![]() This meant subscribers were losing one of Netflix's best features: personalized suggestions. There were to be two different sign ins and two different accounts. Again, this all made sense in light of Hastings' vision, but it didn't take into account the headaches it created for customers. The company was now was splitting into two parts. Three months later, Netflix put out an announcement made the situation exponentially worse. Few understood the immense expenditures that were being laid out to keep Netflix on the cutting edge of streaming, including $30M a year to allow Netflix streaming subscribers to access 2,500 movies, TV shows, and concerts from cable channel Starz. In fact, most saw it as a cash grab, especially since on paper Netflix looked so healthy. "By better reflecting the underlying costs and offering our lowest prices ever for unlimited DVD, we hope to provide a great value to our current and future DVD-by-mail members."īut members weren't buying it. "Netflix members love watching instantly, but we've come to recognize there is still a very large continuing demand for DVDs by mail," said Andy Rendich, Netflix Chief Service and Operations Officer. The could have “a streaming-only plan, a DVD-only plan or the option to subscribe to both.” The company attempted to spin it as offering subscribers choice. ![]() This was a painful, protracted recession. Any other time, this might've gone through with mild grumbling. Previously they'd been able to bundle both for just $2 more. Those who wanted both streaming and DVDs had to pay 60% more per month. First, they announced that Netflix was splitting its plans into two parts: streaming video and DVD rentals. ![]() In July 2011, the company pushed forward with an initiative that made sense in light of its aspirations as a streaming company. The recession-era misstep that almost sank Netflix He believed that “actions speak louder than words,” an attitude that led to a near catastrophe in 2011. As Hastings later confessed, communication wasn’t his strong point. This set the stage for confusion down the road. In short, their vision was clear to them, but not to others. “But if we were to come out and say, 'This is all about downloading or streaming,' and we said that in 1997 and '98, that would have been … disastrous.” “One of the biggest challenges that we had was … we had to come up with a premise for the company that was delivery agnostic,” said Randolph in a 2014 interview. They always envisioned the company as a streaming-only video service. However, for Netflix CEO Reed Hastings and his co-founder Marc Randolph, DVD rentals were just the start. Between 20, its subscriber numbers ballooned 290%, from 6.3 million to 24.6 million. And with economical subscription bundles and no late fees, Netflix offered good value when consumers were more price conscious than ever. People liked the convenience of ordering DVDs by mail and streaming video at home. It was also a first mover in streaming video, taking a chance on its future success in a market now valued at over $22B and growing by leaps and bounds. Netflix made a name for itself in 1997 as pioneer of the DVD mail-order business, ultimately helping drive competitors like Blockbuster and Hollywood Video out of business. It’s also an object lesson in how to not just stay afloat during a recession, but to use the learnings from one to drive a company forward. The road back required a gutsy and well thought out strategy with financial strength at its heart.Īnyone in finance can learn from Netflix's story, a story of taking a long-term view of risk while managing customer dissatisfaction. ![]() To calm investor fears, Netflix’s stock price needed to stabilize. This wasn't the time for the company to lose their hard earned trust-but that's what Netflix did. Its customers, still reeling from the effects of the 2008 financial crisis, were counting every penny. It lost 800,000 customers almost overnight, and the company’s stock price cratered by 80%. The Great Depression ushered in Hollywood’s “ Golden Age,” as movies were an escape and a way to have an inexpensive night out.ĭespite this, in 2011, Netflix almost melted down. In general, recessions are good for the entertainment business. But few remember that at the height of the recession, it came close to flaming out. Both a movie studio and entertainment platform, Netflix has nearly 140 million subscribers and is the dominant player in the streaming services industry.
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