By Will Roth
Corporate Headquarters
100 Winchester Circle, Los Gatos, CA 95032
(408) 540-3700
www.netflix.com
History
Netflix was founded in 1997 by software executives Reed Hastings and Marc Randolph. Two years later, the company offered its subscription service of unlimited DVD rentals for a monthly fee. Since its inception, Netflix has grown exponentially in terms of consumer popularity and financial revenue. Today, over 40 million subscribers consume roughly 1 billion hours of content per month through the company. [1]
Key Executive
Reed Hastings co-founded Netflix in 1997 and has served as its Chairman, CEO, and President since. Prior to this, he founded Pure Software, which he then sold to Rational Software. Following a stint in the Peace Corps during college wherein he taught high school math in Swaziland, he has served as the president of the California State Board of Education and remains a member of the California Teachers’ Association. [2] [3]
Financials
Netflix made its initial public offering on May 22, 2002 with 5,500,000 shares at $15.00 each. [4] As of November 15, 2013 one share sat at $349.78. The company’s all-time high was $389.16. However, it hasn’t always been a steadily increasing stock market commodity. On November 30, 2011 its price fell to $62.37. This came after the company’s decision to separate its DVD rental and streaming services. After watching the stock fall, company executives decided to abort the plan. Its stock recovered quickly and has climbed even higher than it was before the proposed change. [5]
Innovation
Netflix is a company that always seems to be ahead of the curve. After amassing 6.3 million members as a strictly DVD rental service, it launched its online streaming service in 2007. [4] After hovering around $20 per stock for years, this development started the company skyrocketing, topping out at roughly $290. This promptly fell after the announcement of Qwikster, which was the proposed streaming-only branch of Netflix. While this was a failure, it was innovative nonetheless.
Click here to watch a BloombergTV feature on Qwikster.
Netflix has rebuilt its popularity and image largely through original content.
House of Cards was the first heavily advertised piece of original content from Netflix. “A Congressman works with his equally conniving wife to exact revenge on the people who betrayed him. [6]” The entire 13 episode first season was released at once so that viewers could “binge watch” it. Many analysts questioned whether this was a good business decision, theorizing that viewers wouldn’t remain hooked long enough for Netflix to prosper financially. [7] The numbers proved those doubters wrong. In the financial quarter following the show’s debut, Netflix gained 3 million new subscribers. In that quarter alone, the company made back its money on the program in which it had invested $100 million. [8] The show received 9 Emmy nominations and won for Outstanding Casting, Directing, and Cinematography in a Drama Series. [9]
Netflix also found success in its debut of the fourth season of the cult hit Arrested Development. Executives attributed the bump of 630,000 new subscribers in the second quarter of 2013 to the show’s dedicated fan base.
[10] The season earned three Emmy nominations.
[11]In addition to original content, Netflix has been innovative in customizing the user experience. In 2006, the company announced the “Netflix Prize,” which would award $1 million to the person or team who came up with the best algorithm to accurately give entertainment recommendations based on personal preference. Three years later, they had received submissions from more than 40,000 teams from 186 countries.
[4] The prize was awarded in 2009, but the company never implemented the algorithm. According to Netflix, the “additional accuracy gains that we measured did not seem to justify the engineering effort needed to bring them into a production environment.
[12]“
Also in the vein of user experience, Netflix recently added the option of multiple profiles to its streaming service. Chief Product Officer Neil Hunt acknowledged that most accounts are shared, usually within one household. In an effort to tailor recommendations to each user specifically, customers can now specify who is watching. The service is free of charge and will also help Netflix in collected more accurate user data.
[13]Competition
One might assume that Netflix is a competitor with cable providers. CEO Reed Hastings has a different view. In a
letter to investors, he outlined his company’s main areas of focus moving forward, breaking down its competition into two categories. The first is “competitors-for-time,” meaning entertainment options that do not bid against Netflix. While markets may not overlap between Netflix and video game providers, sports networks, and piracy, all of those options eat up consumer time that could be spent watching Netflix. The other category is “competitors-for-content.” The largest competitor here is HBO. Hastings discloses that the companies have bid against each other for movie licensing and original content in the past, and that they seem to be pushing each other to be better consumer-oriented services. Hastings also lists Amazon, Hulu and others as competitors-for-content. At the same time, he believes that there will be enough room for everyone. “Many consumers will subscribe to multiple services if they each have unique compelling content.
[14]On The Horizon
Netflix plans to build upon its success with original content. It has renewed each of its original shows for second seasons, and has expressed desire to make another season of
Arrested Development as well. “[We would] be delighted to produce a fifth season of
Arrested Development, if possible, given fan reaction.” The company also plans to produce its own full-length documentaries and comedy specials and stream them exclusively.
[15]There is also speculation that Netflix is pushing for day-and-date movie releases, meaning that it could begin streaming a film the same day it premieres in theaters. Though Netflix has not confirmed this, theater owners are wary that the development could put them out of business. Ted Sarandos, Netflix’s Chief Content Officer, accused theaters of refusing to adapt, saying “not only are they going to kill theaters — they might kill movies.” Currently, theaters have a 90 day exclusivity deal, wherein films cannot be shown anywhere else for three months. But recent studies state that theaters make 96% of total revenue from a film’s first six weeks. At the very least, we can expect Netflix to cut the amount of time between theatrical releases to streaming down to between 30-45 days. This would spell greater profits for both Netflix and movie studios while only trimming 4% of theaters’ revenue.
[16] At the very least, we can expect an innovator like Netflix to be on the forefront of the entertainment business in the years to come.
Sources
[1] About Netflix
[2] About Reed Hastings
[3] Reed Hastings Profile – Bloomberg Businessweek
[4] Netflix Company Timeline
[5] Nasdaq
[6] House of Cards imdb
[7] Variety Binge Watching
[8] The Atlantic Wire
[9] Emmys – House of Cards
[10] Huffington Post Tech
[11] Emmys – Arrested Development
[12] Forbes
[13] The Verge
[14] Letter to Investors
[15] Tech Crunch
[16] Variety
