How and When Did Netflix Start? A Brief History of the Company
Reading Time: 5 minutesYou probably watch or hear about a Netflix show everyday. Here’s the story of how the streaming juggernaut came to dominate home entertainment.
The top video streaming service, Netflix, started by shipping DVDs to customers by mail. Fast forward a few decades, and Netflix consumes more than 15 percent of the world’s internet bandwidth and has subscribers in more than 190 countries.
How did it achieve such staggering success? It has been a long road of trial and error, luck, and perfect timing. This article covers the history behind Netflix, including how it started, when it became an online streaming service, and all the key milestones in the company’s journey.
The Idea Behind Netflix
Netflix was founded in 1997 by Reed Hastings and Marc Randolph in a small California city called Scotts Valley in Santa Cruz county.
Hastings has said the idea was sparked by a $40 fine he got for renting the movie Apollo 13 from long-dead Blockbuster and returning it six weeks late. While working out at the gym one day, the sting of the fine inspired him to think of a service that allowed one to order a movie online and get it by mail.
According to Marc Randolph, this story is false and was just a marketing gag. Instead, in early 1997, Reed was the CEO of the company they worked for (Pure Atria), and Marc was its VP of Corporate Marketing. Because a looming merger with another firm would leave them both out of a job, Marc says Reed had told him, ‘Let’s come up with an idea and you can run it and I’ll fund it.’
As they carpooled to work every day from their homes in Santa Cruz to Silicon Valley, Marc, who wanted to start something like Amazon, pitched all sorts of e-commerce ideas to Reed: surfboards, custom-built baseball bats, personalized dog food, and home-delivery shampoo. To all of them, Reed’s reply was simply, ‘that will never work.’
Then, Marc heard of a hot new product invented in Japan called the DVD. He realized DVDs would soon replace VHS Cassettes, and after a bit of brainstorming in the car on Highway 17, Reed was sold on the idea.
On a hot summer in 1997, Marc and Reed walked into Logos Books & Records in Santa Cruz, bought a CD of Patsy Cline’s greatest hits, and mailed it to Reed’s house a few blocks across the town. When the CD arrived intact, they knew they had found their ticket to e-commerce glory.
On August 29, 1997, Netflix was registered and set up using at least $1.9 million from Reed Hastings, and other investors later supplemented this capital. Hastings became Chairman with 70% ownership, and Marc Randolph, the CEO and a minority owner.
The Early Days of Netflix
After a few iterations in its first few years, Netflix eventually crafted a successful business model: a subscription-based service with no due dates or late fees and unlimited access to content at $19.95.
It also had a queue that subscribers use to specify the order in which DVDs should be mailed to them and a delivery system that automatically mails out a DVD as soon as the previous DVD is returned.
At first, Netflix would pack the DVDs in white envelopes, and it wasn’t until 2000 that Netflix changed them to yellow envelopes. Afterward, it only took the company one year to switch to the iconic red envelopes we’re more familiar with. The DVDs arrived in a thin package with a postage-paid return sleeve inside, and Netflix covered all postage costs.
The rest, as they say, is history. This formula proved a hit, and Netflix steadily added subscribers. Within five years of launch, Netflix was shipping millions of DVDs daily, and it quickly became one of the best places to rent movies online.
Key Netflix Milestones
As you can see, Netflix didn’t become one of the best streaming services in the world instantly; it took the company a lot of time and effort before it became what it is today. Here are a few milestones that made Netflix the streaming giant we know and love.
August 29, 1997: Netflix is registered in Scotts Valley, California. The service is called Kibble in beta testing, a kind of dog food to remind the team of the old advertising adage that ‘It doesn’t matter how good your dog food advertising campaign is if the dogs won’t eat the dog food.’
April 14, 1998: The website launches as Netflix at 9 am. The video library has approximately 900 titles. Marc orders the movie Casino as a test, and it works. Within 15 minutes, the website crashes as other orders start coming in, forcing them to run to the store to buy more servers. At the end of the first day, they booked 137 orders.
1999: A total of 239,000 subscribers sign up. Netflix’s video library expands to 3,100 titles. After a meeting between Marc and Sony goes bad and growth becomes sluggish, Reed demotes Marc to President and takes over as CEO.
2000: Reed Hastings approaches former Blockbuster CEO John Antioco and asks him to buy Netflix for $50 million. During the meeting, John turns him down and laughs at Reed and the Netflix team.
2001: Netflix hits one million subscribers and continues to grow.
2002: Netflix goes public in May. The IPO raises $82.1 million and values Netflix at $309.7 million. Reed has 500,000 shares, and Marc has 166,000 shares.
Netflix opens regional warehouses, bringing overnight delivery in response to subscriber complaints that it took too long to get their DVDs.
2003: Marc Randolph leaves Netflix and sells his shares.
2006: Netflix finally becomes profitable, generating more than $80 million. Subscribers rise to 6.3 million.
2007: Netflix begins streaming content, delivering directly to TVs, computers, and tablets through its Watch Now service. The first trial is in Canada. The service launches with 1,000 titles and is included free in Netflix’s $5.99 per month physical DVD subscription tier.
2010: Netflix changes its focus to streaming and introduces it to the United States. Reed tells investors, ‘three years ago, we were a DVD by-mail company that offered some streaming. We are now a streaming company which also offers DVD by mail.’
Blockbuster files for bankruptcy.
2011: Netflix splits its streaming business and its DVD rental business into two distinct subscription packages: Netflix for streaming and Qwikster for DVD rentals. Reed reverses the unpopular decision in less than a month after 800,000 subscribers abandon Netflix.
2012: Netflix starts making original shows. Its first show is Lilyhammer, followed by House of Cards in 2013. Since then, it has produced over 1,900 originals (becoming one of the best streaming services for original content), many of which, like Squid Game and The Crown, have gone on to be tremendously popular and won many awards.
2013: Netflix introduces user profiles and rolls this feature out to all Netflix subscribers in August.
2015: Netflix is present in 50 countries.
2016: Netflix goes live in 130 countries simultaneously and adds local languages to its user interface, subtitles, and dubbing.
2017: Netflix officially hits 100 million subscribers worldwide.
2021: Netflix hits 209 million subscribers in over 190 countries. Notable exceptions are North Korea, Syria, China, and Iran. It has more than 15,000 titles across all its international libraries and earns over $25 billion in annual revenues. The company introduces mobile games, allowing users to play games on Netflix.
2022: Netflix loses 200,000 subscribers in the first quarter, the first time in over ten years.
Because of this massive loss, the company starts to think of different ways to gain more subscribers. For example, Netflix starts to crack down on password sharing and introduces its first ad-supported tier called Basic with Ads, which offers almost content at a lower price in exchange for sitting through ads every hour.
The Future of Netflix
According to Dorothy Ghettuba, the head of African Programming, it is no longer necessary to go to Hollywood. With Netflix, one can be a superstar in their backyard and export their content to the world.
Over the years, Netflix has gained competitors, including Disney+, Hulu, Prime Video, and HBO Max. These competitors invest heavily in different ways to entertain their audiences. To stay ahead of the pack, Netflix may have to embrace new emerging technologies and try to keep its content fresh.
Reference: https://www.makeuseof.com/how-when-netflix-start-brief-company-history/
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