Netflix case study: growing in the crowded Indian market

Abstract

Netflix was founded in 1997 by Marc Randolph and Reed Hastings, initially operating as an online DVD rental service. At launch, the platform featured over 925 titles, catering to the growing market of early DVD adopters. Customers could select DVDs on the website, which were then mailed to them, with returns facilitated through pre-addressed envelopes included in each shipment. To increase visibility and adoption, Netflix partnered with DVD player manufacturers and retailers to promote its service.

Despite its innovative approach, Netflix’s original pay-per-rental model proved unprofitable. Customers were reluctant to wait several days for a DVD that they could easily rent from local video stores for a similar price. As Chief Product Officer Neil Hunt observed, “Our original model didn’t work… It wasn’t a high enough value product to overcome the delivery waiting time… We were spending $100 to $200 to bring in a [new] customer, and they would make one $4 rental. There was no residual value.”

In response to these challenges, Netflix pivoted in September 1999 to a subscription-based model, launching the Marquee Program. Priced at $15.95 per month, the plan allowed users to rent up to four DVDs per month with no deadlines, late fees, or shipping costs—an offering that significantly improved the perceived customer value.

However, the early 2000s were turbulent, especially during the dot-com bubble burst, which made fundraising difficult. In September 2000, the founders approached Blockbuster with an offer to sell Netflix for $50 million. Blockbuster CEO John Antioco dismissed the idea, viewing the proposal as frivolous and expressing skepticism about the dot-com sector.

Determined to survive, Netflix went public on May 29, 2002, issuing 5.5 million shares at $15 each. The move paid off: by 2003, the company recorded its first net profit of $6.5 million on revenues of $272 million. The following year, profits surged to $49 million, and revenue exceeded $500 million.

By 2005, Netflix offered access to 35,000 different films and was shipping over 1 million DVDs per day. Its success prompted Blockbuster to launch its own online DVD rental service in 2004, which allowed customers to exchange DVDs at physical stores. Though Blockbuster’s service gained traction, reaching 2 million subscribers by 2006, it still lagged behind Netflix in overall market share.

In response, Netflix filed a patent infringement lawsuit against Blockbuster on April 4, 2006, alleging that its online DVD rental model infringed on two of Netflix’s patents. The case was filed in the Northern District of California, with Netflix seeking a jury trial.