Netflix went from a tiny start-up to a multibillion-dollar company - all while competing against a massive corporation with a chokehold on the home entertainment market. So how did they do it? And what valuable lessons can you learn from Netflix’s meteoric rise to fame? This is the story of how Data can be the difference between success and failure.
The Legend of Home Entertainment: Blockbuster
Blockbuster was the leading Movie Rental service in the US. Leading is an understatement - at one point, there were 9,000 Blockbuster stores in the US alone, with the company claiming that 43 Million American Families held membership with them.
Customers could visit a Blockbuster store and rent movies for a fixed duration. When the customer fails to return the rented movie within the stipulated time, they must pay a $1 late fee for each additional day after the original return date. While this annoyed customers, the late fee formed a majority of Blockbuster’s revenue.
From Annoyed Customer to Formidable Competition
Reed Hastings, a customer of Blockbuster, once had to pay $40 in late fees. Understandably displeased, he began considering an alternative service that didn’t charge customers a late fee. He took the initiative to co-found this service himself, calling it ‘Netflix’.
Netflix began as a subscription delivery service. Customers could pay for a subscription, order the movies on Netflix’s website and get DVDs delivered to them each month. The best part is, they could keep the movies for as long as they liked - no late fees at all!
The End of Netflix? Plot Twist!
Within three years, Netflix began nearing bankruptcy. Despite solving a common customer complaint, the start-up could not dream of competing against the giant chain of Blockbuster stores.
So Netflix approached Blockbuster with a deal. They offered to sell the Netflix company to Blockbuster for $50 Million ($81 Million in 2022). As Blockbuster was yet to step into the online realm of Movie rental, Netflix would take over the online operations for them.
Blockbuster refused the deal. They did not think the online sphere of DVD rental would be more than a fad, and even if it took off, Blockbuster believed that people would prefer their stores.
By the time it became evident that Customers favoured the online model over the store model, it was too late for Blockbuster. Netflix, and other companies, had already gained a strong foothold in the online streaming market. Blockbuster had neither influence nor knowledge of this new era of movie watching, and it was too late to catch up.
This, combined with poor management decisions, led to Blockbuster closing up shop. As of 2023, operations have ceased completely and there is only one Blockbuster store open in Oregon, US.
How did the tables turn? By ignoring Data
Blockbuster had been on top of the game for quite some time - without any serious competition. The view from the top is beautiful, but it can blind people to changes that occur at the grassroots level.
Blockbuster did not anticipate the shift to online streaming, nor was it prepared to adopt online streaming when the shift became evident. They ignored the data indicating the change. Netflix, on the other hand, predicted that the future of movie streaming would be online.
In other words, Netflix mastered the art of transforming Data into Strategies before Data Science became a buzzword in business.
Decades later, Netflix still reigns. How?
Business Intelligence is the answer. BI forms the bedrock of Netflix’s innovations, strategies and marketing efforts. From collecting Users’ viewing preferences (Genres, Format, Language) and streaming habits (binge-watching, leaving a movie halfway through, watching in instalments), Netflix keeps viewers hooked on the platform.
The lesson for Business Professionals is clear: whether you ignore Data is your choice, but the Data on ignoring Data is clear.