Netflix is a powerhouse of a distributor, having come a long way from the DVD rental service that launched in California in 1997. The service was originally conceived as a postal equivalent of the video store around the corner, allowing users to order movies that would then be delivered to their home via the mail.
However, Netflix was cannier than the bricks-and-mortar stores that shared that initial industry. Watching as the internet penetrated the United States, as services become both faster and more accessible to the public, the company sought to expand.
The internet age offered a new frontier, and Netflix cast themselves as cyberspace pioneers. Initially, the company focused upon streaming as a market secondary to the mail order rental service, allocating roughly one hour of streaming for every dollar spent on mail-order rentals. In January 2008, the company shifted its focus towards the digital side of the industry and allowed its subscribers “all you can eat” access to the virtual buffet.
In the early years of the twenty-first century, the market for physical media collapsed. DVDs had originally invigorated the market, but sales and rentals entered a sharp decline as viewers discovered that they could watch most titles from the comfort of their home without having to buy or rent a disc.
Most of Netflix’s original competitors collapsed under the economic strain. In 2000, Blockbuster Video declined to buy the fledgling Netflix for €50m. In 2010, as Blockbuster Video filed for bankruptcy, Netflix reported annual earnings of over $2bn dollars. The company dominated the market, largely by getting there first. Many other studios and distributors have scrambled to replicate Netflix’s success, from massive internet-era companies like Amazon or Hulu to traditional broadcasters like CBS All Access or Sky Box Sets. Few have managed to keep pace.
Netflix’s revenue and subscriber base have grown dramatically in recent years. The company’s income increased from $996.66m in 2006 to $3.2bn in 2011 to $11.7bn in 2017. The number of users around the world grew from 7.48m in 2007 to 23.53 in 2011 to 93.8m in 2016. The company has built an impressive clout on the global market.
However, Netflix faces challenges to its continued expansion. Most obviously, the success of Netflix as a streaming service demonstrated the viability of this model. While Netflix had originally managed to negotiate favourable terms with major studios to provide content for their streaming experiment, it was quite clear that many content providers would look to break into the streaming market on their own terms, pulling content off Netflix in order to launch their own streaming services.
Disney have announced plans to launch such a service in 2019, with many observers reflecting that this will require “exclusive” content that would most likely be pulled from other platforms including Netflix. Although Netflix is the international distributor for Star Trek: Discovery, it is a cornerstone of CBS’ attempts to launch their own CBS All Access platform. As a result, Netflix has invested heavily in its own content, producing films and television series that cannot be pulled from the service by studios planning to launch their own streaming libraries.
58 CinÉireann / February 2018
International expansion is key to Netflix’s long-term survival
Words: Darren Mooney