Netflix, Inc.

Date Founded: 1997

Industry: Video Streaming Service and, until 2023, DVD-by-mail

Corporate Headquarters: Los Gatos, California

Type: Public

Netflix, Inc., headquartered in Los Gatos, California, is an entertainment company that distributes video content to customers through a subscription model. It started out as a mail-order DVD rental service, with customers choosing DVDs online and returning them in prepaid mailing envelopes. While the mail-order business would continue for some time, Netflix eventually began offering a video streaming service, bringing customers TV shows and movies on their computers, televisions, and mobile devices via the internet. This became the company's dominant line of business, and it worked to develop original content for the streaming platform in partnership with production companies. These shows and films include Orange is the New Black, House of Cards, Stranger Things, and many other titles.

Netflix was founded in 1997 by Marc Randolph and Reed Hastings, and Hastings continued to serve as its CEO until early 2023, when it was announced that Ted Sarandos and Greg Peters would be serving together as CEO while Hastings transitioned to executive chair. The company went public in 2002.

Over time, the company’s competitors have included Home Box Office, Inc. (HBO), Amazon Prime, Hulu, and Disney+, as well as smaller, newer ventures that continued to enter the field.

History

Netflix began in 1997 as a mail-order service that rented out DVDs on a pay-per-DVD basis. It began renting out DVDs when that technology, soon to replace the VHS format, was in its infancy. Netflix capitalized on the desire of consumers to have more entertainment options and alternatives than they were used to; traditionally, its customers would have to watch shows and movies airing on television, catch films in theaters, and rent videos from retailers such as Blockbuster, LLC. (Blockbuster went out of business in 2013, in part due to competition from Netflix.) When it started, Netflix charged customers a rental fee for each DVD, but the company moved to a subscription model in 1999, allowing unlimited rentals for a monthly fee.

Netflix first introduced its recommendation feature in 2000. This feature made recommendations by analyzing previous choices of the viewer, customers’ ratings of shows and movies, and other factors to help people decide what to watch next. In 2006, Netflix announced a contest for teams to design better technology for suggesting movies to customers. The prize was $1 million, and the winner was chosen in 2009. Because of the enthusiastic response to the first contest, Netflix launched another one that would have used customer demographics to determine what those customers might be interested in watching. Netflix was sued over privacy issues as a result of the contest, and after the Federal Trade Commission cited similar concerns, the contest was canceled.

Since it was more expensive for Netflix to rent out new releases on DVD, the online recommendation feature encouraged people to rent older—and therefore less expensive—movies. This helped Netflix keep costs down in a way that Blockbuster and other video rental stores could not. The company also recommended DVDs that took longer to watch so it would save on packaging and shipping costs.

In 2007, the company began delivering content on demand by streaming video content over the internet. This service was a break from the company’s traditional way of doing business—that is, renting DVDs and Blu-ray discs by mail order. Though many titles in its library were available both online and on disc, others were distributed by only one of the two formats. Shortly after introducing its streaming service, Netflix teamed with companies such as Microsoft, Nintendo, Apple, and others to allow streaming to internet-enabled devices. The company entered the international marketplace starting with Canada in 2010, followed by countries in Latin America and Europe, and it continued to expand to new markets through the middle of the decade.

In July 2011, Netflix decided to separate its DVD rental and streaming businesses, which dramatically raised prices for more than half of its customers. Although customer and investor reaction was negative, CEO Hastings continued the effort, deciding to split Netflix into two companies, with the DVD rental service to be renamed Qwikster. This change forced subscribers to create two different accounts, one for each company. As a result, customers were charged separately for each account. This development caused even more customers to abandon the company, however, and in October 2011, just three months after initiating the separation of the DVD rental and streaming services, Hastings backtracked and kept both distribution models under the Netflix name. However, the two services would be offered separately—subscribing to DVD rentals would no longer automatically provide streaming service, and vice versa.

In 2012, Netflix began producing its own content. Its first show was Lilyhammer, a Norwegian comedy/drama. Several of its original shows and films, including House of Cards, Orange is the New Black, The Square, and Stranger Things, have received nominations for Emmy and Golden Globe Awards.

Netflix undertook a major redesign of its user interface in 2014. The new website layout received mixed reactions from users, but the company continued to grow rapidly, surpassing 50 million subscribers worldwide later that year. It had quickly become a dominant player in the field of subscription-based online video streaming. In 2016, Netflix announced it would be expanding further worldwide, making the service available in nearly every country. Certain markets, most notably China, remained blocked due to regulatory difficulties. Some Netflix content would finally be made available in China in 2017 through a partnership with Chinese video streaming service iQiyi.

In early 2018, Netflix hit a milestone when its market capitalization exceeded $100 billion, making it one of the largest digital media companies in the world. During this time period, the company continued to focus on producing its own original content; notable releases or planned productions included several superhero shows connected to the popular Marvel Cinematic Universe franchise, specials by comedians including Chris Rock and Jerry Seinfeld, and a series of shows featuring former president Barack Obama. However, some critics noted that the growth in original programming was offset by a loss of streaming rights to many films and even the catalogs of several film studios. Netflix also came into conflict with the prestigious Cannes Film Festival over the latter's strict rules regarding theatrical releases and streaming availability; Netflix pulled all of its titles from consideration in the film festival in 2018.

By the end of 2018, Netflix had reached a deal with Paramount in which the studio agreed to produce a certain number of original films for the streaming service; this move marked a departure from other large studios, such as Disney, that were beginning to focus on their own streaming services. Early the next year, in addition to its original film Roma (2018) earning ten Academy Award nominations, including for Best Picture, Netflix received membership in the Motion Picture Association of America. Roma won three awards, including the award for Best Foreign Language Film of the Year. Netflix films earned two Oscars the following year and another seven in 2021.

In 2022, Netflix partnered with Ryan Reynolds and Blake Lively's company Group Effort Initiative to provide behind-the-camera opportunities to those in underrepresented communities, in addition to partnering with the Arab Fund For Arts and Culture's Fund for Creative Equity initiative to provide a one-time $250,000 grant to female producers and directors in Arab countries. After announcing that it was seeing a decline in subscribers, Netflix claimed it would begin cracking down on people who shared their password outside their household and increased the price of Netflix packages. The company also announced plans to create a lower-priced, ad-supported package.

Despite these efforts, Netflix continued to struggle through much of 2022. While it remained the world's leading streaming service, increased competition and declining user satisfaction led to Netflix seeing a drop in subscribers for the first time, losing 1 million subscribers between March and August 2022. At the same time, Netflix original programming continued to garner Oscars attention, with the company securing dozens of nominations in the following years. Another major company change was announced in early 2023, when Netflix released a statement about its plan to cease its DVD-by-mail service entirely by September of that year. According to reports, the cost of this part of the business, in combination with its steady decline in revenue over the years, had warranted its end to allow for a restructuring of resources.

One of Netflix's biggest hits in company history, the limited series Baby Reindeer (2024), became embroiled in controversy in 2024, when Fiona Harvey, the real-life stalker who inspired the series, sued Netflix for $170 million. The series was based on events in the life of writer and actor Richard Gadd, who created and starred in the series. After Harvey was identified as the stalker, she filed the defamation lawsuit, claiming the story was untrue.

Impact

In its early days, Netflix proved to be a powerful disruptor of established video consumption models, helping to virtually wipe out the brick-and-mortar video rental industry with its innovative online platform for mail ordering. It grew popular for offering a far wider range of titles than traditional stores could manage. Later, Netflix executives accurately predicted that online streaming of video content would soon surpass DVD and BluRay technology, and successfully pivoted to focus on this new model. While the company's evolution often met with resistance from established customers, it also helped it bring in new waves of subscribers and proved strategically sound. Netflix’s overall mission of offering subscribers access to films and TV shows at their convenience made it a major player in the digital media landscape of the early twenty-first century.

Netflix's success also brought it considerable cultural influence. The company's online streaming of episodic content, including network TV shows and the company's own original content, fueled a trend in what became known as binge watching. Because each series was released in its entirety at the same time, subscribers could view all episodes in rapid succession, as opposed to waiting until episodes were aired one at a time on a weekly basis. This way of watching not only satisfied many customers, but also provided rapid feedback to the producers. If they found that many people were abandoning a show after a certain episode, for example, producers could analyze detailed data to understand the issues and adapt. In some cases of content made specifically for Netflix, episodes could even be taken offline, edited, and re-uploaded to try and improve the show and boost viewership. The copious and detailed data from consumers’ viewing history and content ratings also proved useful in the development of new content; the company also tends to study characteristics of Emmy- and Academy Award–winning productions to shape the content it produces.

One of Netflix’s major attractions has always been convenience. In allowing customers to stream to a range of devices, including video game consoles such as Sony’s PlayStation 3 and Nintendo’s Wii, the company made it possible for people to stream films to their television sets as well as through laptops.

Bibliography

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