Business

THE HISTORY AND SECRETS OF NETFLIX

Netflix

Netflix: the reasons for its success

Do you remember when to enjoy a good film on the sofa you had to leave home and go and rent a DVD? Today it almost seems like science fiction to us.

Yet what would become the world’s largest streaming platform was initially just a mail-order DVD rental service.

Netflix: how the idea that revolutionized the entertainment sector was born

It’s 1997 and in the town of Scotts Valley, California, someone at the checkout of a Blockbuster is forced to pay a $40 penalty for late returning the Apollo 13 videotape . As it happens, that someone is a brilliant computer engineer named Reed Hastings who at that very moment is enlightened by a brilliant idea: launch a new online video rental system , allowing anyone to have a cinema at home without moving. from the sofa.

Together with marketing expert Marc Randolph, Hastings launched the service that would change their lives and ours forever. This is how Netflix was born .

How it works is very simple: just sign up for the monthly subscription by connecting to the website, choose the title and wait for the postman . All for $6, including shipping. To test it, they decide to send a DVD to their address. The DVD arrives intact.

Initially the business did not go well, so much so that in 2000 Netflix proposed to Blockbuster to acquire it but received a negative response. The same year Hastings came up with a new formula for customer loyalty: the unlimited monthly subscription. You can choose up to a maximum of 3 titles, receive them by post, return them and receive others several times in the same month.

With this method Netflix began its climb to success and in 2005 it had 4.2 million subscribers.

The real turning point came in 2007 with the launch of the “Watch Now” streaming service , which allows you to instantly watch films and television programs on your computer. Users have access to up to 18 hours of free streaming, which varies depending on their subscription plan.

Initially, streaming was launched as a plus for postal rental subscribers and was accessible from the same account, but it was clear from the start that it would be the future of entertainment: at the end of 2007 the company had 7.5 million subscribers with a 20% increase compared to the previous year.

In the following years, Netflix began partnerships with major console companies such as Xbox, PlayStation, Nintendo and with Apple, thus expanding the number of platforms on which to make its service available.

In 2011 Netflix worked on its own film production , which debuted in 2013 with the TV series House of Cards , which was released on the platform already complete with all the episodes of the first season.

This move determines a revolution in the world of TV series: binge watching is born , that is, the practice of watching multiple episodes of a TV series in a row, without stopping.

Today Netflix has 208 million subscribers worldwide (in Italy there are over 2 million), just over 50% of all subscriptions to streaming platforms and generates 20 billion dollars in revenue.

Netflix and the cultural offering

Netflix’s main strong point is its catalog full of films, TV series and shows for all ages and tastes. It is mainly composed of original productions , with excellent casts and productions active in different states.

Just think of House of Cards , which revolutionized the language of TV series and won three Primetime Emmys: it is the first time that an Internet streaming service has received a Primetime Emmy nomination.

Netflix has relaunched a certain arthouse and auteur cinema and offered the public the opportunity to delve into contemporary history, documentaries… 

Furthermore, thanks to the revenue sharing agreements stipulated in the past with the main film producers on the market, it has managed to procure the audiovisual products of the leading film companies at low cost and exclusively, in order to ensure its users an increasingly wide within its online catalogue.

Another strength of Netflix’s rich catalog is multiculturalism . Netflix, due to its economic model, must serve an increasingly larger and more varied audience. This is why it must have content for all tastes and cultures. Hollywood has always sought to expand internationally. But Netflix’s case is fundamentally different: instead of trying to sell American ideas to foreign audiences, it wants to sell international ideas to global audiences.
 

 
Netflix and technology

The main innovation exploited by Netflix since its inception has been the Internet. Through the use of the web, the company has managed to create an efficient business model based on the distribution of DVDs through online sales channels, reducing the high distribution costs that could have arisen from physical sales channels.

The second innovation was to use a new, thin and compact data storage tool: the DVD.

In 2007, Netflix experimented with streaming , when very few companies decided to bet on this technology.

In 2010 the company entered into an agreement with Amazon and acquired additional digital services. In particular, Netflix, rather than focusing on an internal solution, chooses to entrust the data center infrastructure to Amazon, leaving the internal staff to focus on improving the other services.

Finally, Netflix has put the algorithms on which product development, service improvements and decisions regarding the launch of new content are based at the center of its strategy .

The heart of Netflix’s strategy: the algorithm

Attention to users has always been Netflix’s strong point and has changed the consumption paradigm of on-demand products. If the objective has always been to build viewer loyalty through episodes, Netflix has instead been able to capture a certain type of user behavior and transform it into consumer behavior.

The crucial element of this strategy was the introduction of software capable of collecting and analyzing users’ preferences and tastes and using this data to offer an ad hoc service for each one.

This system, initially known as Cinematch, later became the Netflix Recommender System: a collection of different algorithms that analyze different ways of using content and which together create the so-called Netflix Experience.

The ultimate purpose of the recommendation system implemented by Netflix is ​​to eliminate the risk that users lose interest in the video content offered and decide to abandon the platform. The Netflix Recommender System carries out its function starting from the site’s homepage up to the playback page of the chosen content, collecting valuable data on the preferences of the various users of the streaming service.

Every day the system collects information about what each member watches, how they watch it, the areas within the platform where certain content was selected and recommended content that was not selected. Through the data collected, Netflix creates parameters and performance indicators, from the analysis of which it is possible to implement winning strategies.

A fundamental element within the system is also the feedback that the user provides voluntarily. In fact, through a simple evaluation system, each user can provide their own opinion (positive or negative) on the video content displayed.

Netflix has therefore created, over time, a business model that places the user at the center of its strategic decisions. Its strength comes from the ability to guarantee safety to its users who, at the end of one viewing, are encouraged to start another in line with their taste.

Netflix’s distribution policies

When Netflix originated, distribution was in the hands of Blockbuster. But the founders of the platform immediately understood that the web could play a fundamental role in creating an innovative distribution model .

This is why the monthly subscription to Netflix allowed you to receive an almost unlimited number of titles at home without having to go to a physical store.

Subsequently, with the introduction of on-demand content and the elimination of physical media, Netflix expanded to all countries around the world.

The biggest competitive advantage that the company has at the moment is that its contents can be used at the same price everywhere , albeit with limited differences regarding the catalog offered.

The availability of contents in different states, in fact, varies based on the agreements made with the various copyright holders.

Netflix’s pricing policy

Netflix also has a winning policy when it comes to subscription costs. It currently offers the user the possibility to choose between three subscription plans (“basic”, “standard” and “premium”), the cost of which varies based on the number of devices on which it is possible to watch the content simultaneously and the resolution ( standard definition SD, high definition HD or ultra high definition UHD).

If you are not satisfied with the service, you can easily cancel . In fact, Netflix guarantees total entertainment or, if not, a refund.

The company needs data to guide production choices. In the case of inactive users, therefore not useful for strategic marketing purposes, it prefers to lose them.

Communication strategy

Netflix’s content marketing strategy aims to create engagement with the user by exploiting their emotional connection with the characters of films and TV series, empathizing with followers. The type of communication that the company carries out stimulates curiosity and makes you want to watch a TV series to be informed about the topics everyone is talking about.

Each social network is managed differently, not only based on the specificity of the platform but also the country of reference, thanks to the geotargeting technique . Generally speaking, Facebook is used to publish the main promotional content, Twitter to stimulate virality, Instagram to exploit the instantaneousness and immediacy of stories.

Netflix pays particular attention to the requests, comments and opinions of users, who are monitored through social platforms to understand the level of satisfaction with a show. Listening also takes place through monitoring groups on Facebook, blogs and communities where users exchange ideas, ask for advice on what to watch, comment on films and episodes, thus increasing word of mouth and discussions around the products.

Thanks to the data collected, Netflix is ​​able to propose a system of one to one recommendations : each individual viewer is recommended content and advertising of products tailored to him, encouraging the possibility of new purchases, increasing his satisfaction with the service and increasing loyalty.

The tone of voice used is the distinctive weapon of the social strategy: it is informal, direct and ironic , and this allows us to refer to the daily lives of users as if the speaker were a faithful friend who knows and shares habits and lifestyles.

We can therefore conclude by saying that Netflix’s success is due to the ability to have introduced a new business model, accompanied by a wise marketing strategy.

The variety of content that manages to please everyone, the new additions to the catalog every month and the ability to pamper its subscribers have allowed Netflix to revolutionize television dynamics and the way of conceiving the viewing of TV series and to become an increasingly concrete alternative to traditional prime time entertainment .

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