Netflix is a California-based company that operates a video streaming website and a DVD-by-mail service. The streaming service is available in the United States, Canada and Latin America, whereas the DVD service is limited to the United States. Netflix’ DVD-by-mail service started in 1999 following a new concept: in exchange for a subscription fee, customers received DVDs that they had previously added to a wish-list on the Netflix website.
The service quickly gained popularity and by the end of 2001, Netflix had 456,000 subscribers
. In 2002, the company went public and one year later Netflix broke even. In 2010, Netflix posted a profit of 161 million U.S. dollars
, up from 7 million dollars in 2003. Netflix revenue
surpassed the one billion dollar mark for the first time in 2007 and in 2010, the company generated 2.16 billion U.S. dollars in revenue.
In 2008, Netflix started its movie streaming service. The streaming service was not marketed separately, instead it was included in Netflix’s existing subscription plans. Customers embraced the possibility to stream movies and TV shows on demand and the service quickly expanded from PCs to other devices. Today, Netflix content can be streamed to virtually any device: smartphones
, gaming consoles and television sets, among others.
In July 2011, Netflix announced a new pricing model
that separated streaming from DVD-rentals. The combined subscription that had previously cost $9.99 was split into two separate plans at $7.99 each. Customers were furious as this change was equivalent to a 60 percent price increase for users of both services. Despite all efforts of CEO and founder Reed Hastings to explain the changes, Netflix stock took a serious hit. In September 2011, Netflix announced that it would spin-off its DVD business into a newly-formed company called Qwikster, only to discard the plan a few weeks later. This episode did not fare well with already disgruntled customers. As a consequence, Netflix's subscriber base
shrank, for the first time, in the third quarter of 2011. Investors weren’t happy either and the price of Netflix stock continued to plummet. From July through October, Netflix stock fell from an all-time high of 304 dollars a share to less than 90 dollars, shaving off 70 percent of the company’s implicit value.
It will be interesting to see whether Netflix can recover from what has arguably been the first major crisis in the company’s history. Its formerly flawless reputation took a serious hit and it will likely take some time to rebuild trust with customers and investors. Another challenge that lies ahead of Netflix is the difficult and costly hunt for quality content. As media companies are building their own streaming services (such as Hulu), they are increasingly reluctant to license their content to third-parties. Hence, Netflix will have to pay large amounts of money to offer its customers quality content in the future. If it manages to do so, however, the company could well overcome its current crisis and return to its previously successful path. After all, the video streaming market is still young and offers a lot of growth potential.