How Netflix Went From DVD Rental Service to Global Streaming Behemoth
It has been 22 years since Netflix was founded as an online DVD-by-mail company and 12 years since it started offering streaming services to subscribers. It went international less than 10 years ago, initially to neighboring Canada, before expanding in stages to 190 countries today. Its current subscriber count stands at about 151 million, with 60 million subscribers in the US.
That rate of expansion is no small feat, but what’s most impressive about Netflix’s growth is how quickly it shifted from being an Amerocentric company to one offering a global perspective on film and television. By delivering content that crosses cultural borders, Netflix has stayed ahead of the competition. But as the domestic streaming market becomes oversaturated, with Netflix reporting its first major loss of US subscribers in July this year, it’s uncertain what the future holds.
But no matter the challenges ahead, to honor Netflix's 22nd birthday on August 29, here we look back at how the streaming giant blazed a trail and democratized and diversified entertainment for everyone.
An idea ahead of its time
Founded in August 1997 by Reed Hastings and Marc Randolph in Scotts Valley, California, the DVD rental and sales business was modeled after Amazon, then a promising e-commerce site specializing in books. DVDs had only been introduced to the US in March of that year, and Netflix officially launched on April 14, 1998 as the world’s first online DVD rental store, a digitally native Blockbuster of sorts.
Netflix’s early success mirrored the rise in sales of DVD players in the US, but the physical constraints of operating a DVD rental business by post inevitably grew, resulting in the idea of hosting content online. Data speeds and bandwidth limitations made the idea technically difficult, but by the mid-2000s, technology had advanced enough that the development of a “Netflix Player” — a physical box for the home that downloaded movies for users to watch — was well underway.
As the story goes, by December 2007, Netflix was about to launch the device when Hastings decided to cancel the project, fearing it would jeopardize the company's relationship with other hardware makers. According to a source close to the project, as reported by Fast Company in 2013, Hastings thought putting the box out would kill any chance of getting Netflix on devices such as Apple TV. It was a risky move, but one that ultimately focused the company's direction.
YouTube’s incidental influence
Concurrent to the research and development of the Netflix Player was the launch of YouTube in 2005. The video-sharing platform burst onto the scene by delivering streamed videos, often of subpar quality. But that didn’t seem to bother viewers, whose numbers were only growing. Google was also impressed, buying the site in 2006.
Netflix came to realize that users weren’t as concerned with high-quality video as it had thought, and this was a factor in the company's decision to launch online streaming early in 2007 with a library of 1,000 titles under the moniker "Watch Now." Once the decision was taken at the end of the year to scrap the physical device, which had been designed to download high-quality files, Netflix's future as a streaming service was sealed.
Robert Kyncl, chief business officer at YouTube and a former Netflix employee, detailed his experiences during this pivotal period in the book Streampunks: YouTube and the Rebels Remaking Media. The shift undoubtedly cost Netflix a lot of money, but it also changed the course of entertainment history.
Going global
Over the next few years, Netflix’s business grew both through online streaming and DVD mail orders, although streaming soon pulled ahead. In November 2010, The New York Times wrote, “In a matter of months, the movie delivery company Netflix has gone from being the fastest-growing first-class mail customer of the United States Postal Service to the biggest source of streaming web traffic in North America during peak evening hours.”
That same year, it expanded to Canada before a huge launch in 43 countries in Latin America and the Caribbean in 2011. From 2012, it started dripping into European markets, before hitting Australia, New Zealand, and Japan in 2015. At the same time, discussions were initiated with China but later abandoned. By 2016, Netflix had expanded to 130 more countries, making it available virtually worldwide, with the exception of mainland China and regions subject to US sanctions such as North Korea, Syria, and Crimea.
Not everyone saw Netflix's international expansion as a positive, however. In 2016, Russian minister of culture Vladimir Medinsky claimed the service was part of a US government plot to subvert Russian culture and society. Quite what he made of the most recent season of Stranger Things is unknown. But conspiracy or not, today Netflix offers wide-ranging content in 26 languages, with a production target of 100 non-English language series for 2019.
King of content
Original programming is the strongest weapon in the company's armory. Netflix began acquiring original content in 2011, acting as a distributor and/or producer on projects. Its risk-taking approach has resulted in some of the decade's most talked-about television, from House of Cards to Stranger Things.
On a global level, Netflix co-productions with local producers in international markets have changed entertainment for the better. Shows such as Lilyhammer, Dark, and Money Heist have shown that audiences will watch good content regardless of language. This point might seem self-evident to those outside Anglophone countries, but it cannot be underestimated how huge it has been for an American company the size of Netflix to champion foreign-language content and have it consumed domestically.
Importantly, Netflix hasn't tried to "Americanize" its non-American productions to placate audiences back home (something Hollywood has been guilty of). The result has been a more democratic and representative entertainment landscape.
Similarly, Netflix has worked to produce content that holds universal appeal, regardless of origin. This is evidenced by Adam Sandler’s deal with the company. His latest film, Murder Mystery, co-starring Jennifer Aniston, had the biggest opening weekend ever for a Netflix film, drawing nearly 31 million views in its first three days. Perhaps surprisingly, more than half of those views were from international subscribers, showing how the desire for mindless entertainment is not purely an American thing.
Disrupting the status quo
Netflix’s biggest achievement, though, is its disruption of the entertainment industry at large. Put simply, beyond the technical element of watching online, Netflix has changed how we consume TV shows and movies. Whether by ordering shows without pilots, releasing entire seasons at once, or allowing flexible runtimes that don’t adhere to the traditional 30- or 60-minute time blocks, Netflix has increased the freedom of filmmakers, TV producers, and audiences alike.
Netflix's dual distribution of films through streaming and theatrical releases has also changed the game, while its Oscar ambitions have been making progress each year. This year, Alfonso Cuarón’s Roma became the first film predominantly distributed by a streaming service to be nominated for Best Picture. It missed out on the big prize but bagged three wins, for Cuarón as Best Director, Best Foreign Language Film, and Best Cinematography.
The goal of winning Best Picture is ultimately a bid for legitimacy in the eyes of Hollywood, with the company coming in for criticism from purists, including some of the industry's major icons. And that goal might be realized next year with Martin Scorsese’s The Irishman expected to be in the running for the major gongs and Netflix aggressively pushing the film at upcoming festivals in the same way it did with Roma.
But the company's movie ambitions still face headwinds. After Okja premiered at the Cannes Film Festival in 2017, the ensuing controversy resulted in a change to competition rules that banned any film not slated to be screened in French cinemas (Okja and another Netflix film at the festival, The Meyerowitz Stories, were set to go straight to streaming).
But that was only a small setback. Last year, a study revealed that global streaming revenue is set to overtake global theatrical revenue in 2019, with Netflix now well-positioned in both markets.
Dangers ahead
As the scramble to join the streaming market heats up, with Disney and Apple piling in with new services later this year, it has been said that we’re approaching the end of streaming's golden age. If we haven't already hit market saturation, we're about to, and as more content is withdrawn from one service for distribution on another, the existing big beasts — Netflix, Amazon's Prime Video, Hulu (although the latter is Disney-owned) — face destabilization in the face of greater competition, while customers face ponying up for more services or face loss of content.
Netflix’s domestic slowdown this year is offset by the fact its international customers make up the majority of its business. And even domestically, right now Netflix is still the big guy, dwarfing its competitors.
What happens next is uncertain, with some suggesting that bundling different services together would be the most cost-efficient way for consumers to access the best content from different platforms. Netflix has dangers ahead — Apple TV+, Disney+, stalled US user growth, below-expected international growth, a wobbly share price, and debts north of $12 billion — but it's still the biggest streaming service on the planet. Not bad for 22 years' work.
