When it comes to pulling off a corporate comeback, there’s nobody quite like Netflix CEO Reed Hastings. He’s had to fend off detractors at every juncture, beginning with those who denied his company’s ability to compete with the traditional video store. After almost singlehandedly ending that era of home video distribution, Hastings nearly lost it after he split Netflix’s streaming and DVD delivery services in two. The schism cost the company millions of subscribers and sent stock tumbling from $298 to $52.81 per share.
But Hastings didn’t put DVD delivery on the back burner just to anger customers. Limiting dependence on an increasingly obsolete distribution method allowed the company to commit fully to its goal of producing original content. This year saw the fruits of that labor as shows like House of Cards, Arrested Development, and Orange Is the New Black joined the streaming library to great fanfare. Critics and customers alike praised not only the quality of the new programming but also the convenience of the watch-when-you-want service. By the time House of Cards premiered, Netflix shares had climbed back over $200 as the company added 2 million more subscribers.
Such is the power of Netflix that it accounts for almost a third of North America’s total Internet traffic on the average weeknight. All of that content is streamed from a constellation of cloud computing centers located throughout the country. When users hit “play” on the Netflix title of their choice, the service automatically locates the closest database to stream the video. Then the computer picks from dozens of different video files in order to suit whichever of the 1,000 Netflix-ready devices the subscriber is using. The fact that all this occurs within a matter of seconds can be credited to the company’s crack team of engineers, who represent some of the best in the business. Netflix is also heavily dependent on Amazon Web Services for its cloud storage operation, leading to a relationship that is beneficial for both parties. However, given that Amazon has its own streaming video service, there could come a time when Netflix is sent packing to find its own cloud. When that occurs, Hastings will likely address the problem with his same tried and true strategy: adapting by innovating.
Questions:
- Will Netflix become a major competitor to TV networks in producing programs?
- Is it possible a merger between Netflix and Amazon might occur?
Source: Ashlee Vance, “The Man Who Ate the Internet,” Bloomberg BusinessWeek, May 9, 2013. Photo by Ben Lucier.