Netflix

Netflix, Inc.

Type of business	Public
Traded as	NASDAQ: NFLX NASDAQ-100 component
Founded	August 29, 1997 (1997-08-29)[1] in Scotts Valley, California, U.S.
Headquarters	Los Gatos, California, United States
Area served	190 countries[2]
Founder(s)	Reed Hastings Marc Randolph
Key people	Reed Hastings (Chairman, CEO) Ted Sarandos (CCO)
Industry	Entertainment
Products	Streaming media Video on demand
Services	Film production Film distribution Television production
Revenue	US$8.83 billion (2016)[3]
Operating income	US$380 million (2016)[3]
Net income	US$187 million (2016)[3]
Total assets	US$13.6 billion (2016)[3]
Total equity	US$2.7 billion (2016)[3]
Employees	3,500 (2016)[3]
Divisions	Domestic Streaming International Streaming Domestic DVD[4]
Subsidiaries	Netflix International Netflix Streaming Services Netflix Studios Millarworld
Website	www.netflix.com
Registration	Required
Users	103.95 million worldwide[5]
Current status	Active

Netflix is an American entertainment company founded by Reed Hastings and Marc Randolph on August 29, 1997, in Scotts Valley, California.^[6] It specializes in and provides streaming media and video-on-demand online and DVD by mail. In 2013, Netflix expanded into film and television production, as well as online distribution. As of 2017, the company has its headquarters in Los Gatos, California.

Netflix's initial business model included DVD sales and rental, although Hastings jettisoned DVD sales about a year after Netflix's founding to focus on the DVD rental by mail business.^[6][7] In 2007, Netflix expanded its business with the introduction of streaming media, while retaining the DVD and Blu-ray rental service. The company expanded internationally, with streaming made available to Canada in 2010^[8] and continued growing its streaming service from there; by January 2016, Netflix services operated in over 190 countries.^[9]

Netflix entered the content-production industry in 2013, debuting its first series, House of Cards. It has greatly expanded the production of both film and television series since then, offering "Netflix Original" content through its online library of films and television.^[10] Netflix released an estimated 126 original series or films in 2016, more than any other network or cable channel.^[11]

As of July 2017, Netflix had 103.95 million subscribers worldwide, including 51.92 million in the United States.^[5]

History

Founding and establishment

Netflix was founded on August 29, 1997, in Scotts Valley, California, by Marc Randolph^[12][13] and Reed Hastings. Randolph worked as marketing director for Hastings' company, Pure Atria Corporation. Randolph was a co-founder of MicroWarehouse, a computer mail order company, and was later employed by Borland International as vice president of marketing. Hastings, a computer scientist and mathematician, sold Pure Atria to Rational Software Corporation in 1997 for $700 million in what was then the richest acquisition in Silicon Valley history. He and Randolph came up with the idea for Netflix while commuting between their homes in Santa Cruz and Pure Atria's headquarters in Sunnyvale while waiting for government regulators to approve the merger.^[14]

Hastings, Randolph's mother and Integrity QA founder Steve Kahn invested $2.5 million in startup cash for Netflix.^[15][7] Randolph admired the fledgling e-commerce company Amazon and wanted to find a large category of portable items to sell over the internet using a similar model. He and Hastings considered and rejected VHS tapes as too expensive to stock and too delicate to ship. When they heard about DVDs, which were available in only a few markets in 1997, they tested the concept of selling or renting DVDs by mail by mailing a compact disc to Hastings' house in Santa Cruz. When the disc arrived intact, they decided to take on the $16 billion home video sales and rental industry.^[14] Hastings is often quoted saying that he decided to start Netflix after being fined $40 at a Blockbuster store for being late to return a copy of Apollo 13 but this is an apocryphal story that he and Randolph designed to explain the company's business model and motivation.^[14]

Netflix was launched on April 14, 1998,^[14] with only 30 employees and 925 DVDs available through the pay-per-rent model with rates and due dates that were similar to its bricks-and-mortar rival, Blockbuster.^[16][14]

Membership fee, Blockbuster acquisition offer, growth start

Netflix introduced the monthly subscription concept in September 1999,^[17] and then dropped the single-rental model in early 2000. Since that time, the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per-title rental fees.^[18]

In 2000, Netflix offered to be acquired by Blockbuster for $50 million, but the offer was declined.^[19] Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5.5 million shares of common stock at the price of US$15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US$6.5 million profit on revenues of US$272 million. In 2005, 35,000 different films were available, and Netflix shipped 1 million DVDs out every day.^[20]

Randolph, a dominant producer and board member for Netflix, retired from the company in 2004.^[21]

Video on demand introduction, declining DVD sales, global expansion

Netflix developed and maintains an extensive personalized video-recommendation system based on ratings and reviews by its customers. On October 1, 2006, Netflix offered a $1,000,000 prize to the first developer of a video-recommendation algorithm that could beat its existing algorithm Cinematch, at predicting customer ratings by more than 10%.^[22]

In February 2007, the company delivered its billionth DVD,^[23] and began to move away from its original core business model of DVDs, by introducing video on demand via the Internet. Netflix grew as DVD sales fell from 2006 to 2011.^[24][25]

In January 2013, Netflix reported that it had added two million United States customers during the fourth quarter of 2012, with a total of 27.1 million United States streaming customers, and 29.4 million total streaming customers. In addition, revenue was up 8% to $945 million for the same period.^[26][27] That number increased to 36.3 million subscribers (29.2 million in the United States) in April 2013.^[28] As of September 2013, for that year's third quarter report, Netflix reported its total of global streaming subscribers at 40.4 million (31.2 million in the United States).^[29] By the fourth quarter of 2013, Netflix reported 33.1 million United States subscribers.^[30] By September 2014, Netflix had subscribers in over 40 countries, with intentions of expanding their services in unreached countries.^[31]

Early Netflix Original content

Netflix has played a prominent role in independent film distribution. Through its division Red Envelope Entertainment, Netflix licensed and distributed independent films such as Born into Brothels and Sherrybaby. As of late 2006, Red Envelope Entertainment also expanded into producing original content with filmmakers such as John Waters.^[32] Netflix closed Red Envelope Entertainment in 2008, in part to avoid competition with its studio partners.^[33][34]

Entertainment dominance and presence and continued growth

Netflix has been one of the most successful dot-com ventures. 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.^[35] The company's published subscriber count increased from one million in the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006, to 14 million in March 2010. Netflix's early growth was fueled by the fast spread of DVD players in households; in 2004, nearly two-thirds of United States homes had a DVD player. Netflix capitalized on the success of the DVD and its rapid expansion into United States homes, integrating the potential of the Internet and e-commerce to provide services and catalogs that bricks-and-mortar retailers could not compete with. Netflix also operates an online affiliate program which has helped to build online sales for DVD rentals. The company offers unlimited vacation time for salaried workers and allows employees to take any amount of their paychecks in stock options.^[36]

By 2010, Netflix's streaming business had grown so quickly that within months the company had shifted from the fastest-growing customer of the United States Postal Service's first-class service to the largest source of Internet streaming traffic in North America in the evening. In November, it began offering a standalone streaming service separate from DVD rentals.^[37] On September 18, 2011, Netflix announced its intentions to rebrand and restructure its DVD home media rental service as an independent subsidiary called Qwikster, separating DVD rental and streaming services.^[38][39][40] Andy Rendich, a 12-year Netflix veteran, was to be CEO of Qwikster. Qwikster would carry video games whereas Netflix did not.^[41] However, in October 2011, Netflix announced that it would retain its DVD service under the name Netflix and would not, in fact, create Qwikster for that purpose.^[42]

In April 2011, Netflix had over 23 million subscribers in the United States and over 26 million worldwide.^[43] But on October 24, Netflix announced 800,000 unsubscribers in the United States during Q3 2011, and more losses were expected in Q4 2011. However Netflix's income jumped 63% for Q3 2011.^[44][45] Year-long, the total digital revenue for Netflix reached at least $1.5 billion.^[46] On January 26, 2012, Netflix added 610,000 subscribers in the United States by the end of the fourth quarter of 2011, totaling 24.4 million United States subscribers for this time period.^[47] On October 23, however, Netflix announced an 88% decline in profits for the third quarter of the year.^[48]

In April 2012, Netflix filed with the Federal Election Commission (FEC) to form a political action committee (PAC) called FLIXPAC.^[49] Politico referred to the PAC, based in Los Gatos, California, as "another political tool with which to aggressively press a pro-intellectual property, anti-video-piracy agenda."^[49] The hacktivist group Anonymous called for a boycott of Netflix following the news.^[50] Netflix spokesperson Joris Evers indicated that the PAC was not set up to support the Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA), tweeting that the intent was to "engage on issues like net neutrality, bandwidth caps, UBB and VPPA."^[51][52]

In February 2013, Netflix announced it would be hosting its own awards ceremony, The Flixies.^[53] On March 13, 2013, Netflix announced a Facebook implementation, letting United States subscribers access "Watched by your friends" and "Friends' Favorites" by agreeing.^[54] This was not legal until the Video Privacy Protection Act of 1988 was modified in early 2013.^[55]

Rebranding and wider international expansion

In April 2014, Netflix approached 50 million global subscribers with a 32.3% video streaming market share in the United States. Netflix operated in a total of 41 countries around the world.^[56] In June 2014, Netflix unveiled a global rebranding: a new logo, which uses a modern typeface with the drop shadowing removed, and a new website UI. The change was controversial; some liked the new minimalist design, whereas others felt more comfortable with the old interface.^[57] In July 2014, Netflix surpassed 50 million global subscribers, with 36 million of them being in the United States.^[58]

At the 2016 Consumer Electronics Show, Netflix announced a major international expansion of its service into 150 additional countries. Netflix promoted that with this expansion, it would now operate in nearly all countries that the company may legally or logistically operate in. A notable exception was China, citing the barriers of operating internet and media services in the country due to its regulatory climate. Reed Hastings stated that the company was planning to build relationships with local media companies that could serve as partners for distributing its content in the country (with a goal to concentrate primarily on its original content), but stated that they were in no hurry, and could thus take "many years".^{[59][60][61][62][63][64][65]}

Also in January 2016 Netflix announced it would begin blocking virtual private networks, or VPNs.^[66] At the same time, Netflix reported 74.8 million subscribers and predicted it would add 6.1 million more by March 2016. Subscription growth has been fueled by its global expansion.^[67] By the end of the year, Netflix added a feature to allow customers to download and play select movies and shows while offline.^[68]

In February 2017, Netflix signed a music publishing deal with BMG Rights Management, where BMG will oversee rights outside of the United States for music associated with Netflix original content. Netflix continues to handle these tasks in-house in the United States.^[69] On April 17, 2017, it was reported that Netflix was nearing 100 million subscribers.^[70] On April 25, 2017, Netflix announced that it had reached a licensing deal in China with the Baidu-owned streaming service iQiyi, to allow selected Netflix original content to be distributed in China on the platform..^[60]

On August 7, 2017, Netflix acquired the creator-owned publishing company of comic book writer Mark Millar. Netflix plans to leverage Millar and his current and future work for future original content. Chief content officer Ted Sarandos described Millar as being a "modern-day Stan Lee".^[71]

Ownership

As of 2017 Netflix shares are mainly held by institutional investors, including Capital Group Companies, The Vanguard Group, BlackRock and others.^[72]

Services

Netflix's video on demand streaming service, formerly branded as Watch Now, allows subscribers to stream television series and films via the Netflix website on personal computers, or the Netflix software on a variety of supported platforms, including smartphones and tablets, digital media players, video game consoles, and smart TVs^[73] According to a Nielsen survey in July 2011, 42% of Netflix users used a standalone computer, 25% used the Wii, 14% by connecting computers to a television, 13% with a PlayStation 3 and 12% an Xbox 360.^[74]

When the streaming service first launched, Netflix's disc rental subscribers were given access at no additional charge. Subscribers were allowed approximately one hour of streaming per dollar spent on the monthly subscription (a $16.99 plan, for example, entitled the subscriber to 17 hours of streaming media). In January 2008, however, Netflix lifted this restriction, at which point virtually all rental-disc subscribers became entitled to unlimited streaming at no additional cost (however, subscribers on the restricted plan of two DVDs per month ($4.99) remained limited to two hours of streaming per month). This change came in a response to the introduction of Hulu and to Apple's new video-rental services.^[75] Netflix later split DVD rental subscriptions and streaming subscriptions into separate, standalone services, at which point the monthly caps on Internet streaming were lifted.^[76]

Netflix service plans are currently divided into three price tiers; the lowest offers standard definition streaming on a single device, the second allows high definition streaming on two devices simultaneously, and the "Platinum" tier allows simultaneous streaming on up to four devices, and 4K streaming on supported devices and internet connections. The HD subscription plan historically cost US$7.99; in April 2014, Netflix announced that it would raise the price of this plan to $9.99 for new subscribers, but that existing customers would be grandfathered under this older price until May 2016, after which they could downgrade to the SD-only tier at the same price, or pay the higher fee for continued high definition access.^[77][78][79]

On November 30, 2016, Netflix launched an offline playback feature, allowing users of the Netflix mobile apps on Android or iOS to cache content on their devices in standard or high quality for viewing without an internet connection. The feature is primarily available on selected series and films, and Netflix stated that more content would be supported by the feature over time.^[80][81][82]

History

On October 1, 2008, Netflix announced a partnership with Starz to bring 2,500+ new films and shows to "Watch Instantly", under Starz Play.^[83]

In August 2010, Netflix reached a five-year deal worth nearly $1 billion to stream films from Paramount, Lionsgate and Metro-Goldwyn-Mayer. The deal increased Netflix's annual spending fees, adding roughly $200 million per year. It spent $117 million in the first six months of 2010 on streaming, up from $31 million in 2009.^[84]

On July 12, 2011, Netflix announced that it would separate its existing subscription plans into two separate plans: one covering the streaming and the other DVD rental services.^[85] The cost for streaming would be $7.99 per month, while DVD rental would start at the same price. The announcement led to panned reception amongst Netflix's Facebook followers, who posted negative comments on its wall.^[86] Twitter comments spiked a negative "Dear Netflix" trend.^[86] The company defended its decision during its initial announcement of the change:

"Given the long life we think DVDs by mail will have, treating DVDs as a $2 add-on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited-DVDs-by-mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs-by-mail offering."^[85]

In a reversal, Netflix announced in October that its streaming and DVD-rental plans would remain branded together.^[87]

Disc rental

In the United States, the company provides a monthly flat-fee for DVD and Blu-ray rentals. A subscriber creates a rental queue, a list, of films to rent. The films are delivered individually via the United States Postal Service from regional warehouses. As of March 28, 2011, Netflix had 58 shipping locations throughout the United States^[88] The subscriber can keep the rented disc as long as desired, but there is a limit on the number of discs that each subscriber can have simultaneously via different tiers. To rent a new disc, the subscriber must return the previous disc in a metered reply mail envelope. Upon receipt, Netflix ships the next available disc in the subscriber's rental queue.

Netflix offers pricing tiers for DVD rental. Subscribers' accounts in active, current status offers plans with up to eight DVDs simultaneously. Gift subscriptions are available. On November 21, 2008, Netflix began offering subscribers rentals on Blu-ray disc for an additional fee. In addition, Netflix sold used discs, delivered and billed identically as rentals. This service was discontinued at the end of November.^[89]

On January 6, 2010, Netflix agreed with Warner Bros. to delay new release rentals 28 days prior to retail, in an attempt to help studios sell physical copies, with similar deals involving Universal and 20th Century Fox were reached on April 9.^[90][91][92] In 2011, Netflix split its service pricing, allowing more flexibility for customers. Currently, Netflix's disc rental memberships range from $7.99 to $19.99/m, including a free one-month trial and unlimited DVD exchanges.

Qwikster

On September 18, 2011, Netflix announced that it would split out and rebrand its DVD-by-mail service as Qwikster. CEO Reed Hastings justified the decision, stating that "we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently." It was also announced that the re-branded service would add video game rentals. The decision to split the services was widely criticized; it was noted that the two websites would have been autonomous from each other (with ratings, reviews, and queues not carrying over between them), and would have required separate user accounts. Additionally, the two websites would require separate subscriptions, meaning that a bundle of DVD-by-mail and streaming service now cost US$16 per-month rather than $10.^{[93][94][95][96]}

On October 10, 2011, Netflix announced that it had shelved the planned re-branding in response to customer feedback, and that the DVD-by-mail and streaming services would continue to operate through a single website under the Netflix brand. However, the pricing increase was not reversed. Netflix stated that it had lost 800,000 subscribers in the fourth quarter of 2011—a loss partially credited to the poor reception of the aborted re-branding.^[95][96][97]

In March 2012, Netflix confirmed to TechCrunch that it had acquired the domain name DVD.com. By 2016, Netflix had quietly rebranded its DVD-by-mail service under the name DVD.com, A Netflix Company.^{[98][99][100]}

Profiles

In June 2008, Netflix announced plans to eliminate its online subscriber profile feature.^[101] Profiles allow one subscriber account to contain multiple users (for example, a couple, two roommates, or parent and child) with separate DVD queues, ratings, recommendations, friend lists, reviews, and intra-site communications for each. Netflix contended that elimination of profiles would improve the customer experience.^[102] However, likely as a result of negative reviews and reaction by Netflix users,^{[103][104][105]} Netflix reversed its decision to remove profiles 11 days after the announcement.^[106] In announcing the reinstatement of profiles, Netflix defended its original decision, stating, "Because of an ongoing desire to make our website easier to use, we believed taking a feature away that is only used by a very small minority would help us improve the site for everyone," then explained its reversal: "Listening to our members, we realized that users of this feature often describe it as an essential part of their Netflix experience. Simplicity is only one virtue and it can certainly be outweighed by utility."^[107]

Reintroduction

Netflix reinvigorated the "Profiles" feature on August 1, 2013 that permits accounts to accommodate up to five user profiles, associated either with individuals or thematic occasions. "Profiles" effectively divides the interest of each user, so that each will receive individualized suggestions and adding favorites individually. "This is important", according to Todd Yellin, Netflix's Vice President of Product Innovation, because, "About 75 percent to 80 percent of what people watch on Netflix comes from what Netflix recommends, not from what people search for".^[108] Moreover, Mike McGuire, a VP at Gartner, said: "profiles will give Netflix even more detailed information about its subscribers and their viewing habits, allowing the company to make better decisions about what movies and TV shows to offer".^[108] Additionally, profiles lets users link their individual Facebook accounts, and thus share individual watch queues and recommendations,^[108][109] since its addition in March after lobbying Congress to change an outdated act.^[109] Neil Hunt, Netflix's Chief Product Officer, told CNNMoney: "profiles are another way to stand out in the crowded streaming-video space", and, "The company said focus-group testing showed that profiles generate more viewing and more engagement".^[110]

Hunt says Netflix may link profiles to specific devices, in time, so a subscriber can skip the step of launching a specific profile each time s/he logs into Netflix on a given device.^[111]

Critics of the feature have noted:

• New profiles are created as "blank slates",^[111] but viewing history prior to profile creations stays profile-wide.^[112]
• People don't always watch Netflix alone, and media watched with viewing partner(s) – whose tastes might not reflect the owner(s) – affect recommendations made to that profile^{[110][111][112]}

In response to both concerns, however, users can refine future recommendations for a given profile by rating the shows watched and by their ongoing viewing habits.^[111][112]

Products

In 2011, Netflix introduced a Netflix button for certain remote controls, allowing users to instantly access Netflix on compatible devices.^[113]

Netflix revealed a prototype of the new device called "The Switch" at the 2015 World Maker Faire New York. "The Switch" allows Netflix users to turn off lights when connected to a smart home light system. It also connects to users' local networks to enable their servers to order takeout, and silence one's phone at the press of a button. Though the device hasn't been patented, Netflix released instructions on their website, on how to build it at home (DIY). The instructions cover both the electrical structure and the programming processes.^[114][115]

In May 2016, it created a new tool called FAST to determine how fast one's Internet connection is.^[116]

Content

Netflix Originals

A "Netflix Original" is content that is produced, co-produced, or distributed by Netflix exclusively on their services. Netflix funds their original shows differently than other TV networks when they sign a project, providing the money upfront and immediately ordering two seasons of most series.^[11]

In March 2011, Netflix began acquiring original content for its library, beginning with the hour-long political drama House of Cards, which debuted in February 2013. The series was produced by David Fincher, and stars Kevin Spacey.^[117] In late 2011, Netflix picked up two eight-episode seasons of Lilyhammer and a fourth season of the ex-Fox sitcom Arrested Development.^[118][119] Netflix released the supernatural drama series Hemlock Grove in early 2013.^[120]

In February 2013, DreamWorks Animation and Netflix co-produced Turbo FAST, based on the movie Turbo, which premiered in July.^[121][122] Netflix has distributed over a dozen other animated family and kid shows, including All Hail King Julien, The Mr. Peabody & Sherman Show, Dawn of the Croods, Voltron: Legendary Defender, and Kulipari: An Army of Frogs.

Orange Is the New Black debuted on the streaming service in July 2013.^[123] In a rare discussion of a Netflix show's ratings, Netflix executives have commented that the show is Netflix's most-watched original series.^[124][125] In February 2016, Orange is the New Black was renewed for a fifth, sixth and seventh season.

In November 2013, Netflix and Marvel Television announced a five-season deal to produce live action series' Marvel superhero-focused: Daredevil, Jessica Jones, Iron Fist and Luke Cage. The deal involves the release of four 13-episode seasons that culminate in a mini-series called The Defenders. Daredevil and Jessica Jones premiered in 2015.^{[126][127][128]} The Luke Cage series premiered on September 30, 2016, with the miniseries of The Defenders and Iron Fist scheduled for a 2017 release. In April 2016 the Netflix series in the Marvel Cinematic Universe were expanded further, to include an 13-episode series of The Punisher.^[129][130] In addition to the Marvel deal, Disney announced that the television series Star Wars: The Clone Wars would release its sixth and final season on Netflix, as well as all five prior and the feature film. The new Star Wars content was released on Netflix's streaming service on March 7, 2014.^[131]

In April 2014, Netflix signed Arrested Development creator Mitch Hurwitz and his production firm The Hurwitz Company to a multi-year deal to create original projects for the service.^[132] The period drama Marco Polo premiered on December 12, 2014. The animated sitcom BoJack Horseman premiered in August 2014, to mixed reviews on release but garnering wide critical acclaim for the following seasons.^[133]

The science fiction drama Sense8 debuted in June 2015, which was written and produced by The Wachowskis and J. Michael Straczynski^[134] Bloodline and Narcos were two other drama series that Netflix released in 2015. On November 6, 2015, Master of None premiered, starring Aziz Ansari. Other comedy shows premiering in 2015 included Unbreakable Kimmy Schmidt, Grace and Frankie, Wet Hot American Summer: First Day of Camp, and W/ Bob & David.

Netflix continued to dramatically expand their original content in 2016. The science fiction supernatural drama Stranger Things premiered in July 2016, the music-driven drama The Get Down in August, and the year's premieres included comedy shows such as Love, Flaked, Netflix Presents: The Characters, The Ranch, and Lady Dynamite. Netflix released an estimated 126 original series or films in 2016, more than any other network or cable channel.^[11]

The company has started internally self-producing its original content, such as The Ranch and Chelsea, through its Netflix Studios production house.^[135]

In January 2017, Netflix announced all Comedians in Cars Getting Coffee episodes and season 10 would be on their service.^[136] The website expects to release 1,000 hours of original content in 2017.^[137]

Canceled programs

As of 2017, Netflix has canceled ten shows.^{[138][139][140]} They are:

• Hemlock Grove - canceled after three seasons
• Lilyhammer - canceled after three seasons
• Longmire - canceled after six seasons, three of which aired on Netflix
• Marco Polo - canceled after two seasons
• Bloodline - canceled after three seasons
• Sense8 - canceled after two seasons (renewed for final episode)
• The Get Down - canceled after one season
• Girlboss - canceled after one season
• Gypsy - canceled after one season

Film and television deals

Netflix currently has exclusive pay TV deals with several studios. The pay TV deals give Netflix exclusive streaming rights while adhering to the structures of traditional pay TV terms. As of 2014, films catalogued in Netflix's United States library include recent releases from Relativity Media and its subsidiary Rogue Pictures,^[141] as well as DreamWorks Animation,^[142] Open Road Films^[143] (though this deal expired in 2017; Showtime has assumed pay television rights^[144]), FilmDistrict,^[145] The Weinstein Company,^[146][147] Sony Pictures Animation,^[148] and the Walt Disney Studios catalog among others.

Other distributors who have sold back-catalog rights to Netflix include Warner Bros., Universal Pictures, Sony Pictures Entertainment, 20th Century Fox, and Walt Disney Studios. Netflix also holds current and back-catalog rights to television programs distributed by Disney–ABC Television Group, DreamWorks Classics, Kino International, Warner Bros. Television, 20th Television, Hasbro Studios, Saban Brands and CBS Television Distribution. Formerly, the streaming service also held rights to television programs distributed by NBCUniversal Television Distribution and Sony Pictures Television. Netflix also previously held the rights to select titles from vintage re-distributor The Criterion Collection, but these titles pulled from Netflix and added to Hulu's library.^[149]

Epix signed a five-year streaming deal with Netflix. For the initial two years of this agreement, first-run and back-catalog content from Epix was exclusive to Netflix. Epix films would come to Netflix 90 days after their premiere on Epix. However, the exclusivity clause ended on September 4, 2012, when Amazon signed a deal with Epix to distribute its titles via the Amazon Video streaming service.^[150] These include films from Paramount, Metro-Goldwyn-Mayer and Lionsgate.^[151][152]

On September 1, 2011, Starz ceased talks with Netflix to renew their streaming arrangement. As a result, Starz's library of films and series were removed from Netflix on February 28, 2012. Titles available on DVD were not affected and can still be acquired from Netflix via their DVD-by-mail service.^[153] However, select films broadcast on Starz continue to be available on Netflix under license from their respective television distributors.

Netflix also negotiated to distribute animated films from Universal that HBO declined to acquire, such as The Lorax, ParaNorman, and Minions.^[154]

On August 23, 2012, Netflix and The Weinstein Company signed a multi-year output deal for RADiUS-TWC films.^[155] Later that year, on December 4, Netflix and Disney announced an exclusive multi-year agreement for first-run United States subscription television rights to Walt Disney Studios' animated and live-action films, which were available on Netflix beginning in 2016. However, classics such as Dumbo, Alice in Wonderland and Pocahontas were instantly available upon completion of the deal.^[156] Direct-to-video releases were made available in 2013.^[157][158] The agreement with Disney is scheduled to end in 2019 as Disney will start their own streaming service for their titles at that time.^[159]

On January 14, 2013, Netflix signed an agreement with Time Warner's Turner Broadcasting System and Warner Bros. Television to distribute Cartoon Network, Warner Bros. Animation, and Adult Swim content, as well as TNT's Dallas, beginning in March 2013. The rights to these programs, previously held by Amazon Video, were given to Netflix shortly after their deal with Viacom to stream Nickelodeon and Nick Jr. programs expired.^[160] However, Cartoon Network's ratings dropped by 10% in households that had Netflix, and many of the channel's shows were removed in March 2015.^[161] Most of these shows were added to Hulu in May of the same year.^[162]

In Canada, Netflix holds pay TV rights to films from Paramount, DreamWorks Animation and 20th Century Fox, distributing all new content from those studios eight months after initial release. In 2015, the company also bought the Canadian pay TV rights to Disney films.^[163]

In 2014, opinion web blogger Felix Salmon wrote that Netflix couldn't "afford the content that its subscribers most want to watch."^[164] He cited as evidence the company's loss of rights to stream several major movies. According to journalist Megan McArdle, the loss of these movies was extremely problematic for the company; specifically, she said that "[Netflix's] movie library is no longer actually a good substitute for a good movie rental place".^[165]

Device support

Devices that are compatible with Netflix streaming services include Blu-ray Disc players, tablet computers, mobile phones, high-definition television (HDTV) receivers, home theater systems, set-top boxes, and video game consoles.

4K streaming requires a 4K-compatible device and display, both supporting HDCP 2.2. 4K streaming on personal computers requires hardware and software support of the Microsoft PlayReady 3.0 digital rights management solution, which requires a compatible CPU, graphics card, and software environment. Currently, this is limited to Intel Kaby Lake (seventh-generation Intel Core), Windows 10, Nvidia Geforce 10 series graphics cards, and running through Microsoft Edge web browser, or the UWP Netflix app.^{[166][167][168][169]}

Sales and marketing

Netflix's website attracted at least 194 million visitors annually, according to a Compete.com survey from 2008. This was about five times the number of visitors to Blockbuster's main website.^[170]

During Q1 2011, sales and rentals of DVDs and Blu-ray discs plunged about 35%, and the sell-through of packaged discs fell 19.99% to $2.07 billion, with more money spent on subscription than in-store rentals. This decrease was attributed to the rising popularity of Netflix and other streaming services.^[171]

In July 2012, Netflix hired Kelly Bennett – former Warner Bros. Vice President of Interactive, Worldwide Marketing – to become its new Chief Marketing Officer. This also filled a vacancy at Netflix that had been empty for over six months when their previous CMO Leslie Kilgore left in January 2012.^[172]

International expansion

2007	Netflix began streaming in the United States.
2010	The company first began offering streaming service to the international market on September 22, 2010 in Canada.[173]
2011	Netflix expanded its streaming service to Brazil, Hispanic America, the Caribbean and the Guianas.[174]
2012	Netflix started its expansion to Europe in 2012, launching in the United Kingdom and Ireland on January 4.[175] By September 18 it had expanded to Denmark, Finland, Norway and Sweden.[176]
2013	The company decided to slow expansion in order to control subscription costs.[177] It only expanded to the Netherlands.
2014	Netflix became available in Austria, Belgium, France, Germany, Luxembourg, and Switzerland.[178]
2015	Netflix expanded to Australia and New Zealand, Japan,[179][180][181] Italy, Portugal, and Spain.[182]
2016	Netflix announced at the Consumer Electronics Show in January 2016 that it had become available everywhere worldwide outside of Mainland China, Syria, North Korea and the territory of Crimea.[183][184]
2017	In April 2017, Netflix confirmed it had reached a licensing deal in Mainland China for original Netflix content with iQiYi, a Chinese video streaming platform owned by Baidu.[185]

As of July 2017, Netflix officially supports 20 languages for user interface and customer support purposes: Arabic (Modern Standard), Chinese (Simplified and Traditional), Danish, Dutch, English, Finnish, French, German, Hebrew, Italian, Japanese, Korean, Norwegian (Bokmål), Polish, Portuguese (Brazilian and European), Romanian, Spanish (Castilian and Standard), Swedish, Thai and Turkish.

Competitors

Netflix's success was followed by the establishment of numerous other DVD rental companies, both in the United States and abroad. Walmart began an online rental service in October 2002 but left the market in May 2005. However, Walmart later acquired the rental service Vudu, in 2010.^[186]

Blockbuster Video entered the United States online market in August 2004, with a US$19.95 monthly subscription service. This sparked a price war; Netflix had raised its popular three-disc plan from US$19.95 to US$21.99 just prior to Blockbuster's launch, but by October, Netflix reduced this fee to US$17.99. Blockbuster responded with rates as low as US$14.99 for a time, but, by August 2005, both companies settled at identical rates.^[187] On July 22, 2007, Netflix dropped the prices of its two most popular plans by US$1.00 in an effort to better compete with Blockbuster's online-only offerings.^[188] On October 4, 2012, Dish Network scrapped plans to make Blockbuster into a Netflix competitor.^[189] (Dish bought the ailing Blockbuster, LLC in 2011 and will continue to license the brand name to franchise locations, and keep its "Blockbuster on Demand" video streaming service open.)^[190]

In 2005, Netflix cited Amazon.com as a potential competitor,^[191] which until 2008, offered online video rentals in the United Kingdom and Germany. This arm of the business was eventually sold to LoveFilm; however, Amazon then bought LoveFilm in 2011.^[192] In addition, Amazon now streams movies and television shows through Amazon Video (formerly Amazon Video On Demand and LOVEFiLM Instant).^[193]

Redbox is another competitor that uses a kiosk approach: Rather than mailing DVDs, customers pick up and return DVDs at self-service kiosks located in metropolitan areas. In September 2012, Coinstar, the owners of Redbox, announced plans to partner with Verizon to launch Redbox Instant by Verizon by late 2012.^[194] In early 2013, Redbox Instant by Verizon began a limited beta release of its service,^[195] which was described by critics as "No Netflix killer"^[196] due to "glitches [and] lackluster selection."^[197]

CuriosityStream, a premium ad-free, subscription-based service launched in March 2015 similar to Netflix but offering strictly nonfiction content in the areas of science, technology, civilization and the human spirit, has been dubbed the "new Netflix for non-fiction".^[198]

Hulu Plus, like Netflix and Amazon Prime Instant Video, "ink[s] their own deals for exclusive and original content", requiring Netflix "not only to continue to attract new subscribers, but also keep existing ones happy."^[199]

Netflix and Blockbuster largely avoid offering pornography, but several "adult video" subscription services were inspired by Netflix, such as SugarDVD and WantedList.^[200][201]

In Australia, Netflix competes with several local streaming companies, most notably locally operated services Stan and Quickflix.^[202] In the Nordic countries, Netflix competes with Viaplay, HBO Nordic and C More.^[203][204] In Southeast Asia, Netflix competes with HOOQ,^[205] Astro On the Go, Sky on Demand, Singtel TV, HomeCable OnDemand, and iflix.^[206] In New Zealand, Netflix competes with local streaming companies including Television New Zealand (TVNZ), Mediaworks New Zealand, Sky Network Television, Lightbox, Neon and Quickflix. In Italy, Netflix competes with Infinity (Mediaset), Sky Online and TIMvision. In South Africa, Netflix competes with ShowMax.^[207] In the Middle East, Netflix competes with Starz Play Arabia.

In Mexico, when Televisa tried to create its own streaming service called Blim, it was heavily criticized for not understanding millennials,^[208][209] Netflix themselves also criticized the poor quality of the productions content made by Televisa.^[210]

Time Warner

In a 2010 New York Times interview, Time Warner CEO Jeff Bewkes downplayed Netflix as a threat to more traditional media companies. Bewkes told the newspaper, "It's a little bit like, is the Albanian army going to take over the world? I don't think so." At the same time, he recognized that the company's DVD service may have contributed to a decline in DVD sales, and regarding the industry's willingness to make special deals with Netflix in the future, he added "this has been an era of experimentation, and I think it's coming to a close."^[211] Bewkes later refined his position, stating during a 2011 conference call that "things like Netflix are welcome additions to the infrastructure. They can monetize value for companies like Warner that maybe there wasn't – in terms of efficiency for older product, wasn't as available before[…]Our view of Netflix has been very consistent. I've tried at times to be humorous about it, sometimes to make a point."^[212]

Awards

On July 18, 2013, Netflix earned the first Primetime Emmy Award nominations for original online-only web television programs at the 65th Primetime Emmy Awards. Three of its web series, Arrested Development, Hemlock Grove and House of Cards, earned a combined 14 nominations (nine for House of Cards, three for Arrested Development and two for Hemlock Grove).^[213] The House of Cards episode "Chapter 1" received four nominations for both the 65th Primetime Emmy Awards and 65th Primetime Creative Arts Emmy Awards, becoming the first webisode of a television series to receive a major Primetime Emmy Award nomination: David Fincher was nominated in the category of Outstanding Directing for a Drama Series.^[213][214] "Chapter 1" joined Arrested Development's "Flight of the Phoenix" and Hemlock Grove's "Children of the Night" as the first webisodes to earn Creative Arts Emmy Award nomination, and with its win for Outstanding Cinematography for a Single-Camera Series, "Chapter 1" became the first webisode to be awarded an Emmy.^[215] Fincher's win for Directing for a Drama Series made the episode the first Primetime Emmy-awarded webisode.^[216]

On December 12, 2013, the network earned six Golden Globe Award nominations, including four for House of Cards.^[217] Among those nominations was Wright for Golden Globe Award for Best Actress – Television Series Drama for her portrayal of Claire Underwood, which she won at the 71st Golden Globe Awards on January 12. With the accolade, Wright became the first actress to win a Golden Globe for an online-only web television series. It also marked Netflix' first major acting award.^{[218][219][220]} House of Cards and Orange is the New Black also won Peabody Awards in 2013.^[221]

On July 10, 2014, Netflix received 31 Emmy nominations. Among other nominations, House of Cards received nominations for Outstanding Drama Series, Outstanding Directing in a Drama Series and Outstanding Writing in a Drama Series. Kevin Spacey and Robin Wright were nominated for Outstanding Lead Actor and Outstanding Lead Actress in a Drama Series. Orange is the New Black was nominated in the comedy categories, earning nominations for Outstanding Comedy Series, Outstanding Writing For A Comedy Series and Outstanding Directing For A Comedy Series. Taylor Schilling, Kate Mulgrew and Uzo Aduba were respectively nominated for Outstanding Lead Actress in a Comedy Series, Outstanding Supporting Actress in a Comedy Series and Outstanding Guest Actress in a Comedy Series (the latter was for Aduba's recurring role in season one, as she was promoted to series regular for the show's second season).^[222]

Netflix got the largest share of 2016 Emmy award nominations among its competitors, with 16 major nominations. However, streaming shows only got 24 nominations out of a total of 139, falling significantly behind cable.^[223] The 16 Netflix nominees were: House of Cards with Kevin Spacey, A Very Murray Christmas with Bill Murray, Unbreakable Kimmy Schmidt, Master of None, and Bloodline.^[223]

In April 2017, Netflix was nominated for Broadcaster of the Year in the UK's Diversity in Media Awards.

Finance and revenue

2010

In 2010, Netflix's stock price increased 219% to $175.70 and it added eight million subscribers, bringing its total to 20 million. Revenue jumped 29% to $2.16 billion and net income was up 39% to $161 million.^[224]

2011

In April 2011, Netflix was expected to earn $1.07 a share in the first quarter of 2011 on revenue of $705.7 million, a huge increase compared to the year-earlier profit of 59¢ on revenue of $493.7 million, according to a survey of 25 analysts polled by FactSet Research.^[225]

At their peak, in July 2011, Netflix shares were trading for $299. Following the customer dissatisfaction and resulting loss of subscribers after the announcements by CEO Hastings that streaming and DVD rental would be charged separately, leading to a higher price for customers who wanted both (on September 1), and that the DVD rental would be split off as the subsidiary Qwikster (on September 18), the share price fell steeply, to around $130.^[226][227] However, on October 10, 2011, plans to split the company were scrapped. The reason being that "two websites would make things more difficult", he stated on the Netflix blog. On November 22, Netflix's share tumbled, as share prices fell by as much as 7%.^[228] By December 2011, as a consequence of its decision to raise prices, Neflix had lost over 75% of its total value from the summer.^[229][230] Describing their business model as "broken", Wedbush downgraded Netflix's stock rating to "underperform", the equivalent of sell.^[231]

2014

In May 2014, Netflix increased the fee for UK subscribers by £1.^[232] The price increase took effect immediately for new subscribers, but would be delayed for two years for existing members. Netflix applied similar increases in the United States (an increase of $1) and the Eurozone (an increase of €1). According to Forbes,^[233] "Netflix can add roughly $500 million in annual incremental revenues in the U.S. alone by 2017 with this move" and "roughly $200–250 million in incremental revenues from price changes in international markets". However, Reuters' Felix Salmon is critical about Netflix's financial future, noting that "any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears".^[234]

2016

In April 2016, Netflix announced it would be ending a loyalty rate in certain countries for subscribers who were continuously subscribed before price rises.^[235] Netflix spent about $5 billion on original content in 2016;^[236] this compares to a 2015 revenue of US$6.77 billion (2015).^[237]

Legal issues and controversies

In 2004, Netflix was sued for false advertising in relation to claims of "unlimited rentals" with "one-day delivery".^[238]

Also, in 2015, Netflix was caught up in a copyright lawsuit of international scope involving the 1948 Italian film Bicycle Thieves.^[239][240]

Netflix was also sued in 2016 because Netflix told subscribers in marketing material that they "would not increase monthly subscription prices as long as the subscribers maintained the subscription service continuously," However, Netflix announced that it would “phase out this grandfathering gradually over the remainder of 2016, with our longest tenured members getting the longest benefit.” The according to the class action, "Netflix has broken its contract with these subscribers by unilaterally raising monthly subscription prices".^[241]

User information

Effects and legacy

The rise of Netflix has affected the way audiences watch televised content. Netflix's CPO Neil Hunt believes that Netflix is a model for what television will look like in 2025. He points out that because the Internet allows users the freedom to watch shows at their own pace, an episode does not need cliffhangers to tease the audience to keep tuning in week after week, because they can just binge straight into the next episode.^[242] Netflix has allowed content creators to deviate from traditional formats that force 30 minute or 60 minute timeslots once a week, which it claims gives them an advantage over networks. Their model provides a platform that allows varying run times per episode based on a storyline, eliminates the need for a week to week recap, and does not have a fixed notion of what constitutes a "season". This flexibility also allows Netflix to nurture a show until it finds its audience, unlike traditional networks which will quickly cancel a show if it is unable to maintain steady ratings.^[243]

Netflix has strayed from the traditional necessary production of a pilot episode in order to establish the characters and create arbitrary cliffhangers to prove to the network that the concept of the show will be successful. Kevin Spacey spoke at the Edinburgh International Television Festival about how the new Netflix model was effective for the production of House of Cards, "Netflix was the only company that said, 'We believe in you. We've run our data, and it tells us our audience would watch this series." Though traditional networks are unwilling to risk millions of dollars on shows without first seeing a pilot, Spacey points out that in 2012, 113 pilots were made, 35 of those were chosen to go to air, 13 of those were renewed, and most of those are gone now. The total cost of this is somewhere between $300 million and $400 million, which makes Netflix's deal for House of Cards extremely cost effective.^[244] Netflix's subscription fee also eliminates the need for commercials, so they are free from needing to appease advertisers to fund their original content, a model similar to traditional pay television services such as HBO and Showtime.

The Netflix model has also affected viewers' expectations. According to a 2013 Nielsen survey, more than 60% of Americans said they binge-watch shows and nearly eight out of 10 Americans have used technology to watch their favorite shows on their own schedule.^[245] Netflix has successfully continued to release its original content by making the whole season available at once, acknowledging changing viewer habits. This allows audiences to watch episodes at a time of their choosing rather than having to watch just one episode a week at a specific scheduled time; this effectively gives its subscribers freedom and control over when to watch the next episode at their own pace. Netflix has capitalized on these habits by automatically playing the next episode in the series, removing the 15-second wait times of content on other streaming services. The structure that allows convenient viewing of episodes, as well as the intent to provide content of quality comparable to some broadcast and cable television programs, in effect often results in the viewer being hooked into the program by the time the next episode starts.^[246]

In June 2016, Russian Minister of Culture Vladimir Medinsky asserted that Netflix is part of the US government plot to influence the world culture, "to enter every home, get into every television, and through that television, into the head of every person on earth". This was part of his argument for the increase of funding of Russian cinema to pitch it against the dominance of Hollywood.^[247]

See also

• Comparison between OTT and IPTV
• Digital television
• Netflix and chill
• VaultML

References

External links

Wikimedia Commons has media related to Netflix.

• Netflix

• • Business data for Netflix: Google Finance
  • Yahoo! Finance
  • Reuters
  • SEC filings