Netflix Streaming – Project Notes Report

NETFLIX STREAMING – PROJECT NOTES REPORT

Company Name: Netflix

Project Case Title: The Adaptation of Streaming Functionality by Netflix

Relevant Articles: 

• http://www.nytimes.com/2007/01/16/technology/16netflix.html
• https://www.wired.com/2009/09/ff-netflix/
• https://www.techhive.com/article/2158040/how-netflix-streams-movies-to-your-tv.html
• http://www.businessinsider.com/how-the-netflix-recommendation-algorithm-works-2016-2

Synopsis:  Netflix, along with every other DVD based company at the time, was struggling to stay relevant and profitable within a declining technology based business model.  In 2007, Netflix made the proper business decisions to adapt itself to new streaming technology, discovering how to attract a transitioning customer base, and eventually using its newfound technological skillsets to become a leader in the eyes of the consumer.  Today they continue to better their product through an ever-changing machine learning/AI platform built on internally developed algorithms, as well as in-house production that rivals even the most seasoned competition.

Objectives:

1. Determine what it was that convinced Netflix that a technological transition was necessary to their survival.
2. Research the technology that was available at the time of transition, and how Netflix used it to their advantage.
3. Review what Netflix has done since their transition in order to continue their successes in the eyes of both their customers and their competition.

Project Note Questions & Analysis:

1. What was it within their industry that Netflix recognized as a sign of changes that needed to be addressed?  How did a new business model become the necessary plan?

“We’ve gotten used to it,” Netflix’s chief executive, Reed Hastings, said of the doomsday predictions.  But Mr. Hastings also said he understood why questions about his business kept coming up. “Because DVD is not a hundred-year format, people wonder what will Netflix’s second act be.”

Analysis:

        By the time Netflix began looking into the streaming possibilities, they were a decade-old company leading the field in DVD rentals.  The good news was their competition within the store front model was steadily leaving the industry, opening up customer possibilities.  The bad news was some of that competition was being forced out due to a dying product and a shrinking customer base.  Netflix understood that the customer opportunity was there, but only if there was something to sell them.

        As for the online DVD rental model, Blockbuster had slowly been attempting to save themselves by encroaching into that space that Netflix had so far been fairly alone in.  Redbox had found their little niche as the easily accessible and quite affordable vending-machine-type rental company.  And then there was Amazon, the first to try their hand at the video on demand model with their ‘Unbox’ – later renamed ‘Amazon Instant Video on Demand’.  Although this started as a downloadable service, rather than the streaming seen today, this idea of on demand with no need for physical products was the obvious future, as seen by Amazon’s early success.

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        Understanding the future, and determining how to successfully enter a new space that someone else has already occupied are two very different things.  Determining how to strategically rebuild a business model that uses new technology, retains current customers, AND attracts an entirely new group of consumers was going to be a chore to say the least.  The competitive edge that Netflix had grown accustomed to regarding logistics would be null and void when entering a world of digital distribution.  But the one thing they were able to control during the transition was the customer model – free to subscribers and focused on instant gratification.

1. What new technology did Netflix needs to learn and/or invest in in order for their transition to be successful?  Did they need to consult outside council already possessing that necessary knowledge?

“For Netflix, the true value of a cloud service was the sheer amount of computing power it can bring to bear on advanced "rich services," Bansal said.  “It takes an awful lot of horsepower to encode and deliver high-quality video streams to relatively puny computers like those embedded in smartphones.  Netflix has to perform almost all of the work necessary for a satisfactory video experience on its own servers.”

Analysis:

Once the decision to go streaming had been made, there were two main questions that needed to be answered – how will Netflix reach the consumers’ devices (originally computers, later TVs, phones, etc.) and how will the store and/or access the content they establish rights to?  At the time of transitioning, Netflix had plenty of capital to acquire the necessary licenses for the movies they wished to provide.  Although the shareholders’ reactions highlighted the risk they believed to be relevant to spending that kind of money for a new venture, it would prove to be necessary.