Beginning life as a mailorder DVD rental and sale service at a time when bricks and mortar rental chains like Blockbuster were king, Netflix has never been shy when it comes to disrupting traditional business models, including its own.
Adding the online content streaming service its now known for to its arsenal in the mid 2000s, the company both accelerated and avoided the industry change which has since sunk so many of its old DVD rental competitors.
Its success online has led to it becoming a member of the FAANG (Facebook, Apple, Amazon, Netflix and Google) group of top-performing NASDAQ-listed tech businesses, with millions of subscribers around the world, the majority outside its home in the US.
More importantly, it has flown under the radar while others such as Facebook have been embroiled in data hacking scandals or other bad news stories, and has amassed a reputation for a solid, reliable service.
However, despite its perceived success, it is currently billions of dollars in debt and has no plans of reversing this any time soon.
In fact, Netflix owner Reed Hastings has said he wants to continue spending for the foreseeable future.
The mass expenditure and rising debt levels come off the back of Netflix’s decision to become a content producer in addition to its role as a distributor.
While the decision to produce original content has undoubtedly helped subscriber growth, it raises questions about just how long this business strategy is a viable option. Predictions on how much the company will have spent on new content in 2018 range from US$8 ($11.3) billion to US$13 ($18.36) billion.
According to The Economist, Netflix’s business strategy is viable if it is able to raise prices while continuing to add subscribers, but doing this will become increasingly difficult as competition builds and improves.
This situation will be further heightened for Netflix if one of its biggest rivals in Amazon Studios decides to drop the price of its television services. This is according to Anthony Stevens, Digital Asset Ventures Chief Executive and recognised thought leader in distributed ledger technology, start-ups and digital transformation.
“Amazon TV is just one of the many services it offers and, conceivably, it could effectively give that service away,” he said. "If it does that, what does that mean for Netflix?
“Then, with companies like Disney, which has just bought FOX, about to release its own platform and one of the big cable networks in HBO already having its own platform, competition is really heating up.
“Netflix broke down the door to content distribution and, as a result, finds itself at risk of losing its point of differentiation because the market is becoming increasingly flooded.
“The battle it now faces is whether content alone makes it profitable for any business to operate as a standalone proposition.”
It would appear then that Netflix is stuck in a catch 22. It needs to continue creating its own content, and to a level that will outweigh that supplied by its competitors, but to do so it needs to keep spending.
Despite this, Mr Stevens said it was a business model other companies might look to replicate.
“Netflix shifted its value chain from purely being a distributor that relied on others for content to creating its own titles and therefore vertically integrating its business model,” he said.
“There are many industries that are going to undergo a change in the way their value chain is constructed, and Netflix’s rise is one to look at.”
Mr Stevens said an element of Netflix’s success was its ability to provide a personalised approach for each of its users. This is done through a number of algorithms which analyse the viewing habits and data of users to provide content recommendations.
“The clever thing Netflix has done with this is it can start to introduce its own content through this method,” he said. “Once you start watching a serial you can only access through Netflix; it has created a sense of lock-in.”
This tactic may not be enough, however, as Mr Stevens said the big question for Netflix surrounded the extent to which its acquisition of data about its users had resulted in additional revenue streams.
“There is no doubt the Netflix management team and board are trying to work out what these may be and how they can extract as much value out of all the data they’re gaining as possible,” he said.
“That’s where the real challenge lies; but in the current environment where privacy and disclosure of consumer data is an extremely sensitive topic – and it’s likely this will be more and more regulated over time – finding these new revenue streams will be very difficult.”