Netflix, Inc. is an American media-services provider headquartered in Los Gatos, California, founded in 1997 by Reed Hastingsand Marc Randolph in Scotts Valley, California. The company's primary business is its subscription-based streaming OTT service which offers online streaming of a library of films and television programs, including those produced in-house.[9] As of October 2018, Netflix has 137 million total subscribers worldwide, including 58.46 million in the United States.[8] It is available almost worldwide except in mainland China, Syria, North Korea, and Crimea. The company also has offices in the Netherlands, Brazil, India, Japan, and South Korea.[10]
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Netflix's initial business model included DVD sales and rental by mail, but Hastings jettisoned the sales about a year after the company's founding to focus on the DVD rental business.[9][11] Netflix expanded its business in 2007 with the introduction of streaming media while retaining the DVD and Blu-ray rental service. The company expanded internationally in 2010 with streaming available in Canada,[12]followed by Latin America and the Caribbean. Netflix entered the content-production industry in 2012, debuting its first series Lilyhammer.
Netflix has greatly expanded the production and distribution of both film and television series since 2012, and offers a variety of "Netflix Original" content through its online library.[13] By January 2016, Netflix services operated in more than 190 countries.[14] Netflix released an estimated 126 original series and films in 2016, more than any other network or cable channel.[15] Their efforts to produce new content, secure the rights for additional content, and diversity through 190 countries have resulted in the company racking up billions in debt: $21.9 billion as of September 2017, up from $16.8 billion from the previous year.[16] $6.5 billion of this is long-term debt, while the remaining is in long-term obligations.[17] In October 2018, Netflix announced it would raise another $2B in debt to help fund new content.[18]
HISTORY
Establishment
Netflix was founded on August 29, 1997, in Scotts Valley, California, by Marc Randolph[19][20] and Reed Hastings. Randolph worked as a marketing director for Hastings' company, Pure Atria.[21] Randolph was a co-founder of MicroWarehouse, a computer mail order company, and was later employed by Borland International as vice president of marketing. Hastings, a computer scientist and mathematician, sold Pure Atria to Rational Software Corporation in 1997 for $700 million in what was then the richest acquisition in Silicon Valley history. They came up with the idea for Netflix while commuting between their homes in Santa Cruz and Pure Atria's headquarters in Sunnyvale while waiting for government regulators to approve the merger,[22] although Hasting has given several different explanations for how the idea was created.[23]
Hastings invested $2.5 million in startup cash for Netflix.[24][11] Randolph admired the fledgling e-commerce company Amazon and wanted to find a large category of portable items to sell over the Internet using a similar model. They considered and rejected VHS tapes as too expensive to stock and too delicate to ship. When they heard about DVDs, which were first introduced in the United States on March 31, 1997,[25] they tested the concept of selling or renting DVDs by mail, by mailing a compact disc to Hastings' house in Santa Cruz. When the disc arrived intact, they decided to take on the $16 billion home video sales and rental industry.[22] Hastings is often quoted saying that he decided to start Netflix after being fined $40 at a Blockbuster store for being late to return a copy of Apollo 13. But this is an apocryphal story that he and Randolph designed to explain the company's business model and motivation.[22]
Netflix was launched on April 14, 1998, as the world's first online DVD rental store,[22][26] with only 30 employees and 925 titles available, which was almost the entire catalogue of DVDs in print at the time,[27] through the pay-per-rent model with rates and due dates that were similar to its bricks-and-mortar rival, Blockbuster.[28][22]
Membership fee, Blockbuster acquisition offer, growth start
Netflix introduced the monthly subscription concept in September 1999,[29] and then dropped the single-rental model in early 2000. Since that time (see Technical details of Netflix), the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per-title rental fees.[30]
First logo, used from 1997 to 2000
Netflix logo used from 2000 to 2014
In 2000, when Netflix had just about 300,000 subscribers and relied on the U.S. Postal Service for the delivery of their DVDs, they were losing money and offered to be acquired by Blockbuster for $50 million. They proposed that Netflix, which would rename themselves Blockbuster.com, would handle the online business, while Blockbuster should take care of the DVDs, making them less dependent on the U.S. Postal Service. The offer was declined.[31][32]
While they experienced fast growth in early 2001, both the dot-com bubble burst and the September 11 attacks would occur later that year, affecting the company badly and forcing them to lay off two thirds of their 120 employees. But then the sales of DVD players finally took off as they became more affordable, selling for about $200 around Thanksgiving time, becoming one of that year's most popular Christmas gifts. By early 2002, Netflix saw a huge increase in their subscription business.[33][34]
Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5.5 million shares of common stock at the price of US$15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US$6.5 million profit on revenues of US$272 million. In 2005, 35,000 different films were available, and Netflix shipped 1 million DVDs out every day.[35]
Randolph, a dominant producer and board member for Netflix, retired from the company in 2004.[36]
Video on demand introduction, declining DVD sales, global expansion
For some time, the company had considered offering movies online, but it was only in the mid-2000s that data speeds and bandwidth costs had improved sufficiently to allow customers to download movies from the net. The original idea was a "Netflix box" that could download movies overnight, and be ready to watch the next day. By 2005, they had acquired movie rights and designed the box and service, and was ready to go public with it. But after discovering YouTube, and witnessing how popular streaming services were despite the lack of high-definition content, the concept of using a hardware device was scrapped and replaced with a streaming concept instead, a project that was completed in 2007.[37]
Netflix developed and maintains an extensive personalized video-recommendation system based on ratings and reviews by its customers. On October 1, 2006, Netflix offered a $1,000,000 prize to the first developer of a video-recommendation algorithm that could beat its existing algorithm Cinematch, at predicting customer ratings by more than 10%.[38]
In February 2007, the company delivered its billionth DVD,[39] and began to move away from its original core business model of DVDs, by introducing video on demand via the Internet. Netflix grew as DVD sales fell from 2006 to 2011.[40][41]
Another contributing factor for the company's online DVD rental success was that they could offer a much larger selection of movie titles to choose from than Blockbuster's rental outlets. But when they started to offer streaming content for free to its subscribers in 2007, it could offer no more than about 1000 movies and TV-shows, just 1% compared to its more than 100,000 different DVD titles. Yet as the popularity kept growing, the number of titles available for streaming was increasing as well, and had reached 12,000 movies and shows in June 2009. One of the key things about Netflix was that it had a recommendation system known as cinematch, which not only got viewers to remain attached to the service, by creating a switching cost, but it also brought out those movies which were underrated so that customers could view those movies too from their recommendations. This was an attribute that not only benefited Netflix, but also benefited its viewers and those studios which were minor compared to others.[42]
In January 2013, Netflix reported that it had added two million United States customers during the fourth quarter of 2012, with a total of 27.1 million United States streaming customers, and 29.4 million total streaming customers. In addition, revenue was up 8% to $945 million for the same period.[43][44] That number increased to 36.3 million subscribers (29.2 million in the United States) in April 2013.[45] As of September 2013, for that year's third quarter report, Netflix reported its total of global streaming subscribers at 40.4 million (31.2 million in the United States).[46] By the fourth quarter of 2013, Netflix reported 33.1 million United States subscribers.[47] By September 2014, Netflix had subscribers in over 40 countries, with intentions of expanding their services in unreached countries.[48] By October 2018, Netflix's customer base reached 137 million worldwide, confirming its rank as by far the world's biggest online subscription video service.[49]
Early Netflix Original content
Netflix has played a prominent role in independent film distribution. Through its division Red Envelope Entertainment, Netflix licensed and distributed independent films such as Born into Brothels and Sherrybaby. As of late 2006, Red Envelope Entertainment also expanded into producing original content with filmmakers such as John Waters.[50] Netflix closed Red Envelope Entertainment in 2008, in part to avoid competition with its studio partners.[51][52]
Entertainment dominance and presence and continued growth
Netflix has been one of the most successful dot-com ventures. In September 2002, The New York Times reported that, at the time, Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers.[53] The company's published subscriber count increased from one million in the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006, to 14 million in March 2010. Netflix's early growth was fueled by the fast spread of DVD players in households; in 2004, nearly two-thirds of United States homes had a DVD player. Netflix capitalized on the success of the DVD and its rapid expansion into United States homes, integrating the potential of the Internet and e-commerce to provide services and catalogs that bricks-and-mortar retailers could not compete with. Netflix also operates an online affiliate program which has helped to build online sales for DVD rentals as well. The company offers unlimited vacation time for salaried workers and allows employees to take any amount of their paychecks in stock options.[54]
By 2010, Netflix's streaming business had grown so quickly that within months the company had shifted from the fastest-growing customer of the United States Postal Service's first-class service to the largest source of Internet streaming traffic in North America in the evening. In November, it began offering a standalone streaming service separate from DVD rentals.[55] On September 18, 2011, Netflix announced its intentions to rebrand and restructure its DVD home media rental service as an independent subsidiary called Qwikster, separating DVD rental and streaming services.[56][57][58] Andy Rendich, a 12-year Netflix veteran, was to be CEO of Qwikster. Qwikster would carry video games whereas Netflix did not.[59] However, in October 2011, Netflix announced that it would retain its DVD service under the name Netflix and would not, in fact, create Qwikster for that purpose.[60]
In April 2011, Netflix had over 23 million subscribers in the United States and over 26 million worldwide.[61] In July 2011, Netflix changed its prices, charging customers for its mail rental service and streaming service separately. This meant a price increase for customers who wanted to continue receiving both services.[62] On October 24, Netflix announced 800,000 unsubscribers in the United States during Q3 2011, and more losses were expected in Q4 2011. However Netflix's income jumped 63% for Q3 2011.[63][64] Year-long, the total digital revenue for Netflix reached at least $1.5 billion.[65] On January 26, 2012, Netflix added 610,000 subscribers in the United States by the end of the fourth quarter of 2011, totaling 24.4 million United States subscribers for this time period.[66] On October 23, however, Netflix announced an 88% decline in profits for the third quarter of the year.[67]
In April 2012, Netflix filed with the Federal Election Commission (FEC) to form a political action committee (PAC) called FLIXPAC.[68]Politico referred to the PAC, based in Los Gatos, California, as "another political tool with which to aggressively press a pro-intellectual property, anti-video-piracy agenda."[68] The hacktivist group Anonymous called for a boycott of Netflix following the news.[69] Netflix spokesperson Joris Evers indicated that the PAC was not set up to support the Stop Online Piracy Act (SOPA) and the PROTECT IP Act(PIPA), tweeting that the intent was to "engage on issues like net neutrality, bandwidth caps, UBB and VPPA."[70][71]
In February 2013, Netflix announced it would be hosting its own awards ceremony, The Flixies.[72] On March 13, 2013, Netflix announced a Facebook implementation, letting United States subscribers access "Watched by your friends" and "Friends' Favorites" by agreeing.[73] This was not legal until the Video Privacy Protection Act of 1988 was modified in early 2013.[74]
Rebranding and wider international expansion
In April 2014, Netflix approached 50 million global subscribers with a 32.3% video streaming market share in the United States. Netflix operated in 41 countries around the world.[75] In June 2014, Netflix unveiled a global rebranding: a new logo, which uses a modern typeface with the drop shadowing removed, and a new website UI. The change was controversial; some liked the new minimalist design, whereas others felt more comfortable with the old interface.[76] In July 2014, Netflix surpassed 50 million global subscribers, with 36 million of them being in the United States.[77]
At the 2016 Consumer Electronics Show, Netflix announced a major international expansion of its service into 150 additional countries. Netflix promoted that with this expansion, it would now operate in nearly all countries that the company may legally or logistically operate in. A notable exception was China, citing the barriers of operating Internet and media services in the country due to its regulatory climate. Reed Hastings stated that the company was planning to build relationships with local media companies that could serve as partners for distributing its content in the country (with a goal to concentrate primarily on its original content), but stated that they were in no hurry, and could thus take "many years".[78][79][80][81][82][83][84]
Also in January 2016 Netflix announced it would begin blocking virtual private networks, or VPNs.[85] At the same time, Netflix reported 74.8 million subscribers and predicted it would add 6.1 million more by March 2016. Subscription growth has been fueled by its global expansion.[86] By the end of the year, Netflix added a feature to allow customers to download and play select movies and shows while offline.[87]
In February 2017, Netflix signed a music publishing deal with BMG Rights Management, where BMG will oversee rights outside of the United States for music associated with Netflix original content. Netflix continues to handle these tasks in-house in the United States.[88]On April 17, 2017, it was reported that Netflix was nearing 100 million subscribers.[89] On April 25, 2017, Netflix announced that it had reached a licensing deal in China with the Baidu-owned streaming service iQiyi, to allow selected Netflix original content to be distributed in China on the platform.[79] The Los Angeles Times stated:" Its series and movies account for more than a third of all prime-time download Internet traffic in North America."[90]
On August 7, 2017, Netflix acquired Millarworld, the creator-owned publishing company of comic book writer Mark Millar, It is the first ever company acquisition in Netflix's history. Netflix plans to leverage Millar and his current and future work for future original content. Chief content officer Ted Sarandos described Millar as being a "modern-day Stan Lee".[91][92] The following week, Netflix announced that it had entered into an exclusive development deal with Shonda Rhimes.[93]
On January 22, 2018, the company crossed $100 billion in market capitalization, becoming the largest digital media and entertainment company in the world, bigger than every traditional media company except for AT&T, Comcast and Disney[94][95][96] and the 59th largest publicly traded company in the US S&P 500 Index.[97]
On March 2, 2018, Netflix stock price surge to new all-time high of $301.05 beating it 12 month price target of $300.00, and finishing the session with a market capitalization of $130 billion putting it within shouting distance of traditional media giants like Disney ($155 billion) and Comcast ($169 billion). The milestone came a day after British satcaster Sky announced a new agreement with Netflix to integrate Netflix's subscription VOD offering into its pay-TV service. Customers with its high-end Sky Q set-top box and service will be able to see Netflix titles alongside their regular Sky channels.[98]
On August 16, 2018, Netflix announced a three-year overall deal with black-ish creator Kenya Barris. Under the deal, Barris will produce new series exclusively at Netflix, writing and executive producing all projects through his production company, Khalabo Ink Society.[99]
On August 27, 2018, Netflix signed a five-year exclusive overall deal with international bestselling author Harlan Coben. Under the multi-million pact, Netflix will work with Coben to develop 14 existing titles and future projects.[100] On the same day, the company inked an overall deal with Gravity Falls creator Alex Hirsch.[101]
According to Global Internet Phenomena Report Netflix consumes 15% of all Internet bandwidth globally, the most by any single application.[102]
In October 2018, Netflix acquired ABQ Studios, a film and TV production facility with eight sound stages in Albuquerque, New Mexico. The reported purchase price is under $30 million.[103]
In November 2018, Paramount Pictures signed a multi-picture film deal with Netflix as part of Viacom's growth strategy, making Paramount the first major film studio to sign a deal with Netflix.[104] A sequel to Awesomeness Films' To All the Boys I've Loved Before is currently in development at the studio for Netflix.[105]
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