Name : Monim, Gritje Widya Paulina Student ID : 2024461035
Course : Strategic Management & Global Competition
Weekly Assignment #1
NETFLIX: Thrived during the Great Recession The Early Years
Netflix is a Media Services Provider and production company founded on August 29, 1997, by Reed Hastings and Marc Randolph in Scoots Valley, California. Initially, it operated as a DVD rental service by mail, offering a pay-per-rental model. In April 1998, Netflix launched its website with 925 titles available for rent, still with the traditional rental style where the customer gets to choose the DVD via website and Netflix delivers the DVD by mail. Later in 1999, the company offered the monthly subscription concept to customers. This innovation set Netflix apart from traditional video rental stores and laid the groundwork for its future success.
As a newcomer in the streaming world, Netflix faced one huge competitor company name Blockbuster who was 5 times bigger than Netflix by that time (5 billion / 50 million). Analyzing the massive company power made Netflix founders Reed Hastings and Marc Randolph make an offer of 50 Billion Dollars to sell the company to Blockbuster, the following reason is to merge the company by offering the website service of Blockbuster to be held by Netflix. The offer was declined, which makes Netflix need to survive on its own. Nevertheless, Netflix was more successful than Blockbuster which became an indirect invitation for competitor appearance. To name a few, there was Redbox, a company that offers similar services as Netflix, DVD rental via automated retail kiosks. Yet Netflix still managed to be a leader in its area by officially announcing that it reached 1 million subscribers on its website by 2003. Netflix proved that a small company could handle Huge competitors through endless innovation and impose value on running the company. Nevertheless, the competitor Blockbuster couldn’t handle adapting from DVD rental to streaming which was driven to a collapse by the year 2010.
From DVD rental Mail Service to Online Streaming Service
2007, Netflix announced its groundbreaking decision to launch a streaming service, positioning itself as the first major company to offer such a service in the market. This strategic move marked a significant departure from its original DVD-by-mail business model and was pivotal in aligning Netflix with the burgeoning trend of digital consumption. This innovation set the stage for Netflix’s eventual dominance in the streaming industry. In the same year, Netflix celebrated a major milestone by delivering its billionth DVD. This achievement underscored the company’s success in the DVD rental market even as it began transitioning towards video on demand via internet streaming services. The introduction of streaming allowed Netflix to offer instant access to a vast library of content, further enhancing its appeal to consumers.
However, the transition was not without challenges. In 2008, Netflix experienced a significant database corruption incident, which underscored the need for a more robust and scalable infrastructure. This event prompted the company to migrate its entire database to Amazon Web Services (AWS). The migration process was extensive and complex, taking nearly eight years to complete. By January 2016, Netflix had successfully transitioned to AWS, ensuring greater reliability and scalability for its streaming service. This period of transformation was crucial for Netflix, as it not only adapted to the changing technological landscape but also laid the foundation for its future growth and innovation in the streaming industry.
Resilience During Recession
During the 2008 recession, Netflix’s affordable subscription model proved to be a strategic advantage, enabling the company to thrive as consumers sought cost-effective entertainment options. The economic downturn led many households to cut back on discretionary spending, and Netflix’s low-cost, unlimited rental service became an attractive alternative to more expensive entertainment choices. This period saw Netflix focusing intensively on enhancing its streaming service, which was gaining traction as a convenient, at-home entertainment solution. The company’s ability to offer a vast library of content accessible from the comfort of one’s home resonated well with consumers during these challenging times.
Netflix is proof to choose an excellent strategy by looking at its output on how the company survived during the Great Recession. Analyzed how Netflix was able to survive during the Great Recession according to Potters, there is 3 points that explain the resilience of Netflix.
1. Being Different
During the 2008 recession, Netflix primarily operated as a DVD-by-mail service, a model that significantly differentiated it from traditional video rental stores like Blockbuster. Unlike its competitors, Netflix offered a subscription-based service that eliminated late fees, a common frustration for customers of traditional rental stores. Additionally, Netflix provided a vast selection of titles, far exceeding the limited inventory typically found in physical rental locations. This unique value proposition was particularly appealing to cost-conscious consumers seeking affordable and convenient entertainment options during the economic downturn. By addressing the pain points associated with traditional video rentals and leveraging the growing trend of online services, Netflix was able to attract and retain a substantial customer base, positioning itself for future growth and innovation in the entertainment industry.
2. Making Trade-off
Netflix made a series of strategic trade-offs that were pivotal to its success, particularly during the economic downturn of 2008. By concentrating its efforts on the DVD-by-mail service and deliberately choosing not to invest in physical retail locations, Netflix was able to maintain a lean operational model. This decision significantly reduced overhead costs associated with maintaining and staffing brick-and-mortar stores. The savings accrued from this streamlined approach were then passed on to customers in the form of lower subscription fees, which was especially appealing during a period when consumers were highly sensitive to price. This cost- effective strategy not only enhanced customer satisfaction by providing affordable entertainment options but also allowed Netflix to allocate resources toward improving its service and expanding its library of titles. Consequently, Netflix's focus on operational efficiency and customer value during the recession not only ensured its survival but also laid the groundwork for its future growth and dominance in the home entertainment industry.
3. Creating “Fit”
Netflix’s business model was meticulously designed to align its operational capabilities with the evolving needs of its customers, creating a harmonious fit that proved resilient even during challenging economic periods. The cornerstone of this model was its subscription-based service, which offered a cost-effective and predictable pricing structure that appealed to budget-conscious consumers. This was complemented by a highly intuitive and user-friendly website, which simplified the process of browsing and selecting from a vast library of titles. Additionally, Netflix's efficient delivery system ensured that DVDs arrived promptly, minimizing wait times and enhancing customer satisfaction. This seamless integration of affordability, convenience, and reliability fostered a loyal customer base, as users appreciated the consistent and high-quality service. By prioritizing customer experience and operational efficiency, Netflix was able to maintain strong subscriber growth and retention, even in the face of economic adversity, thereby solidifying its position as a leader in the home entertainment industry.
Global Dominance and Innovation
By 2010, Netflix had successfully expanded its streaming service internationally, beginning with Canada. This marked the company’s first foray into the global market, setting the stage for its future international growth. The expansion was a testament to Netflix’s resilience and strategic foresight, positioning the company well to navigate future challenges and capitalize on emerging opportunities in the global entertainment landscape. In 2011, Netflix made a bold and controversial decision to split its DVD and streaming services into two separate entities, with the streaming service retaining the Netflix name and the DVD service rebranded as Qwikster. This move was intended to streamline operations and focus more on the burgeoning streaming market. However, the decision was met with significant customer backlash, leading to a reversal of the split shortly thereafter. Despite this setback, Netflix’s subscriber base continued to grow, reaching 25 million by 2012.
Recognizing the importance of differentiation in an increasingly competitive market, Netflix began investing heavily in original content. In 2013, the company launched its first original series, House of Cards.
This strategic shift towards producing exclusive content was a game-changer, helping Netflix attract and retain subscribers by offering unique programming that could not be found elsewhere. The success of House of Cards paved the way for a slew of other original productions, solidifying Netflix’s reputation as a leading content creator and further distinguishing it from its competitors. This period of innovation and strategic growth not only helped Netflix navigate the economic challenges of the recession but also laid the foundation for its future dominance in the streaming industry. By continuously adapting to market conditions and consumer preferences, Netflix demonstrated its ability to remain agile and forward-thinking, ensuring its continued success in a rapidly evolving digital landscape.
Netflix continued its global expansion, reaching over 190 countries by 2016. The company invested heavily in original content, producing critically acclaimed series and films that garnered numerous awards.
Netflix also introduced features like offline viewing and interactive content, further enhancing the user experience. By 2019, Netflix had over 150 million subscribers worldwide, solidifying its position as a leader in the streaming industry. The COVID-19 pandemic in 2020 led to a surge in streaming as people stayed home, boosting Netflix’s subscriber base. However, the company faced increasing competition from new entrants like Disney+, HBO Max, and Apple TV+. In response, Netflix continued to innovate, investing in diverse content and exploring new technologies like gaming. Despite the challenges, Netflix remains a dominant player in the entertainment industry, constantly evolving to meet the changing demands of its
global audience. Netflix had been succeeded through ups and downs by adjusting to technological advancement and market demand.
Sources :
1. The Netflix Effect Posted on Dec 1, 2002 12:00 PM by Jeffrey M. O'Brien (The Netflix Effect | WIRED)
2. Brody, Richard; Cashill, Robert; Feltenstein, George; Fiuzzi, Lorenzo; Harris, Lauren Carroll;
Hudson, David; Humphrey, Olivia; Iordanova, Dina; Lobato, Ramon; Lotz, Amanda; Masino, Jeffery; McIntosh, David; Turell , Jonathan; and Wilentz, David, From Disc to Stream: A Critical Symposium on the Changing World of Home Video, Cinéaste, Cineaste Publishers, Inc. Winter 2017, Vol. 43, No. 1 (Winter 2017), pp. 30-40.
3. Lobato, Ramon, Netflix Nations Book Subtitle: The Geography of Digital Distribution Book, NYU Press. (2019).
4. Top 10 Netflix Competitors & Alternatives Posted on May 11, 2023 by Daniel Pereira (Top 10 Netflix Competitors & Alternatives (2024) (businessmodelanalyst.com)).
5. CEO Reed Hastings on how Netflix beat Blockbuster Posted on Sep 8, 2020 by Reed Hastings (CEO Reed Hastings on how Netflix beat Blockbuster - Marketplace).
6. Broe, Dennis, Post Corona Film and Television: Stream It, Skip It, or Revolutionize It?, Framework:
The Journal of Cinema and Media, Fall 2020, Vol. 61, No. 2 (Fall 2020), pp. 202-216.
