- Brutal competition from Amazon and Blockbuster almost killed the company
- Jeff Bezos tried to buy the company two decades ago
Netflix monopolized this Wednesday the covers of the financial media around the world after collapsing 35% in the stock market . The largest streaming video company lost subscribers for the first time in a decade in the first quarter of the year, a hole in the accounts of a technology company that promised continued growth in its audience in the medium and long term.
Fierce market competition and a business model that hasn’t come to fruition are now Netflix’s main weakness, two pillars that have already trembled in the past and that caused its shares to collapse in 2004, when Amazon, Wallmart and Blockbuster stepped on it . the heels.
It had been two years since Netflix had gone public in the United States and the company was already starting to make serious profits, but the movie rental market was so attractive that investors flinched at the first warning sign. “We think Amazon is going to enter this market in the near future,” Reed Hastings, founder and still CEO of Netflix, acknowledged in an October 2004 CNN interview. 41% on the stock market, the biggest drop in its history .
At that time, Netflix’s business was based on a monthly payment subscription that allowed Americans to rent through the Internet an unlimited number of movies that were delivered in a single day to their doorstep and without a return time limit. , exceptional conditions to compete with Blockbuster, which then had more than 9,000 stores throughout the country and dominated the market. However, in 2004 Blockbuster went online through a subscription system similar to Netflix, the first major threat to Hastings’ company, but the CEO remained confident in his product: “In a nutshell, Netflix continues to offer online rental of DVD better than anyone on the planet , “he assured in the results of the company in October of that year.
Amazon vs. Netflix
The market was not as optimistic and analysts saw an even greater danger, Jeff Bezos . The streaming war of 2022, where Amazon Prime is second only to Netflix, began more than two decades ago. Shortly after Netflix was founded, the Amazon CEO already saw the enormous potential of the firm and in the summer of 1998 he met with its two founders , Marc Randolph and Reed Hastings. From his office in Seattle he offered to buy the company from them for between 14 and 16 milliondollars, a juicy offer for a small start-up with eight employees and two months of life that only made losses, but they ended up rejecting the money. “Selling now would solve all these problems, or at least hand them over to a bigger company with more resources. But we were also on the brink of something. It didn’t seem like the right time to give up,” Marc Randolph says of that encounter in his book ‘ That Will Never Work: The Birth of Netflix and the Power of Great Ideas.
In 1998 the Amazon website was only three years old, but it was already huge next to Netflix. It dominated the online market for books and music and had arrived in Europe, an opportunity for the Randolph and Hastings company to open up to the world. But after the failed negotiation, Bezos chose to fully enter the DVD market and three months after their meeting, in November 1998, he launched his movie sales service. In just one quarter, it became the largest online movie seller in the world.
To differentiate themselves from Amazon, the creators of Netflix transformed their business model from selling DVDs to a subscription system that still works today. The bet was a success and at the end of 2003 they already accumulated almost three million subscribers, but the number of subscribers is not everything, as Netflix was reminded again this Wednesday. Reed Hastings himself acknowledged before Black Friday 2004 that “several sources” had warned him that Amazon was planning to launch a similar subscription system that sent DVDs home by mail, although Bezos’s company denied that it was going to assault skip that market.
Scared by rumors about Amazon, Netflix announced in its October 15, 2004 earnings release that it was lowering the price of its monthly subscription from $22 to $18, having raised the fee months earlier, and postponed plans to expand to the UK. Kingdom, a movement that showed the weakness of the company and scared the shareholders , despite the fact that the accounts that the company drew that day showed an increase in profits. That morning, Netflix shares plunged 39% on the stock market to $10.60.
The competition persists, now more than ever
Nearly two decades later, the service has moved to the cloud and the cost of the infrastructure has plunged, shooting up Netflix’s profit margins and stock value, but also the price of the service. If in 2004 it touched 22 dollars, the standard subscription now costs 16 dollars in the United States and 13 euros in Spain, a reduction that has allowed its public to open up to 222 million accounts .
However, it still faces fierce competition today and its business model is in doubt. The end of the pandemic has gotten people off the couch and rampant inflation is leading the middle classes to forgo small luxuries like streaming subscriptions. But not only Netflix faces market scrutiny: Spotify (-11%), Paramount (-9%), Roku (-6%) and Disney (-6%), among others, also fell this Wednesday.