Netflix Made 9 Big Changes, and Most Subscribers Now Have No Idea

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This is a story about Netflix, history, and 9 big changes that most subscribers have no idea ever happened.

It’s about building a great business that makes money–only to realize that the future is stormy. It’s about growing an organization that studies data, takes risks, and even blows up its business model in favor of longer-term success.

And, it’s about doing it over and over and over again.

The story comes to us largely from Joel Mier, an early marketing director at Netflix (one of its first 100 or so employees), who now teaches at the University of Richmond.

In a recent article in AMS Review, Mier and Ajay K. Kohli, a professor at Georgia Institute of Technology, recounted some of Netflix’s massive but almost-forgotten pivots, and examined how to build the kind of culture that encourages long-term growth over short-term profits.

Here are the nine big changes they described–in the article and in my video interview with Mier (embedded below)–along with how most of them involved abandoning things that worked, in favor of things that might work better.

The change to rentals

Netflix launched in 1997 as a mail-order DVD sales and rental service, with almost every DVD available at the time (about 925) in its catalog. The launch was a success, with between 90 and 95 percent of revenue due to sales, as opposed to rentals. 

The problem on the horizon? As sales of DVDs and DVD players grew, startup-sized Netflix would hardly be able to compete with much bigger companies like Wal-Mart or Best Buy. 

So, as “one of the first of many, many bold moves,” Mier told me in an interview, Netflix  switched almost “overnight” from a company that sold DVDs to a company that only rented them, since retailers would be less likely to try that business.

The change to subscriptions

This big pivot seems like a no-brainer now, but between September 1999 and February 2000, Netflix launched a beta test to try going from a rent-by-the-DVD model, similar to traditional video rental stores, to a monthly subscription model.

“We went from zero to more than 10,000 subscribers,” during the beta test, said Mier, who was at the company from 1998 to 2006. That gave Netflix the confidence to go to a 100-percent subscription model starting in early 2000. 

“Just think about how exciting that was,” he said. “No subscribers at all to 8 million when I left in ’06.”

The change to ‘unlimited’

The original Netflix subscription model was for a limited number of DVDs per month; Netflix tweaked how many were allowed. Eventually however, later in 2000, they adopted the idea of unlimited rentals.

There was risk involved here, given that predicting customer behavior would now be a big part of the model, but it was informed by data. And, it had an added benefit.

“Think about a health club,” Mier suggested. “How many of us have joined, committed a week, and [then] said, ‘the hell with that?’ Same thing here. Netflix has had a percentage of people, from Day 1 to now, that simply pay, and don’t use the service.”

The change to episodic content on DVDs

This might be the smallest pivot, as it didn’t quite upend another business model, but Mier talks here about when Netflix began offering DVDs with multiple TV episodes-;something people were much less likely to rent one-off from a video store.

It’s the “origin of ‘binge watching,’ as he put it, “renting TV shows from the 70s, 80s, 90s that we love, and banging through a whole season in a day and returning it.”

The change to streaming (part 1)

By 2007, Netflix reached a big milestone: delivering its 1 billionth DVD — and also starting to move toward its biggest change to date: streaming video, instead of renting DVDs. 

This seems inevitable in retrospect, but it really meant upending the original business model and customer experience. At first, streaming was only on PCs, and included a very limited selection of movies.

The change to streaming (part 2)

Mier considers the expansion of streaming (to all computers, TVs, mobile phones, etc.) to be a separate decision, dating to about July 2011. Of course, this meant completely upending the former business that had gotten the company to where it was.

“The future focus was decidedly on streaming content. No longer the driver of growth for Netflix, the DVD business line found itself with very different goals: continue to serve the current customers extraordinarily well, reduce operating costs, and do not attract new subscribers.”

I added the emphasis on the last five words. Imagine walking the tightrope like this of building a new business, supporting an old one, but also working to ensure you didn’t accidentally grow the old one.

The change to

This is related to expanded streaming, but it’s interesting to note that when Netflix split its DVD rental business and streaming businesses into two, it ultimately kept the original Netflix name for its new business, and added to handle the original DVD rental business.

Netflix no longer reports how many subscribers there are, but one estimate puts the current number at a little under 2 million subscribers (compared to about 209 million streaming subscribers worldwide).

Still, can you imagine how many businesses would kill for a paid monthly subscriber base of 2 million people?

The change to original content

Today’s Netflix subscribers likely think first of some of the network’s biggest self-produced hits: Stranger Things, Tiger King, Bridgerton. (It all started in 2013, really, with House of Cards.)

However, some of the biggest earlier draws for Netflix subscribers were things like reruns of Friends and The Office. Becoming a production company as well as a distributor meant risking that studios Netflix depended on would now see Netflix as more of a threat than a partner.

It was a risk. Sure enough, Netflix eventually lost the deals to carry many of its big rerun attractions.

The change to international production

The final pivot that Mier discussed has to do with Netflix’s addition of international content for local audiences, to the point that Netflix has been the producer and distributor of the leading in-country content in places like India, Korea, Turkey, and the UK.

The risk here largely has to do with opportunity cost: putting investment toward a locally produced show that might not have an audience outside a specific country, versus buying the rights to a major Hollywood blockbuster that would attract subscribers worldwide.

(Of course there have been some wins here: internationally produced content like Lupin, which was wildly popular in the U.S. as well.)

Will this gamble pay off long-term? That remains to be seen, but it’s worth noting that all of Netflix’s net subscriber growth during the second quarter of 2021 came from overseas; Netflix actually lost customers in the United States.

The future and the lessons for your business

Even since Mier’s article came out, Netflix announced plans to add a new change: a push hard into video games. I make no pronouncements about how well it can pull this off, whether it can reverse subscription losses in the U.S., or how it will fare against other customers.

But if you’re running a business that’s facing change, and you want to learn from how a now-giant company has managed it in the past, you could do a lot worse than to study what happened at Netflix.

Here’s the to the article Mier and Kohli wrote, along with the video of our discussion.

The opinions expressed here by columnists are their own, not those of

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