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Netflix's Evolution and Business Model

Blockbuster Video was once a billion dollar company with over 6,000 stores and 16% of its revenue coming from late fees. One customer's $40 late fee inspired him to start Netflix. Netflix began in 1997 as a DVD rental subscription service. In 2004, Blockbuster launched its own DVD mail service but struggled with supply chain issues. By 2007, Netflix faced growing competition from Blockbuster and other retailers using Netflix's business model as a "loss leader." Netflix responded by launching online streaming services and developing its recommendation algorithm. This helped Netflix grow over 10,000% between 2007-2018 while Blockbuster filed for bankruptcy. Netflix now faces new competition from Disney+, HBO Max, Amazon Prime, and others.

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Manu Manvi
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134 views10 pages

Netflix's Evolution and Business Model

Blockbuster Video was once a billion dollar company with over 6,000 stores and 16% of its revenue coming from late fees. One customer's $40 late fee inspired him to start Netflix. Netflix began in 1997 as a DVD rental subscription service. In 2004, Blockbuster launched its own DVD mail service but struggled with supply chain issues. By 2007, Netflix faced growing competition from Blockbuster and other retailers using Netflix's business model as a "loss leader." Netflix responded by launching online streaming services and developing its recommendation algorithm. This helped Netflix grow over 10,000% between 2007-2018 while Blockbuster filed for bankruptcy. Netflix now faces new competition from Disney+, HBO Max, Amazon Prime, and others.

Uploaded by

Manu Manvi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Evolution Of Netflix

Presented by
M Srimanvitha
19831A05C9
III CSE C
Blockbuster Video

• Back then, Blockbuster video was an American-based company which


provide movie rental services and had several physical stores across US
• It was a billion Dollar Company with more than 6000 stores in US
• It had a revenue of 3.91 billion dollars
• Interestingly 16% of revenue came from Late fees
• One of the customers late fee was $40 and this has led to start a
company of his own
Netflix
• In the year 1997, Reed Hastings laid a
foundation to establish Netflix.
• Netflix started as a subscription based DVD in-
mail service.
• One just need to pay the monthly subscription
fee.
• While the blockbuster made millions of dollars
in terms of late fees, Netflix used this same
undesirable attribute to build a million dollar
company
• By 2004, Netflix had a revenue of 500M dollars
Competition
• In 2004,blockbuster realized the success of Netflix and
started their own DVD mail service.
• And it has added more than 2.1 million subscribers in
the 1st year.
• Since 90% of customers were at accessible distance
from a blockbuster store, they could have delivered
DVD’s within 2 hours while the same would take 2-3
days for Netflix but Blockbuster didn’t use it supply
chain well.
• By the year 2007 Netflix lost 55,000 subscribers
compared to previous quarter,while blockbuster’s
subscriber base continued its growth.
Dip in Market price
• In 2007,Jp Morgan analyst Barton Corckett put out a statement saying
Netflix with more than 6.8 million subscribers, faces competition from
Blockbuster that is much tougher than originally expected.
• After this, the shares of Netflix dropped more than 5%.

Threat Analysis
• 2 Major Threats
• Blockbuster entered the DVD mail Service
• Identified a hidden competitor who is eating away profits of Netflix and
Blockbuster
Loss Leader Pricing Model
• Sell low cost-low margin product at a low
price to bait the customers to buy high cost-
high margin products.
• Walmart is giving away the DVD’s at a very
low price to entice the customers to come to
Walmart store and exposing them to buy
expensive products like play stations.
• So, Netflix’s core business was Walmart’s
bait.
Reactive Strategy by Netflix
• In 2007, Netflix ventured in online
streaming.
• Invested heavily into Data Analytics to build
a formidable personal recommendation
algorithm and used internet to distribute
content instantly and cost effectively.
• And blockbuster filed bankruptcy(200M +
200M dollars loss).
From 2007-2018 (gave out a return
of more than 10,000%)
Present competitors for Netflix
• Again after 14 years, Netflix is facing huge competitions.
• Disney and HBO
• Netflix doesn’t want to rely only on the others content, so back in 2011 it
entered its third orbit.
• Netflix created its own web series named “House of Cards”.
• The only income source for Netflix is its customer’s subscription fees.
• Amazon Prime
• Loss leader pricing model.
THANK YOU

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