It has been said time and again that the film industry is a cutthroat business. There is certainly no exception when it comes to the field of the rental; the area NetFlix, Inc competes in. Originally founded in Scotts Valley, CA by Marc Randolph and Reed Hastings, NetFlix has over fifty distribution centers across the continental United States and manages to ship close to one million DVDs per day. That’s no small feat for a company who’s only been in operation for going on eleven years.
Netflix officially opened its doors, or shall we say its pages, on April 14, 1998 with a mere 30 employees. At the time of the company’s debut the DVD format itself had only been introduced as a major format for little under a year. Rumor has it that co-founder Reed Hastings had come up with the concept of NetFlix after being charged $40 in late fees for a rental of Apollo 13. The creative team played with hundreds of styles for their packaging before finally settling on the ever infamous “red envelope.” Originally NetFlix offered a standard seven day rental for the small price of $4, plus shipping charges. Unfortunately, late fees were still a factor, though the convenience of mail-order rentals outweighed its cons.
In a publicity stunt teamed up with Warner Brothers, they offered an all-expense-paid vacation to Hollywood to promote both the release of L.A. Confidential on DVD and the opening of NetFlix.com. The promotion was a success which sparked several more to follow in its footsteps, including those tied with Toshiba, Hewlett-Packard, and Sony. Later that year NetFlix also opted to sell copies of President Clinton’s testimony in the Monica Lewinsky case. The stunt was an overall failure. A mix up within the factories had customers receive copies of pornography instead of the Clinton DVD.
The “Clinton Blunder,” however, clearly did not deter NetFlix as 1999 brought vast opportunity in its wake. In January a deal was established with the internet site All-Movie Guide in which said site would refer those who used their search engine to Netflix.com for easier access to the films. Shortly thereafter, film guru Leonard Maltin was signed to write a column exclusively for the website. The column would be written in his world famous review styling and detail his picks for the current “Top 5 Movie Rentals.” This generated a lot of buzz. In September the company recorded nearly 10,000 rentals per day.
Skyrocketing revenue allowed them to take the Mail-Order Rental business a step in a new direction. They began to offer a monthly subscription plan, to replace the standard fee per movie. This would allow customers to pay a flat rate of $15.95 per month, find four movies of their choice, and require no due dates/late fees. The movies could be exchanged unlimited times throughout the month, thus eliminating the need to ever step foot in an actual video store. The plan’s growing popularity inspired a new section of the website called CineMatch. This new service would allow subscribers to receive recommendations on new films based on past rentals and user submitted reviews.
As the new millennium arrived, things continued to look up for NetFlix. Warner Brothers, Columbia Pictures, and DreamWorks all signed exclusive revenue sharing agreements. This accord would entitle them to a percentage of NetFlix’s rentals in exchange for cheaper rates on wholesale DVD purchases.
By 2002, NetFlix had expanded its reach. It now had distribution centers effectively servicing cross-country from Seattle, New York, Denver, Houston and Detroit. That same year they attempted to thwart the competition in a more conventional way. “NetFlix Express” opened its doors in Las Vegas hoping to turn internet fame into something more tangible. These efforts proved futile however, as the doors closed after only a month of operation. It seemed consumers really were preferring the comfort of their own homes to the excursion provided by a video store.
In 2003, NetFlix finally reached the one million marker in subscriptions. Success breeds competition and BlockBuster soon joined the fray, offering a similar mail-order rental program for $19.95. Not quite as successfully, Hollywood Video jumped on the bandwagon as well with an in-store “MVP” pass. Members would still be required to travel to the store, but could pay a monthly fee in exchange for unlimited rentals. NetFlix had started a monster of a fad.
Success could never come without its fair share of tribulations, however. In 2004, a lawsuit was filed against the company (Chavez vs. NetFlix, Inc) under the premise of false advertisement. It was claimed that the more active members on the website were placed further down on the waiting list, while less frequent users were given top priority. This, according to the accuser, negated NetFlix’s claim that stated one would have unlimited rentals and fast, one day service. A little over a year into the trial, the company amended their terms of service to acknowledge the throttling of orders for more efficient service. A settlement in this case allowed members existing before January 2005 to receive a free month of an upgraded plan.
The legal woes of NetFlix were far from over. BlockBuster Video soon came heavily under fire, as NetFlix filed suit against the rival company for apparent patent infringement. They claimed that BlockBuster had stolen the idea for their “dynamic queue” system and method of delivery. The results of the trial were a hushed affair. Neither company wished to share the terms of the settlement. BlockBuster soon closed nearly 300 of its stores and set to work on improving their online store. An exclusive deal with the Weinstein Company followed shortly after. This forced the competition, including NetFlix and Hollywood Video, to seek copies of films from retailers rather then the studios themselves. As a whole it was only a minor set back for NetFlix. In response to the threat of BlockBuster they lowered the cost of their most popular subscriptions, proving that they still had plenty of fight left inside.
Netflix has since incorporated the online phenomenon of streaming video into their website and struck an exclusive deal with Microsoft to provide NetFlix to XBOX Live Gold users. Current subscribers can visit the site at any time and have access to movies and television shows at the click of a button. While newer titles are unavailable online, this has revolutionized the way the rental business operates. Earlier in 2008, NetFlix announced the sale of a set-top box which members would be able to purchase for $99 that would take advantage of high speed connections in order to broadcast streaming video directly to their television sets. For members who still prefer the “traditional” mail-order method, they’ve even begun to take advantage of the high cost Blu-Ray disc. Netflix will rent Blu-Ray online, making the format much more accessible to consumers.
NetFlix continues to raise the bar with every year they remain in business. It seems there is no obstacle too large, no slump too deep for this giant to overcome. Their constant evolution is why they continue to remain at the top of the rental food chain; a force to be reckoned with.
