Skip to main content

History of Netflix: Timeline and Facts

Starting out as a DVD rental business in the late 90s, Netflix has come a long way to establish itself as the world's leading streaming entertainment service.
  • Author:
  • Updated:

Netflix (NFLX) - Get Netflix, Inc. Report is responsible for drastic shifts in the entertainment industry. Love it or hate it, the company is primarily responsible for the rise of streaming; a form of content delivery that has sent shockwaves through Hollywood, as the way content is created and sold has changed.

The Founding of Netflix

There's been a bit of controversy over specifically how Netflix began. Reed Hastings has provided a few different versions, while co founder Marc Randolph has had his own version of the tale. Randolph tends to spread the credit around a little further than Hastings, who credits the creation from having to pay a late fee for a rental movie. Randolph has said the two had been trying to create their own "" for something, according to CNBC. That something became DVDs.

According to Netflix's own website, Netflix was founded in 1997 by Hastings and Randolph as a way to offer movie rentals over the internet. This eventually led to in 1998, which focused on DVD rentals and sales. The next year the company added a subscription service, allowing the customer unlimited DVD rentals at a monthly rate. Things began to mold in 2000 when Netflix offered recommendations systems, which used members ratings to predict choices (not dissimilar to the rating feature that was featured on Netflix until recently).

Netflix Timeline

-Going public in 2002, Netflix grew slowly; hitting 4.2 million members by 2005. Worth less than $2 a share in the beginning, the stock didn't begin to truly take off until around 2009, when it had made its way to around $8 a share. Of course, the rest is stock market history, as the shares have climbed astronomically; pushing toward $400 at one point.

-The big tipping point was most definitely the introduction of streaming in 2007. Creating a place where members could watch content instantly online basically changed the game. The reverberations from this move are still being felt today, as more programming is geared around the ability to watch it as you want to, rather than catching it at a specific time when it airs.

-In 2009 the company began partnering with electronics companies to get Netflix on smart TVs and gaming consoles. This process continued over the next few years, and the company gained access to Europe in 2012.

-In 2013, everything changed. Netflix introduced its own original programming. Think "House of Cards" and "Orange is the New Black."

Scroll to Continue

TheStreet Recommends

By 2016, Netflix was accessible worldwide, and the company has continued to create more original content, while pressing to grow its membership.

If the introduction of streaming was the tipping point, the genius of it all was how Netflix essentially used other content creators to beat them at their own game. By licensing their content to Netflix, networks essentially gave the company the tools it needed to steal their viewership. While it might have seemed like a good idea in the short term, one could argue that it was an act of absolute self-sabotage by the networks over the long run.

Netflix Controversies

Netflix has not been without controversy. The streaming service creates a lot of content that pushes boundaries. Some have had issues with the levels of nudity, violence, and sexually explicit scenes similar to that of HBO. There has also been criticism of its hit show "13 Reasons Why." The drama about a teen suicide was argued by many to be harmfully influential to teens. Netflix also faced criticism for its $1 million contest that it offered for someone to improve the service's movie recommendation system. The controversy was over the fact that users' private viewing information was being given to outside entities for the statistical research. The "Netflix Prize" was canceled in 2010.

What's Happening?

Currently, Netflix is facing the advent of something that had not really been a problem in the past: competition. Key names in entertainment like Disney (DIS) - Get Walt Disney Company Report , AT&T (T) - Get AT&T Inc. Report , and Apple (AAPL) - Get Apple Inc. Report are taking their shot at the streaming game. The rapid rise in viewing options and increasing tension over content control are posing challenges to Netflix. Whereas the company could always gather a pretty substantial content library from outside sources, it seems likely that the service will become ever more dependent on its own content creation moving forward. That means more spending, a problem that Netflix doesn't need right now.

The company has succeeded in increasing its membership, while improving its income statement. The problem is cash flow. Netflix has pretty poor cash flow as a result of the financing it puts into its own shows and movies. The question of whether or not the company can do all of this profitably is still on the table. If other competitors start eating into Netflix's ability to continue to scale, the future might get tougher.

Netflix Stock

The stock has been an incredibly successful investment, if you bought in early. Peaking in 2018 near $400 a share, Netflix stock has struggled to find its momentum again. The main reason here is valuation. Netflix has been priced at a very high premium for a very long time. Investors have placed a lot of speculation into the pricing, driving shares to levels that require a great deal of earnings growth to maintain. That growth is predicated on the continued rise in subscription fees. Much of the struggles facing the stock in the last year have to do with investors slowly seeing threats to that growth story.

Currently trading just shy of $300 a share, Netflix carries a premium of well over 100x earnings. The stock is up roughly 10% year to date, but is struggling to find real bullish strength. Looking forward, a lot may be dependent on how rivals affect membership rates. Netflix still needs that scale if it's going to free up its cash flow situation.