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Why The Netflix Business Model Works

Netflix remains at the forefront of digital entertainment options for consumers all across the globe, but it did not start out with those ambitions. Co-founders Reed Hastings and Marc Randolph linked up in Scotts Valley, California in 1997. They would see the sale of a software company in Silicon Valley before combining their skillsets in marketing and mathematics to begin the startup enterprise for $2.5 million.

Their rise in the global marketplace would see the decline of Blockbuster and a major spike in DVD sales through the post. By 2002 they were selling stock in the company to shareholders and their success would occur in line with the drop in conventional VHS and DVD sales. Consumer behaviors began to change and the boost in online access altered the landscape forever.

Netflix was now a giant and a multi-billion dollar enterprise. Randolph would eventually step away just a few years into the development of the business, but Hastings would work with a new team to take this enterprise to new heights.

An enormous database of televised content is the business model that catapulted Netflix to the top of the entertainment agenda. Just by logging into one account, users can scour thousands upon thousands of options for movies and television series. Any type of genre is on show and for those that liked one program, they are provided recommendations for others.

Although Netflix is home to a range of movies, television series and documentaries that have been sourced through major networks, they are also in the business of creating their own unique content. By becoming their own production company as well as a streaming service, they are home to exclusive films and programs that generates further interest. The likes of Stranger Things, Love, Daredevil, Bloodline, Marriage Story, Bright and The Irishman would offer a further incentive for subscribers to stay connected to the service, dropping trailers and coming soon features.

A low entry fee gives Netflix the muscle to attract more eyeballs without customers locked into long-term contractual agreements. With free trials on offer, participants can get a taste of the action to see if it suits. If it does pass the check, then they can pay a subscription fee of $12.99 per month for a two-screen HD experience, or $15.99 for a premium package.

Flexibility for the consumer is another benefit that adds more value to the Netflix proposition. Whether it involves paying a premium for more than one viewer at a time to housing multiple account profiles or being compatible with different devices, the customer has the chance to access this service in a manner that suits their interests and lifestyle. From the smartphone to the tablet, the laptop, desktop and smart TV appliance, the choice is down to the user.

A steady but aggressive push into overseas markets has helped to secure most investment and business for the Netflix brand. While regions like China and North Korea have remained off limits, regions across South America, Europe, Africa, Asia and Australia have all be embraced.

It is not all great news for Netflix with the streaming giant finding themselves in major debt to the tune of $21.9 billion in 2017. This would be offset by an asset structure that is valued at $33.9 billion, giving them the leverage to cover key costs and remain a viable entity for consumers around the world.

The replication of this commercial design by the likes of Amazon Prime, Hulu, HBO Max and YouTube illustrates the power and influence of Netflix as a streaming enterprise. There might be other services that eventually overtake this brand, but it will always be the original outlet that changed the entertainment industry.

Ethan White
Ethan White
Ethan White has always been interested in studying the traits that make a great leader and reporting on the most important leaders of the past and present. His adept at analysing leadership and business qualities and sharing his insights through the written word.
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