Dynamic Marketing Communiqué

Binge-watch all seasons of your favorite series! How did Netflix change how we consume media today?

February 24, 2020

“Netflix has been leading the way for digital content since 1997.”

They have over 167 million subscribers in over 190 countries today.

With the support of more than 8,600 employees in 2019…

Netflix was listed #78 of the World’s Best Employers, #38 of the World’s Most Valuable Brands, and many more on Forbes.com.

In the same year, they had USD 20.2 billion Net Sales.

…and it all started by offering people movie rental services through DVDs mailed directly to their doorsteps.

How did Netflix change the way we consume media today?

This story will answer that.

In 1997, Netflix was co-founded by software engineers, Reed Hastings and Marc Randolph, who were previously co-workers at Pure Software.

Marc Randolph wanted to start a business but had no idea what to sell while Reed Hastings was a disappointed consumer of the increasing fees of video rental shops.

With an initial investment of USD 2.5 million, they launched a website where people could rent or buy a movie and have it mailed directly to them. The business was called Netflix, which came from the combination of “net,” a common abbreviation of the internet and “flix,” a common abbreviation of “flicks” that is slang for movies or film.

That was when they achieved their brand position today…

NOT!

They were just getting started.

Amazon: First Partner or Competitor?

Two months after the official launch of Netflix in 1998 as the world’s first online DVD rental store, Amazon’s Jeff Bezos offered to buy Netflix to jump-start their entry into the video market.

Netflix politely declined even though they knew Amazon would become a big competitor of theirs.

Months after they said no, Amazon started selling DVDs.

That being one of the major reasons, Netflix stopped selling DVDs and focused on rentals.

BUT they also had a brief partnership with Amazon in the same year. Netflix’s website included links to Amazon for users to purchase DVDs, while Amazon also did the same for Netflix and their rental service.

Sadly, the results weren’t what they hoped it would be…

“We were sending them tens of thousands of customers—they were sending us hundreds.” – That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea by Marc Randolph

The following year, Netflix offered a subscription service where for a monthly fee, people could have unlimited DVD rentals.

In 2000, they completely removed the single-rental option by offering movies that were exclusively released on their website, first by partnering with Warner Brothers, Columbia Pictures, and then with others.

That initiative contributed to them gaining 300,000 subscribers that same year. They established distribution centers across America to increase the speed of delivery and provide an overnight option.

Initial Competitor: Blockbuster

Despite having grown its subscribers to 300,000, Netflix operated at a financial loss from the beginning.

Randolph and Hastings offered Netflix for $50 million to be acquired by Blockbuster.

However, Blockbuster laughed at the idea and they rejected the offer.

In 2002, Netflix began trading on the Nasdaq Stock Market in New York City with an initial public offering of $15 per share.

A year later, they met all of their financial and operational goals set before IPO.

In 2004, Blockbuster announced its own DVD mail program to compete with Netflix.

Then, Netflix announced its intent to expand to digital video.

In 2007, based on that intent, Netflix introduced their instant streaming feature.

Fast forward to today, Netflix now has more than 167 million paying members.

They’re on top, and they’re continually innovating to stay on top.

This is how.

Netflix’s secret sauce can be summarized from its vision and mission:

Vision: “Becoming the best global entertainment distribution service.”

Mission: “We promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact.”

A big part of their success in the past decade is their content originality, which turned into brand exclusivity.

They produced their own content known as Netflix OriginalsShows like Orange Is the New Black, House of Cards, Stranger Things, and Black Mirror are among the shows that helped Netflix become the brand it is today.

In addition, they give importance to their customers’ experience by personalizing their content.

Every user’s homepage is different from one another based on the shows they last viewed or added to their watch list.

Netflix offers a wide range of movies, TV series, and documentaries available in different genres and languages.

They take advantage of online trends, resulting in relevant content and highly engaged followers on social media.

They use memes, GIFs, Twitter polls, and many more that are trending nowadays to engage with people online. Using their social media accounts, they engage with their audience every chance they get to remain relevant.

Netflix’s Earning Power: Valens Research vs. As-reported numbers

Netflix makes for a great case study that we come back to regularly. One great reason? The firm has proven itself to be a phenomenal earning power generator.

The blue bars in the chart below represent Netflix’s earning power (Uniform Return On Assets). This number has been well above 15% in over 15 years.

The global average of this number over the last 60 years is just 6%.

The orange bars are the company’s as-reported financial information. If you relied on these numbers, you’d just see the 5% orange bar when you look at the 2019 as-reported ROA (return on assets, measure of earning power).

That’s what you’ll see in Yahoo Finance, Google Finance, and most other databases.

So, how well has Netflix been growing its business in the past years?

The research doesn’t lie—nor do the results. Earning power (the blue bars) has been trending up and continues to show results much higher than what traditional databases show.

The company’s stock price also performed better than the rest of the stock market over the decade, which we can see in the blue line in the chart above. Their returns are well above 5.0x the market.

Netflix’s focus on providing great entertainment content, customer needs, and online trends brought them to where they are today.

They’ve made their mark in the online entertainment industry, through their game-changing business strategies.

Being named as one of the most innovative companies in the world, Netflix has effectively made a change in how we consume media today and took it to the next level.

About The Dynamic Marketing Communiqué’s
“Monday Marketing Marvels”

Too often, industry experts and the marketing press sing the praises of some company’s marketing strategy.

…Only for the audience to later find out that their product was a flop, or worse, that the company went bankrupt.

The true ROI in marketing can’t be separated from the business as a whole.

What good is a marketing case study if one can’t prove that the company’s efforts actually paid off?

At the end of the day, either the entire business is successful or it isn’t. And the role of marketing is always paramount to that success.

Every Monday, we publish a case study that highlights the world’s greatest marketing strategies.

However, the difference between our case studies and the numerous ones out there, is that we will always make certain that the firm really did generate and demonstrate earning power worthy of study in the first place (compliments of Valens Research’s finance group).

By looking at the true earnings of a company, we can now rely on those successful businesses to get tips and insights on what they did right.

We’ll also study the greatest marketing fails and analyze what they did wrong, or what they needed to improve on. We all make our mistakes, but better we learn from others’ mistakes—and earlier, rather than later.

Hope you found this week’s marketing marvel interesting and helpful.

Stay tuned for next week’s Monday Marketing Marvels!

Cheers,

Kyle Yu and Joel Litman
Head of Marketing & President and CEO
Valens Dynamic Marketing Capabilities
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