Netflix Business Model

Jian Hong Huang SI 480

Netflix Business Model

With a total subscriber base of 20 million people, the chances of either you or someone you know having a Netflix account is quite large. How did a small company, created in 1997, grow to be what it is today, putting out what once were the great giants in media distribution such as Blockbuster? The answer can be found by analyzing the business model.

Back in April of ’98, Netflix launched as a website with a pretty standard pay-per-rent business model, not too much different from that of Blockbuster. Customers were charged both a $4 fee per DVD and a $2 shipping fee along with late fees if need be. According to what was written in the Harvard paper “Note on Business Model Analysis for the Entrepreneur,” Netflix was at first, following a volume or unit-based revenue model. Netflix would not have a monthly based subscription model until 1999 and would only move to instant online access 8 years later. In 2007, Netflix made the big move which propelled it to what it is today by departing from the typical DVD shipping service. Thanks to the increased bandwidth and improvements made in personal computing technology, users could now instantly watch a movie that they had rented online instead of having to wait for the DVD to ship. Better yet, this meant no late fees, no due dates, and best of all, no wait. This monumental decision led to a huge decrease in DVD sales overall, a large growth for Netflix, and the gradual decline of DVD rental stores like Blockbuster.

Today, you can also have certain shows on demand as well, along with the movies, all for only a $7.99 fee every month; the choice for receiving DVDs by mail remains as well. Netflix is an amazing example of a subscription/membership revenue model done right, a simple pay-per-month model that seemingly provides an endless amount of digital value for the consumer.