How Netflix Built Its Brand By Doing This…
By Movieguide® Contributor
Today, it almost seems Netflix like it took an obvious path to success, but its rise to the top of the entertainment industry was anything but surefire, as the company focused on emulating its competitors and eventually outperformed them in every way.
When Netflix launched in 1998, it had its eye set on dethroning Blockbuster as the movie distributor of the world. The first way it drew customers was by offering rentals with “no late fees,” a practice that Blockbuster employed to generate most of its revenue – to the chagrin of consumers.
“It was an obvious sore spot,” Reed Hastings, a co-founder of Netflix, told Variety. “People loved renting movies and watching them at home, but the late fee became the symbol of everything painful about the model. So we decided to create something different.”
This gave rise to its subscription model, offering unlimited DVDs at a flat monthly rate. Better yet, because the company did not have to focus on building out physical stores, it could funnel its resources towards strengthening its relationship with the studios and expanding its distribution centers.
Even as Netflix began to rise in popularity, Blockbuster continued to see it as nothing more than a fad, believing its brand would win out in the end. It wasn’t until 2007 that Blockbuster even attempted to compete with the subscription model, launching its Total Access program, which was a major impetus for the company to go bankrupt only three years later after the program cost the company more money than it made.
Meanwhile, Netflix had already moved on from physical media distribution, focusing its efforts on streaming, something Hastings had been dreaming about since the company launched, though the technology running the internet was nearly a decade behind being able to transmit shows and movies.
“When I first met [Hastings], he described Netflix almost exactly like it is right now,” Netflix’s current co-CEO Ted Sarandos said. “He didn’t use the word ‘streaming.’ He called it ‘downloading videos’ then, but he was very clear that he thought all entertainment would come into the home on the internet. And this was at a time when no entertainment came into the home that way.”
Thus, when the technology finally caught up, Netflix cannibalized its DVD service to bring entertainment distribution into a new era. However, the company was not content simply serving as a distributor and set its eyes on a new competitor: cable, specifically HBO. At the time, HBO was the flashiest cable network with multiple shows that were all the rage.
“[Sarandos] really kept us focused on HBO as the target,” Hastings said. “He wanted us to see ourselves as a content network rather than an Amazon-like retailer. Later, he came to regret that slightly, because he said it should have been HBO and CBS. Because we didn’t want it to be just elite programming, we wanted it to be mainstream as well.”
Related: Netflix Won the Streaming Wars. What’s Next?
In the spring of 2011, Netflix would have a chance to prove it was a new competitor in entertainment when it swiped the rights to HOUSE OF CARDS and created its first piece of original content. At the same time, the company also revolutionized how content was released, deciding to release the full season of the show at once, rather than on a weekly schedule like cable.
HOUSE OF CARDS proved to be a massive success, setting the stage for the Netflix that we now know, as the king of entertainment. However, the company has not forgotten its roots, and keeps an eye on its competitors, to ensure they fall to a scrappy up and comer looking to usurp the system like they did.
In the meantime, the company also continues to innovate through programs like its games library, and its forays into live sports. Furthermore, it continues to set the standards for the industry, with trends like ad-tiers, password crackdowns, and a focus on earning of subscriber growth stemming from Netflix.
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