From DVD Mailing to $1.6bn Profit – How Netflix Became a Digital Media Giant via Multiple Pivots

Per a recent announcement, Netflix declared $1.6bn profit (up 20% increase), added 9 million subscribers in Q3 and increased its premium ad-free subscription to $22.99/month. 

Safe to say Netflix is flexing while Disney, Discovery, Paramount and other streaming platforms are singing ‘God when’. 

As the king of rebounds, Netflix’ success story teaches every founder salient lessons on growth, adapting and taking calculated risk. Before I share the lessons, let me paint the context vividly.

A year ago, Netflix was losing 1 million subscribers every quarter. It was the worst performing stock in the S&P 500 as 75% of its market cap vanished into thin air. How did Netflix navigate from red to green in one circumnavigation of the Sun?

 The answer in one word is pivoting. 

Just like the saying – we don’t die we multiply, Netflix on many occasions since it was founded has died, shed some unnecessary weight and grown new stronger wings which it has flapped to glide from being a DVD-by-mail business, to becoming an Internet company and now Hollywood monster that sits at the same table with Apple, Amazon, and Google.

Now, let’s look at 4 times that Netflix grew immensely by pivoting.

1. Transitioning from DVD mailing to streaming

Interestingly, many Gen Z founders and business leaders may not know what DVD rental means until they Google it. I remember becoming a favourite customer of 2 new DVD rental shops that opened on my street back then. 

One of them would even lend me new movies to watch for free and share my thoughts so they could tell customers who would ask them to summarize the movies for them before renting. 

According to the intern (a volunteer actually) who supervised the ideation, development and piloting of the streaming platform for Netflix, 

It wasn’t the first time that Netflix had evaluated an internet-only option, but only in the mid-2000s did data speeds and bandwidth costs finally reach the point where asking users to download an entire movie online no longer seemed like a crazy idea. The initial thinking was that we would create and supply customers with a “Netflix box” that they could use to download movies overnight to watch the next day. It was incredibly difficult to acquire the download rights to movies, just as it was difficult to create the new box and service, but by 2005, we were finally ready to launch.

Netflix developed the nerve to allocate resources to pivoting to a streaming platform from carefully studying the unprecedented growth rate of Youtube and realizing that downloading and watching movies online was becoming not only affordable but also a trending consumer behaviour. 

2. From streaming licensed content to developing originals

Netflix did not stop at pivoting to a streaming platform which pitched against a fast growing YouTube then. In 2011, despite positioning as a “platform,” Netflix ventured into developing original content. 

Consequence of this pivot was going up against Universal, Paramount, Warner Bros. Disney, and Sony. These are not neigbouhood frenemies who would battle in petty street fist fights, they are the Hollywood titans known in the industry as the Big Five that could stampede a newbie who messes with their bags like an angry elephant.  

But Netflix ‘get coconut head sha’. It went ahead to spend $2 billion on original content in its first year of becoming a streaming-cum-media company. Alas. One of its first original series, House of Cards, went on to earn 33 Emmy and 8 Golden Globe nominations. 

Netflix’ calculated risk paid off big time, yeah?

3. Doubling down on international content

Netflix invested heavily in increasing its international content. This has unlocked new markets with a wide range of non-American audiences across the world. Talk of a blue ocean tactic on steroids. 

For instance, in the past 2 years, Netflix has increased its spending on local-language productions in Asia to $2 billion, the same way it doubled investment in content developed in Europe. More than half of its scripted titles are now being produced abroad. 

Compared to Discovery (a third) and Paramount (a quarter), Netflix has pivoted from Hollywood content that has limited consumers to other green markets with huge numbers and fresh perspectives that has flavoured its portfolio with interesting varieties. 

4. Establishing the right mix of licensed and original content

One brilliant tweak Netflix did to the off-the-shelf streaming VoD model was to diversify its library with a great mix of original and licensed content. Let’s zoom in.

Earlier this year, Netflix bought the rights to stream Suits from NBCUniversal. Suits became the most streamed show across all platforms for 3 straight months this year, hitting the record for most-ever weeks at No. 1. Who would have thought that a 2011 legal drama that peaked many years ago would perform better than any original Netflix show in 2023?

I once consulted for a Nollywood producer who built a streaming content for ONLY movies she produced. All attempts to convince her to introduce licensed content from other Nigerian or African producers failed. Unfortunately, after investing millions of Naira over 2 years she shut down the platform and focused on movie production that she was great at.

She learnt the hard way that people get tired of similar content in a very period. Netflix, on the other hand, has mastered the act of balancing their library in such a way that users from anywhere in the world will always find something new and refreshing to stream. 

With 247.2 million paid subscribers worldwide (as at Q3 2023), 83 million of which are from Europe, Middle East and Africa, Netflix has continued to grow immensely by adapting aggressively. 

If you are a fan of National Geographic, you will have learnt by now that most animals that survive are not the smartest or strongest. They are the ones who adapt faster and use their current situation to their advantage.

Happy to discuss your perspectives on pivoting and how you might have leveraged it in the past. Share them in the comments section. 

Content Krush is a data-driven digital marketing consulting firm in Nigeria with major strengths in Search Engine Optimization, Growth Marketing, B2B Lead Generation, Content Marketing, Website and Application Development.

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