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Netflix Inc: Streaming Away From DVDs - A Case Study Analysis

Netflix Inc: Streaming Away from DVDs - A Case Study Analysis

Netflix Inc is one of the most successful and innovative companies in the entertainment industry, offering a wide range of movies and TV shows to millions of subscribers worldwide. However, Netflix's success was not always guaranteed. In fact, the company faced a major challenge in 2011, when it decided to split its DVD rental and online streaming services into two separate businesses, resulting in a significant loss of customers and revenue.

Netflix Inc: Streaming Away from DVDs - A Case Study Analysis

In this article, we will analyze how Netflix managed to overcome this crisis and transform itself into a global leader in online streaming, based on the Harvard Business Review case 'Netflix Inc: Streaming Away from DVDs' by Willy Shih and Stephen Kaufman. We will also provide a link to download the case in PDF format for free at the end of the article.

The Background of Netflix

Netflix was founded in 1997 by Reed Hastings and Marc Randolph as a DVD rental by mail service. The company's main value proposition was to offer a large selection of titles, a convenient delivery system, and a personalized recommendation algorithm. Netflix also introduced a subscription model that allowed customers to rent as many DVDs as they wanted for a fixed monthly fee, without late fees or due dates.

By 2007, Netflix had over 6 million subscribers and a library of more than 90,000 titles. However, the company also faced increasing competition from other DVD rental companies such as Blockbuster and Redbox, as well as emerging threats from online video platforms such as YouTube and Hulu. Netflix realized that it needed to innovate and diversify its offerings to stay ahead of the market.

The Transition to Online Streaming

In 2007, Netflix launched its online streaming service, which allowed customers to watch movies and TV shows instantly on their computers or devices. The streaming service was initially offered as a free add-on to the DVD subscription, with a limited selection of titles. However, Netflix soon expanded its streaming library and invested heavily in acquiring and producing original content, such as House of Cards and Orange is the New Black.

By 2010, Netflix had over 20 million subscribers and more than half of them were using the streaming service. Netflix also started to expand its international presence, launching its streaming service in Canada, Latin America, and Europe. However, the company also faced some challenges in its streaming business, such as rising content costs, licensing restrictions, bandwidth limitations, and piracy issues.

The Qwikster Debacle

In 2011, Netflix made a controversial decision to split its DVD rental and online streaming services into two separate businesses: Netflix for streaming and Qwikster for DVDs. The company also raised its prices by 60%, forcing customers to pay separately for each service. The rationale behind this move was to focus on each business separately and allocate resources more efficiently.

However, the decision backfired spectacularly. Customers were outraged by the price hike and the inconvenience of having two accounts and two websites. Many of them canceled their subscriptions or switched to other providers. Netflix lost over 800,000 subscribers in the third quarter of 2011 and its stock price plummeted by 77%. The company also faced a backlash from investors, analysts, media, and regulators.

Netflix quickly realized its mistake and reversed its decision within a month. The company apologized to its customers and scrapped Qwikster. However, the damage was already done. Netflix had tarnished its reputation and lost its competitive edge.

The Recovery and Growth

Despite the Qwikster debacle, Netflix did not give up on its vision of becoming the world's leading online streaming service. The company learned from its failure and took several steps to regain its customers' trust and loyalty. Some of these steps included:

  • Improving its customer service and communication

  • Enhancing its user interface and recommendation system



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