Today, Netflix is synonymous with the entertainment industry, yet it is hard to believe that just two decades ago, the company had nothing to do with online streaming.
Originally, it was a classic DVD-by-mail rental service: for a flat monthly fee, subscribers received discs, watched movies at home, and mailed them back.
This business model proved to be incredibly successful.
By the mid-2000s, the Netflix customer base had grown to over 6 million, and the business was generating steady, high profits.
With things going so well, one might wonder: why change anything at all?
A Fateful Meeting with Blockbuster
Riding the wave of their success in September 2000, Netflix co-founders Reed Hastings and Marc Randolph visited the offices of their chief rival—video rental giant Blockbuster.
Their proposal was straightforward: buy Netflix for $50 million.
However, the negotiations ended before they could even begin.
According to accounts from those present at the meeting, Blockbuster’s leadership literally laughed at the offer.
The retail chain's top executives dismissed the idea of mail-order movies as too niche and viewed Netflix as far too small a business to warrant such an investment.
The deal fell through.
A Dilemma: Compete with a Giant or Invent the Future?
Following that humiliating rejection, Netflix faced a dilemma: attempt to compete with the far larger and wealthier Blockbuster on its own turf, or seek a completely different path forward.
Reed Hastings chose the latter.
The company's leadership clearly understood that the DVD era would not last forever and that streaming technology was the future.
However, in the early 2000s, the market was simply not ready for such a format:
- High-speed internet was far from universal, and even where it existed, speeds were often insufficient for basic tasks.
- Video playback was restricted exclusively to computers. The era of smart TVs, mobile apps, and streaming devices had yet to arrive.
- Many industry analysts were convinced that consumers would remain loyal to physical discs for a long time to come.
Launching Streaming: Creating Its Own Competitor
The biggest challenge was that the DVD delivery service was still growing and generating massive revenue for the company.
By launching a streaming platform, Netflix was essentially creating a rival to its own successful and profitable business, risking the "cannibalization" of its existing model.
Nevertheless, Hastings refused to veer from his chosen course.
Over the next several years, the company aggressively negotiated with rights holders, built a sophisticated technological platform, and meticulously prepared to launch the new service.
These efforts culminated in 2007, when Netflix introduced its Watch Now feature—the ability to stream movies online.
At the start, the catalog included only about 1,000 titles, and many analysts remained skeptical of the format, seeing no future in it.
Strategic Triumph: The Numbers Speak for Themselves
Netflix continued to develop both business lines in parallel for a long time, but investment gradually shifted exclusively toward streaming.
Years later, it became clear that Reed Hastings' strategic gamble was exactly right.
The company’s evolution is reflected in its impressive figures:
- Subscribers: In 2007, at the launch of streaming, Netflix had approximately 7.5 million subscribers. Five years later, that number exceeded 30 million, and by the end of 2024, the service’s global audience reached nearly 302 million.
- Revenue: While annual revenue in 2007 was roughly $1.2 billion, by 2024, this figure surpassed the $39 billion mark.
The Final Chapter
The circle was finally closed in 2023, when the company definitively shut down its original DVD-by-mail service.
Today, having abandoned the business that once earned it millions and made it a household name, Netflix remains the largest and most influential streaming service in the world.
