Hey everyone,
After last week’s trailer, this is the first episode of The Netflix Universe.
Today, we look at all things Netflix:
The Netflix Story: How it all began
The Netflix Effect: its role in shaping society and culture
Culture: What’s it like to work at Netflix?
Next week, we’ll look at:
The Netflix Product: it's the best in class and still underrated
The Netflix Algorithm
Netflix’ India Plan
Future of Netflix: 10-year horizon
Thank you to everyone, who subscribed. If you haven’t already, subscribe below to receive future updates in your inbox.
1. The Netflix Story
How it all began (1997-2010)
Netflix was founded in 1997 by two technology guys, Marc Randolph and Reed Hastings.
When it first launched, Netflix was a movie rental service. Users ordered movies on the Netflix website and received DVDs by post. When they finished watching, they would simply post them back to Netflix in the envelopes provided.
So in the beginning, Netflix was this small upstart against a massive giant called Blockbuster.
Before Netflix and Chill, the US had Blockbuster nights. Blockbuster was this huge company back in the ’90s that controlled the DVD business. They had a large number of stores across the US and people came in these stores with friends, parents with their children to rent out movies. It was the hangout spot for a lot of people.
But Blockbuster wasn’t really doing that great of a job:
Blockbuster made a large majority of its revenue through late fees (at one point it was as high as 70%)
Local Blockbuster video stores ran out of the most popular movie titles quickly (they could only hold so many Terminator DVDs), so 80% of the customers did not get movie titles they actually wanted
Blockbuster was too late to enter the streaming business giving Netflix years of headstart
When they started competing with Netflix online, they got into a pricing war and offered prices so low that they just couldn’t survive
Netflix reacted well to all of these issues and made sure their product offerings and marketing highlighted all of these customer pain points. They removed late fee in 2000, introduced lower-priced plans in 2004, started online streaming in 2007, you get the drift. Constantly innovating and offering a 10x better product was key to compounding growth of customers between 2000 and 2010.
Do not ask me about that stupid little company, they are nat, nothing, nobody. People are never going to give up their video stores.
- Blockbuster CEO when asked whether they see Netflix as competition
Blockbuster was 20x bigger than Netflix. At one point in 2000, they had an opportunity to buy out Netflix for just $50 million but they chose not to. Coupled with their inability to keep up with fast-changing technology, always playing catch up to Netflix, and $1 billion in debt back in 2010 eventually led them to file for bankruptcy.
The story of Netflix overcoming all the odds to beat all their competitors seems absolutely surreal. Betting on technology since Day 1 and being resilient in the face of adversity are the reasons why Netflix survives and thrives today.
Survival for Netflix has been far from a cakewalk.
Journey to becoming a tech giant (2010 - present)
If Netflix made a documentary on Netflix, it will be a story full of ups and downs, suspense, thrill, and drama. Ingredients that make for a great storyline.
The year is 2011, Netflix now has a little more breathing space with its biggest competitor Blockbuster out of the way. But that’s when Hastings, Netflix CEO made the biggest mistake.
At the time, Netflix offered both online video streaming as well as the ability to rent out DVDs, but they announced that they are going to be separate offerings which meant customers had to spend more $$$ than they’re used to. Netflix was now exclusive to online streaming (the way we use it today) and Qwikster, the new product for getting DVDs. This caused a lot of outrage among the Netflix faithful.
Reed Hastings, Netflix CEO was considered as one of the most customer-obsessed leaders in the Tech landscape in the US. This led to 800,000 Netflix subscribers canceling their subscriptions and a 70% decline in stocks, erasing billions of dollars of Netflix market cap. But as might’ve guessed Netflix quickly made amends and adapted.
I messed up. I owe everyone an explanation.
- Reed Hastings, Netflix CEO (I don’t think he has ever apologized in public before or after, so this is kind of a big deal)
So after this topsy turvy journey through all the years, we finally come to the part of the Netflix story which will sound a lot more familiar, the streaming service as we all know it.
After Blockbuster, Netflix’s biggest competitor was HBO.
HBO produced A+ content year after year after year. Some of their legacy shows that people loved over the years are The Sopranos, Deadwood, The Wire, Sex and the City, and Game of Thrones.
Up until 2012, Netflix licensed movies and TV shows from HBO, ABC, Showtime, Disney, Warner Bros, etc. Netflix was paying top $$ for their competitors’ content.
But in 2013, things changed. And the rest as they are history.
We worshipped HBO. Great company, great content. we wanted to license The Wire from HBO but they did not want to give to us, that's when we decided we need to create our own original content.
- Reed Hastings, 2013
It all started with House of Cards.
Ted Sarandos, Chief Content Officer for Netflix created the model where Netflix purchases multiple seasons of shows, which all started with signing Kevin Spacey and Robin Wright for House of Cards, a $100 million dollar bet for just 2 seasons. Compared to spending just $25 million dollars in the previous year, Ted Sarandos took a massive bet which nobody in Hollywood thought was worth taking.
Once again Ted signed a $100 million dollar deal without even watching the pilot episode. This changed the game. This changed Hollywood. This changed the culture. This is where all the binge-watching began as we know it.
I recommend this 20 min documentary that shows the origins and evolution of Netflix over the years.
2. The Netflix Effect
Netflix today creates ripples and waves in the entertainment business and culture.
Based on what your taste and watching preferences are, Netflix is playing a central role in shaping the culture and behavior. Some of the recent examples include:
The Queen’s Gambit - reignited the interest in chess. It saw a 15% rise in women chess players. Chess dot com at the moment sees more traffic than it ever has
One Last Dance & Drive to survive - raised further interest in Basketball and F1 across countries
Stand up comedy - this was already done by the legacy companies such as HBO airing their comedy specials, but Netflix has completely transformed the comedy business betting on young, lesser-known talent, who now get their huge paydays on Netflix but also get a tremendous following on their social media. A stand-up comedian on Netflix signals class. Once you watch Vir Das on Netflix you’d definitely want to watch him live.
Marie Kondo - The Marie Kondo effect (Teaching Millenials how to clean their rooms, marketer’s dream 😂)
Learn meditation with Headspace - recently launched, pretty sure this is going to take meditation even further mainstream, leading people to download the Headspace app
Hear it from one of the Indian brands themselves:
More marketers will create movies and tv shows to sell their products to large audiences. I feel there will be a lot of good that will come out of this. More people meditating or cleaning their rooms is a good thing. But as humans, we’ll find a way to balance out the good. There’s a good chance a kid might pick up smoking looking up to Thomas Shelby from Peaky Blinders. But then again all of this happened for years through movies on both the big screen and small, just the medium of consumption has changed.
For better or for worse, Netflix is now central to our society and culture because it’s constantly shaping our habits and behavior. Consciously for some, unconsciously for others.
3. What it’s like to work at Netflix?
I had a ton of fun learning about the culture of a company that has such a great product and operating at such a massive scale.
Working at Netflix is like being a part of a cult. If you want to understand how a cult truly functions, I recommend Wild Wild Country on Netflix. Although it takes things to an extreme it gives perspective on how people lose themselves being a part of a cult.
But:
Netflix has a cold and calculated approach towards its employees. It’s like being a part of the All-Stars team in the NBA, only the best players make the team and if you’re not good enough, you’re quickly replaced. For the best most talented people in the world, it’s still a great place to work no doubt.
There is radical transparency all around. For example, all the employees are informed about the finances and customer decisions. About 500 senior Netflix employees have the ability to see the amount of money any employee is making. This kind of transparency for a company operating at such a scale is unheard of.
Terminology that is exclusive only to Netflix employees:
🧤 Keeper Test - “Which of my people if they told me they were leaving for a similar job at a peer company, would I fight hard to keep at Netflix?” (Fun fact: the HR Director Patty McCord who created the Keeper’s Test failed the same test and was sacked by Reed Hastings)
😈 No Brilliant jerks - Netflix doesn’t tolerate brilliant jerks - a high performer with a poor attitude
🌤 Sunshing - Employees are encouraged to share the mistakes they’ve made, incidents that led to learnings in front of 100s of other employees
💫 Tolerance for candor - “A lot of little mistakes, while sometimes painful, help the organization learn quickly and are a critical part of the innovation cycle. In these situations, rules and process are no longer the best answer.”
Reed Hastings released their culture deck, which had been kept a secret for more than a decade. I recommend you check it out for more details.
Lots more on Netflix in the second part next week.
Thanks for reading,
- Vaibhav
I am Vaibhav K Achantani. I work at an Edtech company called Tekie - running content, marketing, and helping the company scale. You can connect with me on Twitter or Linkedin or just reply to this email.
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