Netflix had already disrupted the entertainment business once, allowing customers to forgo the brick-and-mortar video store for the convenience of online shopping. It ranked as one of the United States Postal Service's fastest-growing first-class mail customers, regularly shipping out millions of DVDs. But those signature red envelopes were about to become far less ubiquitous. In 2005, the company launched a project to pivot to streaming, forever altering the landscape of media consumption.
Netflix leaders knew DVDs had a limited life span, and potential competitors, including Apple, were nipping at the company's heels with online movie-viewing offerings. “We named our company Netflix in 1998 because we believed internet-based movie rental represented the future, first as a means of improving service and selection, and then as a means of movie delivery,” Netflix CEO Reed Hastings said during the launch of the streaming project.
The company's streaming ambitions originally began as a plan to build a physical box, a piece of consumer electronics hardware that would download movies digitally over an extended time period. But after project lead Robert Kyncl saw a nascent upstart video platform called YouTube, he pivoted the entire project to a streaming service.
Data speeds and bandwidth costs kept streaming in the realm of an appealing-but-untenable concept at the turn of the century. Even as that began to shift, Netflix leaders knew that streaming would provide subpar video quality compared to DVDs. But they gambled that consumers would favor convenience above quality, spending US$40 million to renegotiate rights and expand data centers to host and serve content.
The project team began a gradual rollout in January 2007. Rather than unspooling its entire 70,000-deep DVD catalog, Netflix made only about 1,000 movies available and to only a small portion of its 6 million subscribers. That was due in part to technical constraints: Streaming required high-speed internet, on machines with Microsoft Windows operating systems, and Netflix was also wary of demand overstraining its own computers. “While mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles, the time is right for Netflix to take the first step,” Hastings said.
The gamble paid off: The project ushered in a new era of on-demand binge-watching, content creation specifically for streaming platforms and cut-throat competition for our collective eyeballs.
LEFT PHOTO COURTESY OF NETFLIX. RIGHT, PHOTO BY CHRIS WILLSON / ALAMY STOCK
Box Office 2.0
US$50 million
Amount Netflix offered to be acquired by Blockbuster in 2000, which Blockbuster rejected
>190
Countries where Netflix is available
US$12 billion
Amount Netflix spent in 2018 to produce original content
Nearly 1,500
Hours of original content Netflix produced in 2018
>150 million
Number of Netflix streaming members in 2019