NetFlix had a pretty banner year thanks to the pandemic. Their stock price ($290) is now worth more than Disney ($110).

Before launching Netflix in the late 90s, Reed Hastings was still celebrating the success of the sale of his first business, Pure Software.

It was a debugging tool for software engineers. The company grew so fast that in 1995 he sold it for $750 million.

He was looking for a new venture when two years later, he was slapped with a $40 fine for, of all things, a late fee on a movie rental (it was Apollo 13).

Something got him thinking. It was the idea that Blockbuster’s business model was actually predicated on penalizing its own customers for doing business with them.

I mean, at its height BlockBuster was making $800 million year on late fees. They created a business model, that actually profited by not investing in a better delivery system. Good for them, but a pretty painful experience for their customers.

How hard would it be to offer a better service? What if Hasting could create a movie rental business model that didn’t charge late fees. What if you could just watch what you wanted, as long as you wanted?

 

 

David Sets Out to Fight Goliath

Hasting launched Netflix later that year with Marc Randolph, as a paid monthly subscription model.

Netflix first started as a DVD-by-mail rental service that didn’t charge  late fees. All you had to do was to pay the monthly subscription and the DVD would be sent directly to your front door.

Fast forward 5 years into the business. In September 2002, The New York Times reported that, at the time, Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers and $152.8 million in gross revenue.

But Netflix faced a fairly massive $6 billion dollar problem. They were in a ferocious fight against the biggest giant in their industry. Blockbuster.

Netflix Tries to Sell to BlockBuster

Hastings never actually thought he would be able to defeat the movie giant. At Blockbuster’s peak in 2004, the company had over 9,000 stores throughout the US and employed over 60,000 employees. They were bringing in $5.9 billion for the year (on track to do $8.5 billion in the next few years).

Blockbuster had so much influence in this space that Reed Hastings actually got on a plane to Dallas Texas in an attempt to sell Netflix to them.

His pitch was to become the the future online arm of their otherwise non-existant one. He already had a long-term plan of delivery streaming over the internet programming movies to replace DVDs that could allow the Blockbuster brand to slowly phase out their retail stores.

But Blockbuster refused…

They turned down Hasting’s offer to buy Netflix for his asking price of $50 million. To their credit, they had seriously considered it, but in the end, they didn’t think the juice was worth the squeeze. Netflix is worth $553 billion today.

For no fault of their own, BlockBuster became a victim of their much deserved success. They were at the top of their game. Business was good and why risk messing with what was already working and take on this new subscription thing?

 

Netflix Focuses On Eliminating Friction

Netflix Inc.’s overall business model is a hybrid. They created a flat rate subscription business for a passive product or service that was already being regularly purchased every month.

Then they simply created a more convenient way to deliver the product by using digital methods to cut out the middlemen intermediaries by directly distributing its original content directly to customers.

Why go to the store when you can have a movie delivered to you? Then why wait for a season when you can binge all at once?

Netflix was credited with the term binge watching by giving people the programing the content the way they wanted it. Without friction.

Netflix didn’t kill BlockBuster, convenience did. Blockbuster kept playing the same old game. Until the retail model of video movie delivery came to an end.

 

 

You might also like

“All things being equal, people will do business with, and refer business to, those people they know, like and trust.”...
Would you be surprised to know that the invention of Doritos was influenced by a trashcan at Disneyland? In the...
According to Ziprecruiter, as of Aug 5, 2022, the average annual pay for a “Motivational Speaker” in the United States...
Hearing the phrase “you’re such a con-artist!” coming from the lips of a potential investor during a live pitch is...
Did everyone agree with everything you said at the last meeting of your top executive team? Did everybody follow the...
Subway currently holds the status of being the biggest fast-food chain on the planet. They surpassed McDonald’s and KFC’s store...
Did you know 60% of professional athletes end up broke within 5 years of retiring? Not Shaq though. Far from it,...
In 2012, Jack Conte and his wife, Nataly Dawn, were known as the indie band called Pomplamoose. They were bringing...
Did you know that only 9% of b2b companies rate their digital promotional efforts as highly effective? So chances are...
Nearly every self-made billionaires are obsessed with learning. This video reveals the top to recommended books that had the biggest...
“If you’re starting a company, you always want to aim for a monopoly and avoid competition. Hence, competition is for...
Meet the Former MMA fighter, high school dropout, and single father who had absolutely zero business background bought a business...