subscribers as of 2007 (p.1).
Financial data per Statista (2016) reflects that the company has grown to be worth a total of $6.78 billion as of 2015. One of the key aspects that has made it a dominator within the VOD industry over competitors like Hulu and Amazon Prime is that the company extensively understands the consumer marketplace, and has heavily monitored how consumers watch movies and the rental statistics since its inception (p.1). Furthermore, Auletta (2014) documents that Netflix’s success comes as a result of smart forecasting and actively searching out different and unique ways to grab viewers who were getting tired of the conventional movie rental. The company thoroughly understood and continues to understand how people watch movies and television shows – and the degree to which conventional TV was becoming like VHS – obsolete (p.1). Therefore, Netflix capitalized and has for the most part, kept capitalizing on having this know-how, and taking the movie and VOD industries by storm in the process.
Auletta, K. (2014, February 3). Outside The Box. The New Yorker, Retrieved from http://www.newyorker.com/magazine/2014/02/03/outside-the-box-2
Netflix. (2016). Retrieved from http://ir.netflix.com/
Netflix’s annual revenue from 2002 to 2015 (in million U.S. dollars). (2016). Retrieved from Statista website: http://www.statista.com/statistics/272545/annual-revenue-of-netflix/