Netflix 1 Netflix James Cardwell Adams State University Global Business Strategies 5/28/2023 Netflix 2 I was one of the early adopters for Netflix. I had it when some internet connections weren’t even able to stream. Flat screen TV’s existed but I didn’t have one. I remember when it was added for free to my grandfather’s DVD exchange service. I was so young at the time I wouldn’t have paid for it myself. The show selection was amazing because nobody believed in the technology. It had the primetime shows for most major networks and a vast catalog of all prior seasons. It didn’t even have high definition because internet could not support it at the time but it didn’t matter because my CRT television and the game console I used for Netflix didn’t support HD either. I remember spending hours and hours watching the entirety of South Park, Family Guy, Weeds, and Lost. All of which have over 100 episodes. It was well worth the money. It was free included with their DVD by mail program. When I moved out and lived on my own I got my own Netflix subscription because as a young community college student I could not afford to pay for any cable packages. It was only $6.99 a month. I actually remember a couple years ago I changed my debit card and I let my plan lapse. I didn’t realize I had been grandfathered in at a lower rate. I had to choose between a bunch of plans the cheapest of which was $12 and that one didn’t even include HD. I think the story between Netflix and Blockbuster is one of the most cathartic things I’d ever heard in the world of business. It’s certainly a lesson to be learned. Netflix now is probably one of the most valuable video distributors in the world. It was early in Netflix’s existence. The owners were interested in bringing in more money for capital and wanted to sell the company. Their main competitor at the time was Blockbuster. They had a much smaller market share than Blockbuster at that time. I watched a documentary on it. Netflix asked for 50 million for their company which based Netflix 3 on regular metrics was slightly over market value. Blockbuster did the professional equivalent of laughing them out of the room by outright declining their offer without taking any time to think about it. Blockbuster was looking at things though an old lense where DVDs were only distributed for rent in retail locations. It would have made sense to deny their offer if you were to think that Netflix would compete with Blockbuster by building their own retail locations and renting DVDs the same way they did. What they did not count on was technology and scalability and the network effect. The technology of video streaming was the future. They just didn’t know it yet. I would say that all video is streaming at this point. Any video that is made will eventually following theatrical release make its way to a streaming platform. In fact, many major retailers like Wal-Mart and target are reducing their offering of physical media. Pay attention the next time you are at a big box store to the shelving area which holds these kinds of products. You’ll see that they are like a ghost town. Not only will nobody be in that aisle but there are many missing spots on the shelves where items should be. You can see the same thing happening in the video game section. It’s not just a pricing issue but a service issue as well. Streaming had to take over video distribution. The video companies waited as long as they could. Before and during the early days of Netflix I had no money and thus was an avid pirate of media. I remember downloading the movie Saw when I was so young my parents would not let me watch that movie. In my opinion, Netflix and other video companies switched over to streaming in order to be competitive with piracy. Back to the Blockbuster story. Netflix continued to develop its streaming technology. They built a series of localized data caches throughout the United States. When you stream something on Netflix your computer or requests data from Netflix and Netflix 4 that data is sent to your computer. The longer the distance between your computer and Netflix servers the longer it will take to reach and the higher the likelihood of lost packets and delays which result in buffering. What Netflix did was build a copy of the most popular content on Netflix and made clones of their servers throughout the country. So for me when I watch Queen’s Gambit Episode 1 on Netflix on my computer in my home in New York instead of communicating with a server at the Netflix headquarters in California I connect to this local cache. It seems like a pretty extreme solution for what may be a negligible benefit but its actually necessary to avoid bottlenecks in the national internet because Netflix is the hugest single source of data transfer in the United States. During primetime hours Netflix accounts for 20% of all data sent through the internet. Investing in this kind of technology really paid off. During this time Blockbuster continued to build stores in new areas to reach new customers. It was much more expensive and had a lower return on investment. Especially since the internet became faster and more reliable and more devices were able to stream on Netflix such as smartphones and TVs. Several years later in 2004 Blockbuster realized what was happening and decided that Netflix was correct in their technological investments and that they needed to do the same. Blockbuster created their own streaming service but it was too late. Even though they had more money than Netflix who was still a smaller company at the time, nothing could make up for all the time spent by Netflix building an infrastructure and database of consumer tastes. This database of consumer tastes is critical to video distribution business. This database decides what to offer customers after the sign in screen. A fan of horror will be served horror movies and maybe even some thriller Netflix 5 movies to spice it up. The effectiveness of this type of database is the difference between a customer saying “Netflix is great they have everything” and “Blockbuster sucks they have nothing to watch” even when they have the same library because they are not effectively putting content in front of eyes. These factors working together are the reason for the Netflix vs. Blockbuster, David vs. Goliath battle being won by the smaller up and comer. It’s an important lesson in business to invest in new technology and not be complacent of competition and to assume you competitors will come out of nowhere with unproven technology to disrupt your market. Netflix 6 References Edwards, B. R. (2022, August 24). How much of the internet's bandwidth does netflix use? MUO. Retrieved April 12, 2023, from https://www.makeuseof.com/tag/how-much-of-theinternets-bandwidth-does-netflix-use/ THOMPSON, A. R. T. H. U. R. A. (2021). Crafting and executing strategy concepts. MCGRAW-HILL US HIGHER ED. Smallwood, K. (2022, December 10). The truth about blockbuster turning down purchasing Netflix and what seemingly everyone gets wrong. Today I Found Out. Retrieved April 12, 2023, from https://www.todayifoundout.com/index.php/2022/12/the-truth-aboutblockbuster-turning-down-purchasing-netflix-and-what-seemingly-everyone-gets-wrong/ Netflix 7
