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The Fascinating History of Netflix

Netflix is a giant of the internet today, but how did it start and who founded it?

By SM Khaled Hasan Prince

Stock Catalog/Flickr

For millions, Netflix is the de-facto place to go for movie and TV streaming. According to sites like fortune.com, its services alone constitute about 15% of all the world's internet bandwidth!

Not bad for a company that started by posting DVDs by snail mail. Here we explore the origins of the company and track some of the important milestones in history. 

RELATED: HOW EXACTLY DOES NETFLIX RECOMMEND MOVIES TO YOU?

Who started Netflix?

Netflix was first founded in August of 1997 by two serial entrepreneurs, Marc Randolph and Reed Hastings. The company began out in Scotts Valley, California, and has grown to become one of the world's leading internet entertainment platforms.

When it first opened, Netflix was purely a movie rental service. Users ordered movies on the Netflix website, and received DVDs in the post. When they were finished with them, they would simply post them back to Netflix in the envelopes provided. At the time, this was seen as a boon to those who did not have a video rental store nearby (remember those?).

Today, Netflix streams movies and has more than 151 million paid subscribers in over 190 countries around the world. It offers a wide range of TV series, documentaries, and feature films across a wide variety of genres and languages, including original productions

Reed Hastings helped cofound Netflix back in the 90s

Source: Guety/Wikimedia Commons

Reed Hastings co-founded Netflix in 1997. He was an entrepreneur who in 1991 had founded Pure Software, which made tools for software developers. After a 1995 IPO and several acquisitions, Pure was acquired by Rational Software in 1997.

Hastings received a BA from Bowdoin College in 1983 and an MSCS in artificial intelligence from Stanford University in 1988. Between Bowdoin and Stanford, he served in the Peace Corps as a high school math teacher in Swaziland. Today, he is an active educational philanthropist, having served on the California State Board of Education and on the board of several educational organizations.

Marc Randolph is the other chap behind Netflix

Source: marcrandolph.com

Marc Randolph is a veteran Silicon Valley entrepreneur, advisor, and investor. As co-founder and founding CEO of Netflix, he laid much of the groundwork for a service that’s grown to 150 million subscribers and fundamentally altered how the world experiences media.

He also served on the Netflix board of directors until retiring from the company in 2003." - marcrandolph.com. 

Randolph graduated from university with a degree in Geology and would go on to found and run various mail-order and direct-to-customer companies before Netflix. 

Throughout Randolph's career, he founded no fewer than six successful startups, including the magazine Macworld, and has mentored hundreds of early-stage entrepreneurs

When and where was Netflix founded?

As previously mentioned, Netflix was founded in 1997 in Scotts Valley, California. It was originally a rent-by-mail DVD service that used a pay-per-rental model.

Users would browse and order the films they wanted on their website, put in an order, and Netflix would post them to your door. After renters had finished with the DVDs, they would simply post them back.

Rentals cost around $4 each, plus a $2 postage charge. After significant growth, Netflix switched to a subscriber-based model. 

With this model, users could keep the DVDs for as long as they liked, but could only rent a new movie after returning their existing one. 

Source: Matthew Keys/Flickr

Netflix's mail-order rental model would directly challenge the market dominance of bricks-and-mortar rental giants like Blockbuster. In fact, Blockbuster could ultimately not compete with the move to online streaming and rentals and filed for bankruptcy in 2010.  

But this never needed to happen. Years earlier, Blockbuster had the opportunity to partner with Netflix, or even buy the company out.

"In 2000, Netflix CEO and co-founder Reed Hastings approached Blockbuster about a partnership. Unfortunately for Blockbuster, their CEO just smiled and laughed at him.

In fact, Blockbuster even had a chance to purchase Netflix for $50 million. Netflix currently has a Market Cap of [$209.74B] (July 2020) and a share price of  $476.89, while Blockbuster is out of business." - rewindandcapture.com. 

Why is Netflix called Netflix?

You could probably work this one out for yourself. But in case you are still stumped, the name Netflix is a combination of "Net" (as in the abbreviation for "internet" and "Flix" (a variation of "flick", the common abbreviation for a movie or film).

Pretty straight forward really. 

Source: Facebook

How was Netflix founded?

At the time Netflix was founded, Randolph was working as a marketing director for Hasting's company Pure Atria. He was also the co-founder of MicroWarehouse (a computer mail-order company).

Hasting would later sell Pure Atria to the Rational Software Corporation in 1997 for $700 million. 

By all accounts, the pair came up with the idea for Netflix during a commute between their homes in Santa Cruz and Pure Atria's HQ in Sunnyvale. 

Hastings would supply the seed capital, and invested $2.5 million into the startup in cash. Inspired by Amazon's e-commerce model, the pair explored various portable items they could use to sell over the internet in a similar fashion.

After initially considering and rejecting VHS cassettes, they settled on DVDs as the perfect product. They tested their idea by posting a DVD to their homes in Santa Cruz, and when it arrived in perfect condition, they decided the time was right to break into the market with their revolutionary model.

Netflix launched in April of 1998 as one of the world's first online DVD rental companies. They had only a few staff, and just under 1000 titles at the time. 

Source: stockcam/iStock

Some of the key milestones in Netflix's history

Here is a brief timeline of some of the critical milestones in the company's history (courtesy, in part, of Netflix.com):-

It all kicks off 1997

Reed Hastings and software executive Marc Randolph co-found Netflix to offer online movie rentals. 

Netflix launches its DVD rental and sales service in 1998

Netflix launches the first DVD rental and sales site, Netflix.com

Their subscriber-based business model launches in 1999

Netflix debuts a subscription service, offering unlimited DVD rentals for one low monthly price.

Source: Tero Vesalainen/iStock

2000 unveils subscriber personalization

Netflix introduces a personalized movie recommendation system, which uses members’ ratings to predict choices for all Netflix members.

Netflix goes public in 2002

With a membership count at 600,000 in the US, Netflix makes its initial public offering (on the Nasdaq, under the ticker “NFLX”). The stock is initially offered for $15 a share, with an initial offering of 5,500,000 shares. 

The company ends the year with around 857,000 registered Netflix accounts. 

Since then, Netflix has consistently been one of the best-performing stocks in the S&P 500.

The company celebrates 1 million accounts in 2003

This year, Netflix hits a new record for the number of members, with more than 1 million. The company also issues a patent with the U.S. Patent and Trademark Office for its subscription rental service, with some other extensions. 

Co-founder Marc Randolph steps down as a member of the board and leaves Netflix in 2003.

Source: Dominic Smith/Flickr

2004 sees a doubling in the number of Netflix accounts

This year, Netflix's member base surpasses 2 million. At the same time, Netflix also faces one of its first encounters with the legal system when they are sued for false advertising in relation to claims of "unlimited rentals" with "one-day delivery". 

The claimant accused Netflix of failing to deliver on these two marketing promises in the San Fransisco Superior Court, claiming that the company's 3 at-a-time plan precluded unlimited rentals, and there was no way to ensure the one-day delivery using "snail mail". 

Netflix denied any wrongdoing, and both parties eventually agreed on a settlement. 

By 2005, Netflix has doubled its subscriber base again

The number of Netflix members rises to 4.2 million.

Netflix accounts hit a record 5 million in 2006

Netflix sees huge growth in member numbers, reaching 6,3 million subscribers by years' end. The company also launches its "Netflix Prize", promising a whopping $1 million to the first person, or team, who can achieve a set accuracy goal in recommending movies based on personal preferences.

Netflix also released around 100 million anonymous movie ratings, using a system that rates films from one to five stars. This is the largest set of such data released to date. 

Video streaming is introduced in 2007

Netflix introduced a streaming service, called "Watch Now", which allows members to instantly watch television shows and movies on their personal computers. This was a huge shift in the company's business model. Initially, the service launched with just 1,000 titles and only worked on PCs and Internet Explorer. It also offered a limit on the number of hours of free streaming (with a maximum of 18 free hours a month), based on the users' subscription plan.

Netflix was also careful to say that they felt DVDs would be around for a long time. Despite these limitations, it was soon clear that streaming was the future of entertainment.

By the end of 2007, Netflix had 7.5 million registered subscribers -- up almost 20% on the previous year.

Source: Stock Catalog/Flickr

Netflix teams up with various consumer electronics companies in 2008

Netflix partners with consumer electronics companies to allow streaming on the Xbox 360, Blu-ray disc players, and TV set-top boxes.The year ends with around 9.4 million subscribers

Netflix is added to Playstation and smart-TVs in 2009

Netflix partners with yet more consumer electronics companies to allow streaming on PS3, Internet-connected TVs, and other Internet-connected devices. Its member base also expands to an amazing 12 million accounts by the end of the year. 

The "Netflix Prize" also finds a winner this year. "Bellkor's Pragmatic Chaos" team, consisting of seven researchers from four countries. Running for over three years, the contest had attracted tens of thousands of contestants from more than 180 countries worldwide

Netflix connects to Apple devices and expands into Canada in 2010

Netflix is available on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, and other Internet-connected devices at this point. Netflix launches its service in Canada.

The year ends with more than 20 million subscribers on the books. This year also marked the point where the number of customers who were primarily streaming shows, outpaced those who were renting, leading Hasting to declare in an October earnings call that, "By every measure, we are now primarily a streaming company that also offers DVD-by-mail."

Source: Stock Catalog/Flickr

The Qwikster debacle of 2011