How Netflix benefited from a digital transformation
Digital transformation means that we are in the middle of a digital revolution that will affect every company and every sector. We can learn a lot from Netflix, which is a success story that every company should study. How could a small DVD rental company develop into a global leader disrupting the big TV networks in 190 countries? This is the fascinating story
While many companies struggle with digital disruption and transformation, Netflix evolved over time while taking a leading position in the disruption of the movie rental sector. It entered the digital age while it steadily increased its revenues and market share.
In 2014 Netflix reported 5.5 billion dollars revenue and as of October 2015 Netflix has 69 million subscribers worldwide. After its latest expansion last week, Netflix is now available in 190 countries. The number of subscribers will, without a doubt, increase.
How did a small movie rental company turn out to be leading global on demand internet streaming giant? In order to understand this success story, we need to study the history of Netflix.
History of Netflix
Netflix was founded in Scotts Valley, California in 1997 by Marc Randolph and Reed Hasting. Before developing Netflix’s core business, they did not know what kind of company they wanted to start. Randolph had the idea of starting a company that was sel something on the internet, when Hastings had to pay $40 for returning a rental movie past its due date, the idea of Netflix born.
Netflix webpage was launched on 14th of April 1998, at the beginning they had only 30 employees and 925 movies available for renting. In September 1999 Netflix changed its pay per rental model into monthly subscription. In early 2000 Netflix introduced its well known business model, flat fee unlimited rentals without due dates, late fees, shipping and handling fees. After this Netflix completely dropped out its single rental model.
Its flat fee model allowed subscribers to rent a certain amount of movie based on their subscription package, and in order to get new movies subscribers was required to send the ones they have back to Netflix.
The most important part of the Netflix’s success story is that when Randolph and Hasting started Netflix DVDs were recently introduced into market and market was dominated by VHS so instead of VHS Randolph and Hasting build their empire on DVDs.
Since DVDs quickly dominated the market, it proves the importance of recognizing the digital trends and how technology changes the consumer habits. When Netflix launched its internet media streaming service, it was no surprise since the widespread use of internet gravely disrupted the traditional TV networks.
Netflix and Digital Age
Digitalisation affected every company. That is a fact. This high speed of digitalisation caught many companies unprepared and forced them to digitally transform themselves. To be able to understand what is digital transformation, we must understand the concept of business transformation. Business transformation is about finding and implementing a new business model successfully.
Companies evolve, they develop new products and services, goals and organisation change. A successful business acknowledges that market does not stay constant and evolves with the market, reach new customers and improve its products. Transformation comes into play when companies fail to evolve.
Digital transformation is the intensity of digital initiatives in a corporation to adapt to the digital age. Companies who failed to evolve digitally have to perform a digital transformation. Evolution also changes a company significantly but the difference between transformation and evolution is that evolution is very subtle and customers usually do not notice it.
Netflix is the best example of company evolution, over the years technology has dramatically changed, and Netflix always evolved and adapted to market. When people slowly started to demand to access content via internet, Netflix developed a game plan for covering that demand. In 2006 Netflix introduced its online service, and while DVD market rapidly shrinked Netflix continue to grow.
Netflix as a disruptive leader
For a company evolution is not enough, it is also important to respond digital disruption properly.The term digital disruption is mostly misused, it is used to define any digital technology, also often it is confused with disruptive technology. The latter is used for new technology that challenges old technology.
Rapidly changing digital technology breeds new business models and challenges the existing products and services. This change is defined as digital disruption. For example social media is a digital disruption for the media sector. Due to social media marketing campaigns, TV networks need to adjust its advertisement prices to compete with social media.
While digital disruption is a challenge for the related sector, it is often an opportunity for other sectors. If we look at the social media and media sector relation, social media gravely disrupted the media sector, but also social media provides a very important opportunity for small and medium businesses.
Widespread use of internet and WEB 2.0 drastically changed our habits, especially TV networks were affected by this change. Netflix gradually increased its online library to provide a better service for online subscribers, in 2008 Netflix reached and agreement with Starz Entertainment( Spartacus TV show), then in 2010 Netflix reached a five year agreement with Paramount Pictures, Lions Gate Entertainment and MGM to stream movies worth of one billion dollars.
The real game changer for Netflix came when they started to stream popular TV shows. For every company Netflix is the perfect example of how to evolve and adapt but also how to survive digital disruption. Netflix constructed very successful business model with its rental service but over the years they have foreseen the changes in the consumer behaviour and changed their business model accordingly.
At the height of social media and content marketing Netflix, once again, evolved and started to produce its own movies and shows.Today, Netflix is the digital disruption and that is a level only a few company managed to reach.
Would you like to read more about digital transformation and disruption: Digital Transformation and Disruption
Digital Transformation and Netflix
Content marketing dominate our daily lives, personal ads are no longer a scene from Minority Report movie. Each and every day more companies focus on content marketing. It is the future of marketing but content marketing is like walking on very thin ice, it requires expertise, while you want to improve your company’s value you may damage it.
When Netflix decided to produce its own content, instead of starting from scratch they bought the licenses of cancelled tv shows like Arrested Development. Arrested Development was a very successful TV show, and it had a very strong fan base.
Arrested Development is a very good example for repurposing old content.Reviving a cancelled TV show with a huge fan base was a great strategy. Unlike traditional TV networks Netflix do not rely on ad revenue therefore it has an advantage for producing its own content.
When it comes to content marketing people dislike copy paste content, content should be unique and original that is precisely what Netflix did. It produced very unique TV shows and brought a different perspective for a genre, superhero TV shows, widely available on traditional TV networks.
At the moment Netflix produces the most popular series; Daredevil, Jessica Jones, Narcos. These are all original Netflix also they continue with their original strategy and acquire loved but cancelled TV series. Recently, Netflix produced an original movie: Beasts of No Nation is a huge success.
Netflix literally the first global TV network, available for 190 countries in 2016 Netflix will spend around 6 billion dollars for its latest expansion over 130 countries. If you want a good example for your company that masters both digital world and content marketing, you should follow Netflix.
Would you like to read more about content marketing: Star Wars 101: Light side and dark side of content Marketing
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