Netflix - Case Study 5

Netflix is a subscription based video rental company and has become the frontrunner in the video rental industry since it was founded in 1997 and the launching their online segment in 1999. The industry as a whole has only a few competitors with a handful dominating the market (Netflix, Red Box, Cable TV - Video on Demand and Pay-Per-View). By 2010 Netflix had evolved into the world’s largest subscription service for DVD rentals by mail and streaming both movies and TV episodes over the internet; its subscription base had grown to 15 million. By the second quarter of 2010 revenues totaled 519.8 million which represents a 27 percent year-over-year growth from the second quarter of 2009. Further analysis showed the company’s net income had increased by 94.2 million from 2004 to 2009 which represents an annual growth rate of almost 40 percent. Netflix profits were soaring at a time when the “more traditional” video industry was struggling and suffering severe losses.
How was it that Netflix was experiencing record breaking profits and growth when competitors like Blockbuster were crashing? In its infancy Netflix developed a competitive advantage by being one of the first in the video rental industry to realize that technology was changing, the world was changing and with that the wants and needs of the people were changing. To address these changes they created a convenient, low cost, flat rate product that allowed people to rent an unlimited amount of movies from the comfort of their own home. With competitors quickly following suit Netflix had to foster innovative ways to preserve and expand their subscription base and to maintain their competitive advantage. It was always the goal of Netflix founder and CEO, Mike Hastings to outcompete the competition with a later goal to become the world’s best internet movie service; that said it is discernible that he had a strategy to sustain their competitive advantage.
Aside from the low cost flat rate