The Successful Rise of Netflix

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January 2nd, 2014

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The Successful Rise of Netflix

Unless you've been living under a rock for the past few years, chances are good that you've heard of or used Netflix to stream digital content, including television shows and movies. However, you may not know that if it weren't for late fees, Netflix may have never existed. Way back in 1997, when the now-nearly-defunct movie rental stores were a dime a dozen in every town in America, Reed Hastings went to return a VHS copy of "Apollo 13" and was slapped with a hefty late fee of $40. That's when he had the idea to create a movie rental business that operated via mail. Little did he know that in the digital age, the company he founded would turn to gold, becoming a juggernaut in home entertainment and almost single-handedly putting America's video stores out of business.

When Netflix got its start back in 1997, it only offered a snail-mail-based DVD delivery subscription service, and that service is still active today as a supplement to digital content, although subscribers who want to have the newest DVDs delivered to their mailboxes have to pay a small added fee. Customers sign up and put the movies they wish to view in a digital queue with their top preferences first. As the titles become available, the DVDs are shipped out. If a DVD is not available, the next title on the list is sent instead. A prepaid mailer is included with the shipment to return the DVD when the subscriber is finished with it. Once Netflix receives the returned DVD, the company quickly ships out the next selection in the subscriber's queue. By 2009, Netflix had more than a hundred thousand titles in its library, and its subscriber list numbered more than ten million.

In 1999, Netflix added digital distribution to its services, and it began to slowly take off in much the same upward curve that the Internet itself was on. Digitally distributed content has become mainstream in the years since that outrageous late fee was levied on Hastings, and in what can only be seen as poetic justice, many households now use Netflix exclusively for viewing entertainment, forgoing a monthly cable or satellite TV subscription altogether. No one can blame them, since Netflix costs just $7.99 per month, whereas cable and satellite can be well over $100 just for basic service. Netflix can be streamed on TVs, computers, phones, and other devices. Hastings' vision was always to deliver content digitally, which is why he chose the name Netflix when he founded the business.

In 2007, Netflix delivered its one billionth DVD. In 2010, Netflix was the biggest source of evening Internet traffic in North America. By the fall of 2013, this company, spawned from the disillusioned dreams of a movie buff, would count more than 40.4 million subscribers worldwide on its books, with 31.2 million of them in the U.S. alone.

Netflix does have at least one major mistake on its record. In the fall of 2011, the company announced its intentions to separate its DVD rental business from its streaming business by renting the DVDs under the name Qwikster. Customers quickly revolted, angered by the change and the added cost that it would bring with it. Within a little more than thirty days, Netflix had lost more than eight hundred thousand subscribers in the U.S. and quickly reneged on the plan.

Netflix has more and more competition in the digital streaming industry, although none of these competitors have as many first-run rights to the works of major film studios such as MGM, Paramount, and Lions Gate Entertainment as Netflix does. It also has a back catalog of TV programs from NBC, Disney, ABC, 20th Century Fox, and more. Hulu is a major competitor, since it is able to offer many current TV shows the day after they air on their networks. Still, Hulu will be hard-pressed to achieve the subscriber base that Netflix enjoys, mainly because it doesn't have the library of hit movies that Netflix offers.

Netflix is certainly a behemoth to be reckoned with. In the summer of 2013, Netflix stock was up 190 percent from the first of the year. By Christmas Eve of 2013, the stock was trading at $378.20. Netflix is so big now that it has ventured into creating its own content, and that content has been giving traditional television shows a run for their money. The company picked up 14 Emmy nods in 2013 for three of its original series: "Arrested Development," "House of Cards," and "Hemlock Grove." Although its much-heralded women's prison series, "Orange is the New Black," was ineligible for Emmy consideration, it did receive four Writers Guild of America (WGA) Awards nominations and became a fan favorite. Netflix is here to stay, and it's only poised to get bigger.

Tags: Apollo 13