Netflix turns 25 with contested hegemony and TV face

“Easiest way to rent a DVD!” read an early version of the Netflix website. From a video rental company to a service with 220 million subscribers that transformed the way series and movies are consumed, the company turns 25 this Monday (29) at the risk of abandoning an innovative past.

Founded on August 29, 1997, in the United States, the company started as a DVD rental website. The user chose the film and received the disc by mail at home.

The size and price of the product favored this logistics. VHS tapes, which still dominated the market, were more expensive and risked damage in transit. This was a leap from the system of traditional rental companies, such as Blockbuster.

“In DVD rentals over the internet, movies are always available, there are no lines and the customer can stay as long as they want with the disc, without fines for late return. Going to the video store in the rain on Sunday night is a thing of the past” , explains an April 2005 Folha report.

This logic is similar to what Uber applied ten years ago. Create technologies that reduce “frictions”, obstacles between the customer and the service.

The end of fines emerged as an undeniable advantage. It was a company whose earnings did not depend on customer slips, but on their loyalty. And it worked.

“Much of Blockbuster’s profits came from late fees. If your business model depends on making your customer base feel stupid, you’re unlikely to get much loyalty from them,” writes the company’s CEO Reed Hastings in the book. “The rule is to have no rules”.

The then-NetFlix website, with two capital letters, went live in 1998. In 2000, it already had 300,000 subscribers and 100 employees, but lost US$ 57 million.

That same year, Hastings met with John Antioco, then CEO of Blockbuster, to offer his small, loss-making company to the entertainment giant. The idea was to integrate the online DVD rental service into the rival’s system. Antioco, however, rejected it.

“It wasn’t obvious at the time, not even to me, but we had one thing Blockbuster didn’t have: a culture that put people above processes, that emphasized innovation over efficiency, and that maintained very few controls,” he writes. Hastings in the book.

Blockbuster filed for bankruptcy in 2010.

The Netflix CEO’s book is a mix of self-help details about the company’s corporate culture. The ideas revolve around creating teams with just above-average employees, developing sincere communication, and eliminating controls like bureaucracy for vacations, travel, expenses, and decision-making.

That is, they range from impractical in other contexts to ingenious. But, for better or worse, they helped the company get where it is.

“Which of my employees, if they resigned to work in an equivalent role at another company, would I fight for, in the sense of keeping them at Netflix?” is one of the mottos of the so-called Netflix Culture Deck, a set of slides for internal use that Reed released on the internet in 2009.

The problem is, all these lessons could have come from any large company in any other industry. There is no sign in them, for example, that it is a company that produces and shapes the way people relate to culture. Movies and series are just a detail for Netflix – and it’s been working.

“Overall, Netflix Culture Deck struck me as hypermasculine, aggressively political and very confrontational—perhaps a reflection of the kind of company one would expect to have been built by an engineer with a rationalistic, mechanistic view of human nature,” writes Erin Meyer, co-author of the book “The rule is not to have rules”.

“However, despite all this, one fact cannot be denied. Netflix has been extremely successful.”

Netflix’s path of innovation starts with DVD rentals. Then came streaming, the transmission of original content produced by external studios and, finally, production by own studios.

“Netflix realized that it had an opportunity based on technology. It later understood that it couldn’t just be a catalog of films from other production companies. coordinator of the Film and Audiovisual course at ESPM Rio. “The company was also a rental company, but a rental company that knew how to reinvent itself and did not go broke. It dictated a new market movement”.

Streaming arrived ten years later, in 2007. First in the US, then in Canada and Latin America. The service debuted in Brazil on September 5, 2011. Today, it is only unavailable in China, Syria, North Korea and Russia.

Watching videos over the internet was nothing new at that time – YouTube, for example, was launched in 2005. But the advancement of browser technology, video compression, broadband and then smartphones, created a favorable scenario. for the popularization of the service.

In addition, Netflix did not have the strong competitors it has today, such as Amazon, HBO and Disney. The company was able to benefit from this hegemony for almost a decade.

For Pedro Curi, the success of Netflix is ​​not only due to the creation of a market that did not exist until then, but also to the development of several successful intellectual properties and efficient communication, which adapts to the cultures of each country.

From “House of Cards”, “Stranger Things” and “Round 6” to “Roma” and “Icarus”, Netflix has managed to produce from popular and record-breaking productions to titles with the veneer of awards and festivals. Today, it even seeks to offer games, even if timidly.

“In these 11 years that it has been present in Brazil, Netflix today works as a streaming TV channel. It has a consolidated brand, a line of content that people know, access and call to see what’s on, as they did with television,” said Curi.

In recent years, however, the rise of other services has shaken Netflix’s hegemony.

Competition intensified even more during the pandemic, when social isolation policies made streamings more accessible. Netflix shares have never been worth as much as in 2020 and 2021. In that period, the company jumped from 161.1 million to 221.8 million subscribers.

But the entry of competition made companies increasingly worry about balance sheets. Now, they are cutting the budget of some productions, restricting the sharing of passwords and considering creating cheaper plans, with ads – unpopular measures.

In April, Netflix announced a drop of 200,000 subscribers in the first quarter, the first decline recorded in a decade. In the second quarter, another 970,000 canceled their subscriptions. Today, the company has 220.7 million customers worldwide.

Netflix was still the worst-performing stock on the S&P 500 in the first half of this year. Its market cap has dropped from more than $300 billion in November 2021 — bigger than Disney — to $100 billion today.

Walt Disney, by the way, surpassed Netflix in the second quarter of this year, reaching 221.1 million subscribers. The number is the sum of Disney+, Hulu, and ESPN+ services.

In July, Netflix announced a partnership with Microsoft to come up with a cheaper, ad-supported streaming subscription plan.

For Pedro Curi, from ESPM, the inclusion of ads on the Netflix platform can repel users, causing them to spend less time interacting with a system they were already used to.

This conservative shift in streaming, which is now approaching more traditional business models and evoking pay-TV, is a sign that disruptive ideas cannot be strictly followed. The rule is no rules, but not always.

“It’s the risk the company takes when it gets too big and has a heavier structure. It’s much easier to move around when you’re lighter,” Curi said.