The Rise And Fall Of Netflix

For the first time in over a decade, Netflix has lost 200,000 U.S. subscribers and expects to lose more. This would be shocking news if it weren’t for recent decisions by the steaming giant’s executives. The rise and fall of Netflix is a story of trendsetting domination to a single-day 35% plummet in stock value. 

To fix this, Netflix has proposed cracking down on password sharers and introducing ads. 

Are they sure they wanna do that? Netflix was once the cool kid for not having commercials. It even relied on password sharers in order to grow. 

What was once the future of media consumption has begun its inevitable downfall. The pioneer for streaming services has plummeted across the board. How did this happen? How could a company go from underdog to trendsetter to failure in just 20 years? 

This is another business tale of cheer and woe: the rise and fall of Netflix.

The Birth of DVDs

Netflix was founded in 1997 by Marc Randolph and Reed Hastings as an online DVD rental service. Hastings loves to say he was inspired to start Netflix after being charged $40 in late fees at his local Blockbuster. 

“I had a big late fee for Apollo 13. It was six weeks late and I owed the video store $40. I had misplaced the cassette. It was all my fault.”

It’s a cute, relatable story, right? Well, it’s not true. It’s totally fabricated for marketing. Co-founder Randolph clarified in an interview:

“The founding stories are just that, they’re stories. They’re constructs that we come up with to take what’s a very messy process with input from many, many people and condense it into a story which you can get across in a sentence or two.”

Also known as an “elevator pitch,” the story of a company’s founding works as a sales pitch. Everyone loves a story, and Hastings told a good one. 

The real story of how Netflix was founded was much like every other tech company’s story in the late 90s. 

Hastings’s software company, Pure Atria, had just been sold for $700 million – a Silicon Valley record. Randolph worked as a marketing director for Pure Atria. The two came up with the idea for Netflix while carpooling between each other’s homes. 

Randolph admired Amazon’s large catalog of items to sell over the internet. Hastings and Randolph wanted to take that model and apply it to movies. VHS tapes were too easily damaged to sustain an online delivery service, but the brand new DVDs proved to handle travel well. 

And so, Netflix launched in 1998 with 30 employees and 925 titles available for rent. The races were off. 

The Death of Blockbuster

You can’t talk about the rise and fall of Netflix without mentioning Blockbuster. Despite being direct competitors, very different and specific business decisions led to Blockbuster’s eventual downfall that cannot be attributed to Netflix’s success. 

Still, it’s hard not to imagine Netflix being the company that “killed” Blockbuster. 

In 2001, DVD players were the hot holiday gift item. Netflix was in a position to be the cool alternative to Blockbuster as DVD subscription services were growing like crazy. But Blockbuster was still the king of movie rentals. It was an event for friends and families to visit Blockbuster on a Friday evening to rent the hot new flick or a timeless classic. 

But there was one thing that everyone equally hated about Blockbuster: Late fees. 

Netflix, despite totally having late fees at the start of their business, jumped on this with glee:

Being the sexy alternative to Blockbuster helped give rise to Netflix. Eventually, due to poor leadership and the Great Recession in 2008, Blockbuster eventually declined. Today, only a single store remains open in Oregon. 

Netflix continued to grow. By 2005, Netflix had 35,000 different films available and shipped 1 million DVDs in a single day. 

But that wasn’t all for Netflix. They were about to completely upend the movie industry. 

How To Binge An Entire Series In One Weekend

In 2007, Netflix launched its streaming media service. They had 1000 films available for stream and 70,000 available on DVD. With TiVO being the current “cool kid” in movie/television consumption, the original idea was to build a “Netflix box” where one could download movies overnight. 

The success of YouTube, however, nixed that idea. People didn’t want to download content, they wanted to stream it. 

Soon, Netflix acquired the streaming rights to series like The Office, Futurama, Friends, Breaking Bad, and many more. Viewers quickly latched onto this method like content junkies ready to fight sleep in order to watch “just one more episode.” 

Before you knew it, Netflix was inspiring other streaming services like Hulu. Their viewership grew and grew as regular cable viewership dipped. Networks like FOX, CBS, and NBC soon began to openly tease their own streaming services. Why should Netflix get viewers for NBC shows? 

With big networks in the rearview mirror, there was only one logical step forward for Netflix: original content. 

Netflix is the New HBO

In 2013, Netflix jumped into the world of original content. When House of Cards, Hemlock Grove, and Orange is the New Black first aired it harkened back to the Golden Age of HBO with The Sopranos, Sex and the City, and Six Feet Under. 

Netflix ran with original content as fast as they could. A deal with Marvel brought about Luke Cage, Jessica Jones, and Daredevil to the home screen. Comedies like BoJack Horseman, Unbreakable Kimmy Schmidt, Master of None, and Grace and Frankie expanded Netflix’s audience even further. 

By the time the blockbuster series Stranger Things premiered in 2016 to great success and acclaim, Netflix was the premier network. Everyone had a Netflix. And if you didn’t, why the hell not? 

Netflix was acquiring so much content at such a high rate that it soon became a joke amongst certain crowds that Netflix would buy anything. 

Exclusive, multi-million dollar stand up specials with comedy legends like Dave Chappelle, Louis C.K., Chris Rock, Jim Gaffigan, Bill Burr, Hannah Gadsby, Ali Wong, Jerry Seinfeld, and more garnered even more viewership. 

With a continuous stream of high-quality content, the desire for prestige soon followed. 

Here Come The Awards

Now that you have all the viewers in the world, you need the awards to cement their status as a major player in entertainment. Netflix didn’t want popular soap dramas to gobble up audiences, they wanted those shiny awards. 

Starting in 2019, Netflix began to dominate awards shows. Films like Roma, The Irishman, Marriage Story, Mank, The Trial of the Chicago 7, Don’t Look Up, The Power of the Dog, Ma Rainey’s Black Bottom, The Two Popes, 13th, Icarus, My Octopus Teacher, and many more were bestowed Oscar nominations and wins. 

Netflix also dominated television. Starting in 2014 with Emmy wins for shows like House of Cards and Orange is the New Black began to rack up for the streaming service. Uzo Aduba and Claire Foy famously won Emmys for their performances in Netflix original series. 

Nothing like a whole bunch of awards to cement your status as the king of content. When you’ve made it this far, why stop? 

Too Much and Never Enough

If you were to scroll through Netflix’s massive library of content, you might find yourself a little overwhelmed. There is so much original and licensed content, with more being added and subtracted every month, that you can never run out of something to watch. 

But all of that content means very little can succeed from within. Peter Csathy, founder of media advisory firm Creativ Media, summed it up nicely:

“Netflix is voraciously gobbling up movies and television shows across all genres, making it a seller’s market. 

“The main negative for creators and content owners in working with Netflix is that there is so much new original content that is featured by Netflix, it is increasingly difficult to break out and find an audience on Netflix.

“Without a deep marketing commitment on the part of Netflix, those movies and television shows face the cold reality that they become lost in the content shuffle.” 

If you were to have an original show idea, the smart thing to do used to be to take it to Netflix. Chances are, they were going to buy at least one season from you right off the bat. But if success isn’t guaranteed (and it never is in entertainment), you’re going to start exploring your options. 

HBO, still one of the best networks for a creative series or film to take off, knows this. Casey Bloys, HBO president of programming, uses this very specific metaphor to explain how they give shows the necessary attention they need: 

“If you have 50 kids, you’re not going to every soccer game. We go to every soccer game, and we’re the snack parents at every soccer game.”

HBO CEO Richard Pleper follows up:

“More is not better. Only better is better.” 

HBO continues to dominate its reputation as a source of seriously high-quality content. 

What Is Netflix’s Future?

Netflix will surely bounce back from this recent setback. Its stock will rise again, and subscribers may return. But their reputation as the future of media is no longer. The company went from thinking ahead to throwing all the money at anything. 

Throwing everying at the wall to see what sticks is a necessary strategy for any company looking to grow. But that strategy has a limit. Netflix appears to be throwing more and more and more at the wall and letting all of it stick. 

Who asked for video games on Netflix? That’s an odd medium for the company to step into. $30 million per episode of Stranger Things? Settle down, that’s way too much. 

Currently, Netflix has three price tiers: $10, $15.50, and $20. No competitor costs more than $15/month. They may raise their prices once again. But as Disney+, Paramount+, Peacock, Hulu, and HBOMax snag a sizeable share of the market, Netflix is looking like they’re playing catch up. 

Suddenly, Netflix’s future looks a little more like this: