Technological advances in the last two decades have revolutionized the consumption of entertainment media. During the late 1990’s and early 2000’s, DVDs were the newest and most viable medium for storing digital data. Netflix burst onto the scene in 1998 as the world’s first online retailer to lease DVDs through the USPS. Original attributes of their initial service included a rental period of up to a week, same-day shipping in America, an interface for theatre reservations, discounts on checking out several discs at once and access to over 2,600 movie titles. By 1999, Netflix established mutually beneficial partnerships with various companies in an effort to grow their business and customer base. DVD hardware manufacturers such as Apple, HP, Toshiba, Sony and Pioneer are examples of firms that collaborated with Netflix in the past. Recent purchasers of DVD players or personal computers supplied with DVD-ROM drives were offered the chance to win free movie rentals from the Netflix website for a limited time. Netflix also partnered with All-Movie Guide to complement their database of movie information and reviews with the option for visitors to rent titles in the same window, eliminating the inconvenience of searching elsewhere.
Soon after its entry into the DVD rental market, Netflix decided to differentiate themselves further from rival competitor Blockbuster and introduced a subscription program in September 1999. Subscribers were given a flat monthly rate and could check out as many movies as they pleased but could only possess three movies at a time. Netflix paid for shipping and handling costs both ways and allowed users to make a list of their top choices for future leases. Additionally, recommendations were furnished by the company to users based on their rental history. One of the most significant aspects of Netflix’s subscription service was the absence of fees imposed on the customer for late returns. Netflix’s change in strategy ultimately shifted the responsibility to the subscriber because they were unable to receive their next choices until they returned the titles in their possession. The success of the subscription plan prompted the company to discontinue the single rental model in early 2000. Netflix’s commitment to affordability, convenience and superior software integration helped the firm gain market share as well as the upper hand on traditional brick and mortar retailers with outdated prices, limited selections, average service and excessive charges for late returns.
Reed Hastings background in computer science and prior experience in Silicon Valley was essential for the evolution of Netflix’s business model and strategy. As technology continued to grow, the methods for media consumption followed suit. Hastings and his executives understood this change would shake up the industry and capitalized on its imminence. Around the mid 2000’s, the development of broadband and video compression made streaming content online a reality. Thirty percent of American households obtained broadband in 2005. Hastings spent years developing a proprietary “Netflix” box that would download movies directly to the device. However, Hastings soon decided that an open source format would be more applicable and less limiting going forward. This decision came about after YouTube became wildly popular in 2005 and indicated a major shift in consumer tastes and preferences. Although they were losing money in the early 2000’s due to an insufficient number of subscriptions to support their scale of operations, and were even offered to be bought out by Blockbuster, Hastings expertise helped the company absorb losses and bide their time until change was on the horizon. The streaming subscription was launched in 2007.
Netflix continued to experience losses through the late 2000’s into the beginning of the next decade as they weathered the transition of millions of customers who wanted to replace their DVD subscription with the streaming option. United States’ Copyright law allowed Netflix to rent DVDs out to consumers as inventory following a one-time purchase. This made popular content easily accessible because all movies were generally around the same price point. Even if Netflix had to pay a little more, it was a difference of a few dollars or so per unit depending on the release date and public reaction. Licensing popular content with its owners was not as straightforward. More often than not, Netflix was never in a position to bargain because studios had no incentive to give them a cheaper deal. In essence, Netflix was stuck in between a rock and a hard place. It would be disadvantageous for the company to invest in acquiring content that no one would watch just because it was cheaper in comparison. Simultaneously, it would be just as dangerous to spend the majority of their budget on a few shows because their diversification of risk would become quite small. This conundrum was the catalyst for Netflix to create original programming starting in 2013. Providing subscribers with a combination of licensed and original content gives the company balance and offsets the challenge of reaching reasonable agreements with big name studios.
Other strategic changes pertain to the packaging of services. Netflix separated their DVD rental service from the streaming service in 2011 into a subsidiary named Qwikster. As of 2018, Netflix offers three different variations of the streaming service. Their basic plan includes allows streaming in standard definition on one device per time with the ability to download content on one device. The standard plan allows streaming in high definition on two devices at a time with the ability to download content on two devices. The premium plan allows streaming in all formats up to ultra-high definition on four devices at a time with the ability to download content on four devices. The DVD by mail subscription has retained the same characteristics but has fluctuated in price over the years.
Hasting’s is an exceptional example of what it means to be a transformational leader. Confidence in his vision for the future was a major source of inspiration for his employees. Working towards goals that are not easily accomplished and anticipating changes in consumer needs teaches employees to be proactive and think outside of the box. Netflix’s culture, although unconventional, seems to be more effective when compared to normal corporate practices. Hasting makes the fewest amount of decisions possible to give his employee’s more control and responsibility. Hiring the most professional adults equips his employees with extreme flexibility and virtually zero restraints. This freedom strengthens the reciprocity between Netflix and its’ workforce because people feel the need to put forth their best effort in exchange for the numerous benefits received. House of Cards, arguably one of the best original programs on Netflix to date, was approved by Hastings for production in a matter of half an hour. This is one of the best pieces of evidence that validates the overall effectiveness of the company’s culture.