Netflix Case Study

Founded on an early bet by Hastings and Randolph on the commercial viability of the DVD versus the VHS
- Sharper quality, more compact, less likely to break, etc.
Launched first online rental service in 1998
Overhead on sending DVDs with no returning customers put them in a hole
Moved to a subscription model the next year: one flat fee for unlimited rentals

Netflix offered to sell to Blockbuster as a digital wing of the company
- Blockbuster functions on a physical location/franchise model that wouldn’t allow other models that skipped the in person experience to work
- Local franchises didn’t want to lose their profitability from in person purchases
Netflix couldn’t purchase popular titles in mass due to licensing fees
- Created Cinematch to guide users to similar, lesser known titles that fit their preferences
- Introduced data that could reflect user taste and influence their behavior of viewership
Profitability in 2003 and over 6 million subscribers. by 2006 allowed them to produce over night delivery

Hasting introduced a limited run of 1,000 movies to stream
Popularity led to a split: Quickster for DVD delivery and Netflix for streaming
Split raised cost by 60% and lost 800,000 subscribers in Q1

Netflix functioned on a “re-run” model where original content post theatrical release could be bought a added to streaming for viewers
As Netflix grew in subscribers, Hollywood began to up their licensing fees
Netflix moved more quickly towards original content backed by 10+ years of viewer data with House of Cards, Orange is the New Black and Stranger Things
- Green lit multiple seasons based on forecast rather than running pilots before purchasing
- Binge model of releasing entire season improved engagement across word of mouth and socials
Forecast model gave directors a new Value Chain
- more creative freedom (less constraints with budget or required success across seas)
- less upfront transparency on earnings (data was kept internal and purchase was upfront)

Netflix simultaneously expanded to over 130 countries (totaling 190)
Created Local-for-global model that created foreign properties (Squid Game, Lupin) that were shared with worldwide audiences
- Recommendation algorithm spiked titles like Squid Game (~$900 million worldwide)
Pandemic added over 36 million subscribers and increased content budget to over $18 billion

Audience attention split between streaming (roughly 50%), over air broadcast (20%), cable (~23%) and physical copy viewers (~5%)
Focus became profitability, customer Churn and improvements on average user profits
Live sports remained locked with legacy TV with multi-million dollar deals
Streamers don’t have the bandwidth to stream live sports
~5.1 platforms: average household streaming platforms
Ad supported tiers allowed many to utilize streaming at a more affordable rate (most popular amongst households)

Legacy Studios
- Studios like Sony became ‘arms dealers’ of IP to distributors like Netflix
- PRO:
  - Able to sidestep enormous cost for user acquisition/distribution
  - Can sidestep strikes with flexibility
- CON:
  - Capped profitability on IP
  - eg. K Pop Demonhunters had an initial fee for purchase, but is now a Netflix IP for sequels, merch and any in person experiences
Integrated Content Producers
- Companies like Disney and Amazon that have an integrated system in place that feeds their streaming model
  - Disney has all of its IP, Hulu, ESPN, parks and cruises to name a few that help to create an ecosystem for subscribers to move within
  - Amazon uses Prime as a plus to their eCommerce platform
  - Less pressure for profitability and deeper pockets helps them bid on IP like Sports as an addition to their previous model
Entertainment Platforms
- Youtube and TikTok
  - User Generated platforms that reach profitability through ads or in app purchases

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