Netflix Story

The New York Times has a story on how Netflix came to be – focusing on foudner and CEO Reed Hastings. It also discusses the challenges going ahead:

Ultimately, video on demand poses the greatest threat to Netflix – a fact Mr. Hastings is inclined to acknowledge. “Our competitors are a bigger threat next year,” he said. “But in 10 years, digital distribution is a bigger threat.”

The good news for Mr. Hastings – and for executives at Blockbuster, given that the ability to download any DVD via the Internet or cable could inflict even more damage on video stores – is that video on demand is a long way off, despite more than a decade of promises.

“It’ll be at least four or five years away, if not 10 years, before we reach the tipping point on video on demand,” said Gary Arlen, president of Arlen Communications, a research and consulting firm in Bethesda, Md. One major hurdle, Mr. Arlen and others said, has been Hollywood studios’ reluctance to accept a new delivery system as long as DVD’s are still proving so lucrative.

Mr. Hastings anticipates that it will be 2010, if not 2015, before a lot of the movie-watching public is downloading films over the Internet. Mr. Hastings is convinced that the same features that draw people to his DVD rental service will induce them to use his service to download digitally delivered movies. Netflix has devoted millions of dollars to building an easily navigated Web site while it refines a complex software system that recommends movies based on customer ratings.

“If we differentiate the Web site well enough, with rating histories and other features consumers want, that’s our strategic leverage” once people start receiving movies via the Internet, Mr. Hastings said.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.