Streaming service Netflix is a cultural icon. It has at least 104 million subscribers and countless more leechers (like myself) who use their friends and family members’ accounts. But despite its complete dominance in the online video streaming marketplace, less than 20 years ago it was locked in a heated battle with the company Blockbuster. A company now well on its way towards fading into obscurity, Blockbuster used to be the premier way for people to watch movies at home. They had thousands of locations across the country where people could go and rent movies, watch at home, and then return them to the store. However, in the early 2000s Netflix started cutting deep into their business with a far more convenient solution wherein DVDs would be mailed to users and then they could just mail it back when they were finished. Plus, no late fees! You could keep the disc as long as you wanted but you wouldn’t receive a new one until you had returned your last one. What was Blockbuster to do?
Their answer was to commit corporate espionage against Netflix, learn the secrets to their success, and then create a cheap knockoff of the company and win their business back. The problem was the man tasked with pulling off this operation was a pure businessman; Shane Evangelist. While Evangelist was capable of doing a standing backflip, he was incapable of understanding why Netflix was so successful even up against a titan company like Blockbuster. He attributed it to their distribution centers and fancy website, so he tasked some innocuous looking associates with pretending to be Netflix fans and getting tours of their facilities, all the while taking pictures and asking questions about their inner workings. He also hired software developers to tear the Netflix website apart bit-by-bit and replicate it with the Blockbuster theme painted over it. But like Leslie Nielsen’s bumbling Agent WD40 in Spy Hard (a movie you can watch right now on Netflix), he didn’t have a clue of the big picture; websites and distribution isn’t what made Netflix so successful; its understanding of its customers was.
Data analytics was what really made the Netflix machine tick. Netflix could track how long people kept movies, what kind of movies specific people liked, and would remind people if they didn’t have movies in their queue to watch. Netflix’s selection quality also far outstripped Blockbuster Online’s collection; they offered a wide array of quality movies to their viewers (much higher quality than the videos of fires burning in a fireplace or fish in an aquarium that Blockbuster offered to surpass the numbers of Netflix) and were even giving independent filmmakers a platform to launch their movies, appealing to a wider audience who didn’t otherwise have easy access to indie fare. So, despite the fact that Blockbuster Online understood their usurper’s distribution centers and their website, they didn’t understand the intangibles, the backend magic that made the company work.
The final nail in the coffin was Blockbuster’s inability to see that it would be the online streaming market, not Netflix’s original DVD mailing system, that would truly revolutionize the market. Gerald Sim notes that “[Netflix CEO Reed] Hastings’ nous and foresight regarding online streaming as the catalysts in a zero-sum game between the companies” (Sim 2016) was necessary both for him to have and Blockbuster execs to lack. This streaming service allowed for near-infinite expansion of the programs offered to subscribers (they were limited only by their free time, not number of channels, DVD mail time, or checkout limit). The freedom offered by online streaming also gave way to a “Golden Age of Television” where extremely high-quality shows directed at specific audiences could flourish, not having to battle for airtime against broadcast shows aimed at the widest possible audience. However, Netflix is still not alone in offering these services. After vanquishing the stagnant beast that was Blockbuster, Netflix now faces new adversaries like Hulu, Amazon Prime, and YouTube, all vying for the biggest piece of the vast online video streaming market.