Today I am going to share with you successful story of How Netflix Multiplied Its value by 500x so this article is going some this useful for Netflix lovers. Welcome to success story the most useful podcast in the world I’m your host Michael the success story podcast is part of the hub spot podcast network. The hub spot podcast network has incredible podcasts like the martech podcast hosted by Benjamin Shapiro each week the martech podcast tells stories of world-class marketers who use technology to create lasting success with their business and their careers if you like any of these topics you’re gonna like the martech podcast how science is changing advertising how to set up a Crm so you actually use it private equities take on digital transformation .
Why big social is focused on newsletters
If these are topics that resonate with you go check out the martech podcast wherever you get your podcast or you can also listen at hubspot.com podcast network so today I’m going to walk you through a case study the story of Netflix how they started and eventually disrupted cable television how they disrupted the movie industry how they disrupted blockbuster. How they became the largest entertainment company in the world this is the story of linnet their growth strategy their initial concepts from DVD subscriptions all the way through to you becoming the streaming king of the world this is a business case study this is Netflix’s growth story [Music] so case study how Netflix multiplied its value by 500x.
So our story today dates back to 1997 beginning with the failure of the highly popular blockbuster so for those who are too young to remember blockbuster was a movie rental service with a physical store they had physical stores full of DVDs all over the u.s Canada north America the American tradition i say general weekend tradition was you rent a movie on Friday night you watch it with your family Friday or Saturday night you bring it back on Monday back in 1997 blockbuster and i think there’s only one blockbuster left in the world now but blockbuster was a billion dollar company with more than six thousand stores in the us alone having revenue of 391 billion dollars but the problem was that 16 percent of their revenue came from late fees which was annoying millions of its customers this was part of their business model that was a huge portion of the revenue not just renting the movies but counting on people to screw up one of the customers.
One blockbuster customer got fined in excess of 40 in late fees this annoyed him so much that he went on to start his own company that man was none other than reed Hastings and the company that he founded is what we know as Netflix today but Netflix didn’t always start out as the subscription service you turn on your TV you see a whole bunch of uh bespoke made for Netflix movies and TV shows no it started off much different so let’s first understand how Netflix started off it was very smart reed and uh mark Randolph those are the two co-founders they were very smart in how they exploited the most undesirable attribute of their competition.
Netflix started subscription based DVD mail service
Netflix has launched a DVD mail service that is based on a subscription model. So, when Netflix first launched in 1997, it was a subscription-based DVD in mail service, which meant that instead of going to Blockbuster, you could order a DVD online, make a list of DVDs you wanted to watch, and send it to Netflix, who would send the DVD within 2 or 3 days. When you return the dvd that you requested they would send you the next one on the list all of this was being offered at an affordable subscription fee without any late fees at all so they were doubling down on the worst part of in-store movie rentals that blockbuster was offering between 2000 and 2003 way before they had this streaming service the company still enjoyed consistent growth netflix went public in may 2002 again way before the streaming service with initial share price of 15.
The corporation is worth $228.60 billion based on its market capitalization. Netflix is keeping steady from GOBankingRates’ latest estimate of $225.79 billion in 2020, despite competition and slowing member growth. Netflix were over six million subscribers in 2006, 7 year which annual compound growth rate of 79. They had finally been profitable in 2006, with over 80 million dollars in profits, but they have never got more comfortable with their successes. So by 2007 netflix introduced its online streaming service which was the first iteration of what we know today as the netflix that we all know and love they called it watch now the service was truly radical for the time many people thought the company was crazy and keep in mind they were public they had shareholders to answer to they had a board of directors they had a lot of people that were watching them they were not a startup when they introduced streaming they were profitable they were doing well but they were not happy with being comfortable with their success remember .
What Is Netflix Worth?
Netflix Share Price, YTD range $485.81 – $586.34
Netflix Market Cap, YTD range $228.60 – $233.78 billion
Revenue (last 12 months) $27.585 billion
Profit (last 12 months) $11.666 billion
Income (2nd quarter 2021) $7.342 billion
Outstanding shares 433.1 million
What Is Netflix Worth Now?
Total Assets $41 billion
Total Liabilities $27.1 billion
Netflix’s goal was to reduce friction and accessing entertainment this was always their vision and every thing that they did aligned with their vision this is a great lesson for founders too if you don’t have that vision if you don’t have that north star that you’re going towards then a lot of people would have just been happy with the success that Netflix had when they were just getting DVDs to customers they were reducing friction to accessing entertainment that way but they wanted to take it a step further.As such, first and foremost, Netflix simplified and managed to improve its DVD-by-mail service through faster delivery, more distribution centers, and fee elimination. This was the first way they wanted to reduce tension and access to entertainment. Of course, they already did this by eliminating any sort of late fees, but they decided to double down on it. But here’s the thing Netflix was hitting some big numbers and even though they were hitting big numbers they were doing very well in the DVD rental business they knew that it wouldn’t last they knew they had to do something different as an entrepreneur if you get comfortable with a single business success that is going to be your death that’s going to be your downfall most companies fail to evolve they fail to adapt to a changing business dynamic and environment they’ve been forced out of the market they get disrupted.
So think about blockbuster blackberry Nokia think about what uber did the cabs think about what airbnb did the hotels if you do not disrupt if you are not future proofing if you are not forward thinking you are going to get disrupted. As such Netflix entered the video streaming market early to future-proof their business; they wanted to be the disruptors, not the disrupted, so by making this shift, they can now provide subscribers with instant access to thousands of titles that they can binge watch on any device, while cable companies were more concerned with traditional business models and quarterly revenue targets, Blockbuster was doing nothing; it was just business as usual.
Needless to say, if Netflix wanted to remove barriers to entertainment and allow anyone to stream movies online, the technology that makes their perspective a truth was non-existent. As a result, in 2007, the company took a huge risk and invested more than $40 million in developing new streaming technologies it’s mind-boggling to think that they invested 40 million when they were doing 80 million in revenue per year because there was literally no consumer demand for what they were offering a lot of people thought the idea wouldn’t work however since most most people didn’t believe in the tech they didn’t believe in the concept there was no competition for streaming it’s not like there is today with all these different streaming companies or all these different mainstream networks trying to get into streaming this was 2007.
So by the time everyone else finally caught on and some people are still just catching on now in 2021 Netflix was way ahead of them so the company doubled down invested 40 million dollars they had the best streaming tech the most extensive list of titles because they already were doing this for x many years before they had the largest subscriber base in 2008Netflix rebranded its DVD rental business, spreading its streaming and rental businesses, and changing them all into subscription packages one week after debuting the watch on all mac and apple platforms. By 2011, Netflix had rebranded its DVD rental business, spreading its streaming and rental businesses, and shifting them all into monthly plans and that’s really where that hockey stick growth just took off so from 2013 you can quite honestly say Netflix began to conquer the world or at least the streaming world With its high-profile political drama House of Cards, the company jumped headfirst into original programming, and they’re already dominating the streaming market now that they’re doing original programming. That was a huge hit, and it marked a turning point in Netflix’s growth since they dropped DVDs, retail DVDs, and subscription DVDs, and began pouring all of their resource base into subscription streaming, along with the technology underpinning it.
These were all major risks all major risks this was a publicly traded company this could have blown up in their face but after they really figured out their streaming and then they started going into original titles and those hit home and those really resonated that’s when they really like their growth was exponential and at this point nobody could keep up from 2016 on wards Netflix received numerous awards and accolades including 54 nominations at the 68th prime time emmy awards and everything else is history they simon simultaneously went live in 130 countries their feature films also became increasingly ambitious and attracted some of Hollywood’s finest screenwriters directors actors in 2017 Netflix subscribers had surpassed the total number of cable subscribers in the united states and with this Netflix essential effectively became the largest the world’s leading provider of entertainment.
So what are some key takeaways from their incredible growth their incredible success story well number one identify your key growth metric and stick with it it’s no secret that most new businesses fail some fail because they take too many risks at once others fail because they don’t aim high enough or take any risks at all as a business person as an entrepreneur it is essential to identify a massive potential market that you can grow into and test and iterate and try things so that you can exploit as much out of that potential market as possible you can get the most out of that potential market because the first way you tackle that market may not be the most successful way so you have to try and test and iterate but you have to know what that key growth metric is so for example so for facebook a social media giant they have billions of users but they still care about users engagement and still try and figure out new ways to maximize user engagement that is their key growth metric google still interested in the number of searches carried out.
Every single month even though like who would ever say that there’s a competitor for google right now but they still care about the number of searches conducted every single month despite being one of the largest tech companies in the world they still know what their metric is and netflix their key metric was how many movies a user watched they knew that if they could figure out how many movies a user watched and they could find ways to get a user to watch more movies they would be successful so that is reducing friction to access entertainment getting a user to watch more movies that was their growth metric and everything they did revolved around that metric.
How Does the Future Look for Netflix?
While Netflix is currently meeting — and slightly exceeding — projections, the company’s share price is under pressure. Shareholders are concerned about Netflix’s future ability to monetize content and how competing streaming services could take market share from the leader. This may be one of the causes of the downward trend of the stock. According to Netflix’s shareholder report and Nielsen figures, TV share time is distributed as follows:
Prime Video: 2%
Other streaming: 8%
They also made some obvious moves and you can make obvious moves so obvious moves don’t necessarily have to be dumb so by 2007 it was obvious that the DVD rental market was facing a decline it was an obvious move to look for a way to attract new customers while retaining existing ones it was an obvious move to move away from If Hastings had listened to the naysayers who believed that streaming videos were nothing more than a craze, there would have been no Netflix, and someone else would have taken their place.
So focus on obvious moves pay attention to your market pay attention to your customers their habits because they are going to tell you where they want to go and if you don’t listen to them again you will be disrupted last thing was focus on quality this is so obvious but it’s i just have to reiterate throughout the history of Netflix everything they did was high quality you have to understand that this allowed them to achieve that north star metric that key KPI that key growth metric from getting DVDs to customers faster to developing new streaming technologies by investing 40 million dollars in technology for a market that at the time didn’t exist the quality of the Netflix experience and the quality of the content was always at the forefront they never ever sacrificed any sort of quality this has helped them build not only a large subscriber base.
But a loyal audience of fans quality doesn’t necessarily mean just spending more money on your product how’s your customer support how’s your on boarding process improving the customer’s experience should be one of your cornerstones for your company just in case customers just do not see things through your own eyes, be fast to listen to them, and adapt accordingly, and those three points, of course, they’ve already been mentioned had tons of different strategies over the years that have helped them be successful but those three things has really helped Netflix get from where they started to where they are today that is the story of Netflix and that is why they are so successful.