Netflix – Mercury Books | Digital business books and other titles

Gregory John Lee

Vernon Timothy Thaver

From

Netflix rises to the top of the box office

Main area: Digital streaming entertainment
Other areas: Strategy in the digital era

Netflix is well known today as the giant of streaming entertainment. However, it started as an interesting, fringe idea.

Introduction to Netflix

Netflix was originally founded in 1997 by co-founders Reed Hastings and Marc Randolph as method for home movie watchers to rent DVDs over the internet and have them delivered and returned through the mail (McFadden,2023; Zippia, n.d.). This innovative methodology for renting videos – which stood in contrast to the traditional requirement to go to a video store like Blockbuster to rent a film or series – was immediately appealing, albeit to a relatively small audience at first (McFadden, 2023).

In 1998, Netflix.com was born, which also facilitated subscription business models which allowed customers to rent unlimited DVDs, as well as to purchase films (McFadden,2023; Zippia, n.d.). The founders recognized that in some respects they were seeking to compete with Amazon, but in spaces Amazon was not yet competing in themselves (McFadden, 2023; Zippia, n.d.). Adding recommendations through a classic predictive algorithm allowed Netflix to interest customers on a more personal level (McFadden, 2023; Zippia, n.d.).

The company went public in 2002 (McFadden, 2023; Zippia, n.d.). Growth using the original business model remained relatively slow as seen in Figure 1 below.

Figure ‎1: Growth in Netflix subscribers
Sources: Dean (2024), Maas (2025), Stoll (2024)

The Netflix original business model remained constrained. It relied on physical stock of DVDs, physical logistics, and customer journey pain points since customers had to engage with processes such as receiving mail which could be compromised by the mail service and returning discs through the mail, which required customers to package the disc in a provided envelope and mail it. Netflix used the United States Parcel Service (USPS), and by the late 2000s, Netflix was the biggest USPS customer (Epstein, 2010). However, inefficiencies in mail delivery were a constant constraint to the customer experience (Dignan, 2007).

As seen in Figure ‎15 1, factors such as this kept Netflix in a relatively low growth trend. Infamously, in 2008 – even after Netflix started its real revolution by inaugurating streaming, as discussed below – Jim Keyes of Blockbuster Video remained unconvinced of Netflix’s potential, stating (Munarriz, 2008):

Neither RedBox nor Netflix are even on the radar screen in terms of competition…

Netflix Transitions to Streaming

The tipping point towards truly exponential growth came in 2007, as seen in Figure ‎15 1, when Netflix conceived of streaming entertainment, a revolution in home viewing (Butler & Button, 2024). Being able to view content on demand within a web browser without physical discs or using mail was a major attraction for customers and a massive disruption to the original business model or any competitor models. “Dematerializing” these two physical aspects of their offering lowered costs for Netflix in addition to creating a far better customer journey. Netflix was able to price its offering attractively, with a 2011 package costing only $10 for unlimited streaming and DVD rentals (Zippia, n.d.). By most measures, Netflix had “demonetized” the industry, notably for regular viewers. Although they started small with just below 1,000 titles in 1998, this scaled quicky alongside subscribers and revenue (Zippia, n.d.). By 2010, they had driven Blockbuster Video into effective bankruptcy (Zippia, n.d.).

Growing Netflix into the 2010s

The next years saw dramatic, exponential growth for Netflix, as seen in Figure ‎15 1. The company focused on three big growth levers. First, Netflix entered into collaborations to embed their platform into a variety of electronics devices, such as smart televisions and gaming platforms (McFadden, 2023). Secondly, it began to concentrate on worldwide expansion, becoming available in Canada from 2010, Europe from 2012, and worldwide from 2016 (Butler & Button, 2024; McFadden, 2023). Thirdly, Netflix began production of its own original shows. From 2011 and especially 2013, original shows such as Lillyhammer, House of Cards, and Orange is the New Black began to attract audiences who, unlike Netflix’s licensed content, could only be viewed on the service and, therefore, increasingly concentrated its viewership (Butler & Button, 2024; Rose, 2022).

Netflix original content was to increasingly capture and even dominate awards categories in television and film (notably the Emmys and Oscars, Rose, 2022), and by 2021, original content had reached 40% of the Netflix library (Zippia, n.d.). This focus on original, leading content creation and, therefore, on non-substitutable offerings has remained a major focus, with Netflix planning on increasing its content creation budget to $18 million in 2025 (ET Bureau, 2025). Rose (2022) notes that:

It has created more than 1,500 original series, including planet-straddlingly massive shows such as Stranger Things and Bridgerton. In 2021 alone it released over 150 original movies – three per week.

Netflix balanced the original content creation with clever use of licensing. Butler & Button (2024) suggest that:

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 Today and Increasing Competition

By 2024, Netflix is one of the most disseminated, massified internet services in the world. McFadden (2023) reported that Netflix viewing constituted 15% of the world’s internet bandwidth. Stoll (2024) noted that Netflix now enjoys net income of $5.1 billion dollars, spends $2.55 billion in worldwide marketing and $18 billion in content production, had won 26 Emmy awards in 2022, and had a penetration rate in the US of 53%.

Of course, competition came for Netflix. Amazon launched its Prime streaming service in 2011, and continues to compete strongly including by increasingly licensing top sports content (McFadden, 2023). Other services like Hulu provided some but not overwhelming competition (Iqbal, 2025). However, 2019 saw the launch of Disney +, Apple’s streaming service, and AT&T’s attempt at competing (Iqbal, 2025). This has heralded a far stauncher competitive environment (Butler & Button, 2024), for instance, Figure ‎2 shows the rapid manner in which Amazon Prime and Disney+ subscribership have begun to chase that of Netflix, notably Amazon.

Figure ‎2: Netflix, Amazon Prime and Disney+ subscribership numbers
Sources: Curry (2025), Dey (2025); Iqbal (2025)

It is clear that Netflix will not have it as competitively easy as they perhaps enjoyed through their first decades. With slowing viewership following a COVID-19 boost (Walsh, 2020), it is not inconceivable that they may lose their leading position to one of their marquee competitors. Netflix has been exploring alternative options, such as creating cheaper subscriptions with advertising (e.g., Cain, 2022), with 70 million global users having signed up for Netflix’s ad-tier in 2024 (Steinberg, 2024). As of 2025, both Netflix’s ad-supported tier and standard plan will experience its first price hike in two years and three years, respectively (Spangler, 2025).

It is worth ending with a reflection of the profound impact Netflix has had on society. The Queen’s Gambit series led to a major spike in chess participation (Rose, 2022). A relatively obscure 1980s song – Running Up That Hill by Kate Bush – was rocketed to various top ten or number one places on music charts worldwide in 2022 by its use in Stranger Things 4 (Kaye, 2022). Fashion trends have been formed by series such as Bridgerton and The Crown (Tropey, 2021). Political trends have also been shown to be affected by impactful entertainment offerings, for instance, Torpey (2021) gives the following examples:

The pandemic interrupted the cinematic release of David Attenborough’s “A Life On Our Planet”, but its Netflix premiere meant it was still able to send its powerful message to viewers, and influence action on environmental issues. WWF reported that the show ‘inspired millions of people to take action for our planet, including decision-makers and key influencers … The Black Lives Matter movement prompted the broadcaster to add a collection of films, documentaries and series on the theme, to help people better understand the issues under discussion. Netflix tweeted “To be silent is to be complicit. Black lives matter. we have a platform, and we have a duty to our Black members, employees, creators and talent to speak up.” To date, the post has more than 1 million likes and has been retweeted more than 211,000 times.

Critiques and Power of Netflix

However, there has been plenty of criticism of the role Netflix has played in society. Netflix has been attributed with the increasing phenomenon of families or individuals spending more time at home in front of the television, deeply impacting malls and other previously popular venues or pastimes, with “binge-watching” becoming common. Kelson (2017) claims that:

This problem of people losing track of time while watching series television shows is being called the “Netflix Effect.” People find that they cannot just watch one episode of a show because they have to find out what happens next. Then people find that they cannot just watch one season of a show because they were left hanging and need to find out what happens next. After hours and hours have passed sitting in front of a television or computer, some households are now asking whether or not watching Netflix is really a positive way to relieve stress or if it is actually taking up most of their free time. According to reports, teens, adults, and even children are being impacted by the “Netflix Effect.” The disadvantages for teens who binge watch television include slipping grades, being late to work or class, not going outside to be active thereby gaining weight, and closing themselves off from having a social life.

Rose (2022), however, notes contrary views arguing for a more positive view of binging. Rose (2022) adds that:

A common criticism of Netflix is the extent to which it has atomised our viewing habits. Like Scheherazade in One Thousand and One Nights, its model depends on presenting viewers with a never-ending succession of new content, tailored to their personal viewing habits so that they never cancel their subscription. This is where Netflix’s fabled algorithms really do come into play. Users’ behaviour data is cross-referenced with its 2,000 different “taste groups” to produce a unique homepage for each user, presenting categories and “because you watched” suggestions that might appeal. Combine this fine-grained approach with the “anytime, anywhere” availability of streaming content, and we’re heading for a landscape where we’re all in our own discrete entertainment realities, watching different things at different times. With all this fracturing, does there come a point when film and TV no longer function as “popular culture”? So far, Netflix has managed to square this circle, generating mainstream hits while diversifying our tastes.

Torpey (2021) summarizes the power of Netflix on societies around the globe and on the commensurate responsibility:

In a fractured world, with almost infinite sources of entertainment jostling for our attention, it’s remarkable that Netflix has been such a cohesive influence on our culture in recent years. But as the saying goes, with great power comes great responsibility. Global broadcasting behemoths have the capacity to change minds and galvanise action. When you next sit down to binge-watch your latest series, you may want to ask yourself how much your viewing habits shape your own beliefs and habits.

Conclusion on Netflix

This case has argued that Netflix participated and practically defined in the most important digitization of entertainment in the past decades, namely streaming. It weathered and even profited from the denial and deception of its competitors in its early years, who were too slow to see the future of entertainment and to act. Netflix deeply disrupted its industry, notably with streaming, becoming the category leader. It shed (dematerialized) various unnecessary physical and limiting aspects of its early business model. It created low-price business models, therefore demonetizing competitors. It achieved deep, worldwide dissemination of its service. Finally, we note how Netflix and the like have disseminated profound social, cultural, and economic change.

Challenges to the Reader: Netflix

Netflix through the lens of Rogers’ (2016) five factors

How could the Netflix ability to disrupt be interpreted through the lens of David Rogers’ (2016) five domains for digital business strategy and transformation. If needed, Click here for a brief overview of this model or search other available sources.

Netflix within the industry lifecycle

In which stage of the industry life cycle is Netflix currently positioned, and what strategic steps should it take to navigate this stage effectively? If needed, Click here to see a summary of industry lifecycles or search for other sources.

Netflix and generative artificial intelligence

With the advent of AI, and, more recently, generative AI, how could these technologies help Netflix maintain market leadership as well as stave off the decline phase of its business model? If needed, click here to see a summary of generative AI or search for other reputable sources.

Reflections on the Challenges: Netflix

Reflection on Netflix through the lens of Rogers’ (2016) five factors

Rogers (2016) identifies a model of five domains that he argues senior leadership should use to create a playbook for digital business strategy and digital transformation. This model is repeated in Figure ‎3.

Figure ‎3: Rogers’ (2016) five domains of digital transformation
Source: ReadingGraphics.com (n.d.)

Rogers’ (2016) five factors of digital transformation – customers, competition, data, innovation, and value proposition – serve as a structured lens through which Netflix’s strategy and journey can be analyzed, as discussed below.

Introduction

Netflix began as a DVD rental service in 1997 but shifted to streaming in 2007, which sparked its journey to becoming a global media disruptor (Lino, 2024). This transformation was driven by the company’s commitment to data-driven personalization and the strategic launch of original content, beginning with House of Cards in 2013. Netflix’s move into original programming established it as both a producer and distributor, setting a new standard for streaming services (Richardson, 2011).

Today, Netflix serves over 300 million subscribers globally (Maas, 2025) and reported $39 billion in revenue in 2024 (Stoll, 2025). This global reach was bolstered by investments in localized content, helping the company appeal to a diverse international audience. However, the streaming landscape is now highly competitive, with new entrants like Disney+ and HBO Max driving Netflix to introduce an ad-supported tier in 2023 to attract more price-sensitive users (Cain, 2022; Steinberg, 2024).

Netflix remains a leader in digital media by continuously adapting to market demands. Through innovative content, personalization, and a focus on global markets, Netflix stays ahead, though it faces ongoing challenges from intensifying competition and continuously changing viewer habits (Dans, 2020).

Customers

Netflix’s primary success factor lies in its ability to place customer needs and preferences at the center of its business strategy, which it accomplishes by understanding evolving customer demands, particularly for flexibility, convenience, and personalized content (Grant, 2018). The following areas explain how Netflix redefined the user experience in digital media consumption.

Customer experience. Transitioning from DVD rentals to streaming was pivotal. It allowed Netflix to meet the growing demand for instant access to a vast catalogue without the inconvenience of physical rentals. By 2010, Netflix’s shift to streaming transformed it into a widely accessible service that resonated with the “anytime, anywhere” preference of modern consumers (Richardson, 2011).
Personalization and engagement. Netflix’s recommendation algorithms, fueled by data and AI, helped personalize the user experience, leading to greater viewer engagement and retention. An analysis by McKinsey & Co. estimated that over 75% of viewing activity is driven by personalized recommendations, underscoring the importance of custom-tailored suggestions in boosting engagement and satisfaction (Grant, 2018).
Netflix’s personalized content recommendation engine is one of its standout features, driving significant customer engagement. By tracking metrics such as average view time, completion rates, and content click-through rates, Netflix improves user experience, aiming to decrease churn and increase engagement. For example, over 80% of content viewed on Netflix is influenced by the recommendation system, enhancing subscriber satisfaction by personalizing the experience. The company’s focus on engagement and retention helps sustain its global subscriber base, which surpassed 300 million in 2024 (Maas, 2025).
Global reach and local adaptation. Expanding into over 190 countries, Netflix adapted its offerings to different cultural and linguistic contexts, enhancing its appeal in international markets. By producing region-specific content in countries like India and South Korea, Netflix tapped into diverse markets and gained a competitive edge over traditional broadcasters constrained by regional reach (Brennan, 2018).

Netflix’s customer-centric approach is instrumental to its success. However, as the streaming landscape grows increasingly saturated, Netflix must continually innovate in customer experience, exploring further customization or interactive content to maintain a loyal subscriber base (Dans, 2020).

Competition

Netflix disrupted traditional broadcasting and cable television, not only by offering on-demand streaming but by shifting industry standards for original content and distribution (Richardson, 2011).

We can see elements of both product differentiation and cost leadership in Netflix’s competitive strategy (The Strategy Story, n.d.).

Product differentiation. Netflix initially faced limited competition from other streaming services. However, as the demand for streaming content grew, major players like Disney+, HBO Max, and Amazon Prime Video entered the field, each offering exclusive content to compete for market share. Netflix responded by differentiating itself through exclusive series, high-budget films, and unique viewing formats (see innovation section for more details), setting itself apart (i.e., a differentiation strategy) in the highly competitive media environment (Littleton & Low, 2019).
The introduction of Netflix Originals, such as House of Cards and Stranger Things, helped establish Netflix as a content producer and not merely a distributor. Netflix’s strategic investments in content production were aimed at retaining customers by offering shows and movies that could only be accessed on its platform (Grant, 2018).
Netflix’s shift to original content production was a significant competitive advantage, creating a substantial barrier to entry for other players. Key KPIs here include market share, content spend as a percentage of revenue, and average revenue per user (ARPU). In 2025, Netflix plans on allocating approximately $18 billion to content production, which not only supports new content creation but also enables exclusive access that sets it apart from competitors (ET Bureau, 2025). This heavy content investment demonstrates how Netflix aims to differentiate its library and retain users despite fierce competition. However, this strategy is capital-intensive and vulnerable to high churn rates in competitive markets. To retain its edge, Netflix may need to diversify content partnerships or further innovate distribution techniques.
Cost leadership. Netflix’s cost leadership strategy is rooted in its use of technology and data to drive efficiencies in content production, distribution, and personalization. While Netflix differentiates itself with unique content, it simultaneously leverages economies of scale, data-driven production choices, and direct-to-consumer distribution to minimize costs and provide value competitively (Hivelr Business Review, 2023).
Data-driven content investments. Netflix utilizes its extensive viewer data to make informed decisions about which types of content are most likely to succeed, reducing financial risks associated with content production. By understanding viewer preferences at a granular level, it invests more selectively, ensuring that funds are allocated toward projects with a higher likelihood of strong performance. This predictive content investment model saves Netflix from investing heavily in content that may not resonate with its audiences (Böhm et al., 2021).
In-house content production.. By establishing its own production studios, Netflix controls production costs and bypasses traditional studios and distributors, reducing dependency on third-party content and, over time, building a library of proprietary content that can be licensed globally. With its own studios, Netflix can spread production costs over its extensive subscriber base, maximizing return on investment (Grant, 2018).
Scalable technology infrastructure. Netflix’s cloud-based infrastructure, hosted mainly on Amazon Web Services (AWS), allows it to scale operations efficiently and respond dynamically to traffic demands, reducing costs associated with physical data centers. This scalable infrastructure supports a seamless experience for users while minimizing fixed costs associated with owning hardware (Kamps, 2023).
Global reach and localized content. Netflix’s global subscriber base gives it the ability to amortize costs over a large number of users, allowing it to invest in content localization and regional productions. Producing localized content with a globally scalable distribution model creates cost efficiencies, as popular shows can gain viewership across different markets with relatively low incremental investment (Aquilina, 2024).
Subscription-based revenue model. The subscription model allows Netflix to maintain a steady revenue stream that funds its investments in content and technology. This recurring revenue reduces reliance on fluctuating advertising dollars and allows it to strategically price services to remain competitive while covering operational and content costs (Hivelr Business Review, 2023).

By balancing product differentiation and cost leadership, Netflix effectively combines unique, high-quality content offerings with a scalable cost structure that strengthens its competitive positioning across global markets. Through these cost efficiencies, Netflix continues to maintain its leadership by maximizing the value delivered to subscribers relative to price (Dans, 2020).

Data

Data are the cornerstone of Netflix’s strategy, from content recommendations to production decisions.

Recommendation algorithms. Netflix’s proprietary algorithms analyze user behavior – what users watch, when they pause or skip, and how long they watch. These data are then used to recommend relevant content, leading to a highly personalized user experience. According to The Guardian, Netflix’s recommendation system saves the company approximately $1 billion per year in avoided customer churn (Grant, 2018).
Data-driven content creation. Netflix goes beyond using data for recommendations; it uses data to determine which shows to produce. For instance, House of Cards was a calculated production based on data showing that political dramas, Kevin Spacey, and David Fincher were popular among its audience. Netflix’s success with House of Cards validated its data-driven approach to greenlighting new content.
Key metrics include content performance analytics, customer segmentation by viewing habits, and A/B testing results to measure engagement and satisfaction with new features. The platform’s ability to track and analyze user behavior allows Netflix to effectively tailor its content recommendations, improving viewing time and retention rates. It also uses advanced analytics for predictive modelling to determine which original series to renew based on prior performance and viewer demand (Grant, 2018).

Netflix’s data-centric approach drives its competitive advantage. However, with growing concerns over privacy and data security, Netflix must navigate data usage cautiously, ensuring transparency and compliance with emerging data protection regulations globally (Dans, 2020).

Innovation

Innovation is at the core of Netflix’s operational strategy, enabling it to disrupt traditional media distribution, with several facets as discussed below.

Technological innovation in streaming. Netflix’s commitment to innovation is evident in its proprietary streaming technology, which ensures smooth video delivery and minimal buffering across various devices and network conditions. This seamless user experience was integral to gaining and retaining customers as streaming became more popular (Kamps, 2023).
Original content production. Besides technological advancements, Netflix’s entry into content creation represented a critical innovation. By establishing its own production facilities, Netflix gained control over its supply chain and brand identity, setting it apart from traditional networks dependent on third-party content providers (Grant, 2018).
Experimenting with interactive content. Netflix’s foray into interactive content, exemplified by Black Mirror: Bandersnatch, is another example of its innovative approach. The interactive episode of the Black Mirror series allows viewers to make choices on behalf of the main character, leading to multiple potential outcomes based on their selections. The format incorporates elements of video games and storytelling, where viewers can decide actions that drive different narrative branches, reflecting a more immersive experience and enhancing user engagement. This format creates an immersive viewing experience that redefines user engagement in media (Dans, 2020).
The company’s transition into content production with titles like Stranger Things and The Crown significantly increased engagement, with originals often surpassing non-exclusive content in popularity. Netflix’s continuous investment in adaptive streaming technology to enhance user experience across devices illustrates its commitment to innovation. According to Neglur & PS (2024), Netflix’s innovations contribute significantly to user retention and engagement, keeping churn rates relatively low in a competitive market.

While Netflix has led the industry in innovation, sustaining this edge may become challenging with rising competition and technological advancements from other media giants. Future innovations may include incorporating virtual reality (VR) or augmented reality (AR) content or exploring new distribution models to attract a diverse audience base (Dans, 2020).

Value proposition

Netflix’s value proposition has been one of accessibility, convenience, and quality content, distinguishing it from traditional media channels, as discussed in the following sections.

1. Cost-effective, on-demand entertainment. For a subscription fee, Netflix offers a vast library of ad-free, on-demand content. This model contrasts with traditional cable’s high-cost packages and advertising interruptions, aligning with consumer desires for accessible and seamless entertainment (Hivelr Business Review, 2023).
2. Content diversity. Netflix’s expansive catalogue spans multiple genres, languages, and demographics, providing a diverse array of content appealing to a broad global audience. The release of culturally resonant content, such as Money Heist from Spain and Sacred Games from India, underscores its dedication to serving varied customer segments (Henry, 2024; Jones, 2023).
3. Flexible access across devices. Netflix’s platform-agnostic approach, with compatibility across smart TVs, mobile devices, laptops, and game consoles, reinforces its convenience and accessibility. The flexibility to stream on any device without additional hardware investments is a substantial part of its appeal.
  Netflix differentiated itself by offering ad-free, on-demand streaming services with exclusive access to a large library of content. The company measures its success in delivering value through subscriber growth, monthly active users (MAUs), and customer lifetime value (CLV). In addition to these traditional metrics, Netflix is exploring ad-supported tiers to expand its subscriber base and increase accessibility, especially in emerging markets (Cain, 2022; Steinberg, 2024). This model aims to provide flexibility to users and further extend the brand’s reach in the highly competitive streaming sector.

Netflix’s value proposition has attracted a global audience, yet as new entrants adopt similar approaches, Netflix must continue to evolve. The future may involve further personalization, premium content tiers, or more robust loyalty programs to retain customer value in a crowded market (Dans, 2020).

Conclusion

By analyzing Netflix success through the Rogers’ (2016) five factors model for digital transformation – customers, competition, data, innovation, and value proposition – we can begin to understand how Netflix established itself as well as sustains itself as a frontrunner in the media industry’s digital transformation. The company’s customer-focused strategy, innovation in data and content, and competitive resilience provide valuable lessons for executives navigating digital transformation.

As Netflix faces increasing competition, its ability to adapt and innovate will remain key to sustaining its market leadership (Rogers, 2016).

Reflection on Netflix within the industry lifecycle

Netflix is positioned in the maturity phase of the industry life cycle due to slowing subscriber growth and a saturated market. While the platform still holds a large share, subscriber numbers are plateauing, especially in established markets like North America and Europe, with total subscriptions reaching 238 million in 2023 but at a slower growth rate than previous years (Folk, 2024). Additionally, competition from Disney+, Amazon Prime Video, and HBO Max intensifies pressures, prompting Netflix to introduce new strategies, like ad-supported tiers, to retain and attract cost-sensitive users (Cain, 2022; Steinberg, 2024).

Its high content production spend – approximately $18 billion annually (ET Bureau, 2025) – reflects a common maturity phase tactic to differentiate itself, especially as competitors also heavily invest in exclusive content. Strategies to prolong this phase include diversification into gaming, live streaming, and potential strategic partnerships in new regions (Dans, 2020).

To stay competitive, Netflix should seek to continue with organic geographic growth particularly into Russia and China, though geopolitical stability and tensions, as well as complex and regulatory nuances, provide significant barriers to market entry at this stage.

In established geographies, Netflix should seek to diversify its offerings and create alternative revenue streams, such as an ad-supported subscription tier, which they’ve recently implemented (Cain, 2022; Steinberg, 2024).

Additionally, more investment in localized content can help grow and retain new audiences in emerging markets. Strategic partnerships and exploring adjacent markets, like gaming or live streaming events, can also provide growth opportunities and mitigate maturity stage risks.

Reflection on Netflix and generative artificial intelligence

It is understood that advanced AI algorithms are already a key capability of Netflix in the form of the recommendation engine providing personalized viewing experiences, while AI-driven analytics are used to predict which types of content will perform well, guiding Netflix’s original programming investments. Predictive models are used to assess audience preferences and optimize content budgets, leading to more precise, profitable content choices (Grant, 2018).

That said, new applications of AI, generative AI, and advanced analytics capabilities could help Netflix stay relevant and maintain market leadership as listed below.

The possibility of algorithmic core content creation

Generative AI may, in time, allow for the mass production of realistic, high-quality core streaming content. This may be a significant financial prospect for streaming companies, which have struggled with profitability due to the extremely high marginal cost of producing or licensing new content – which is constantly required to retain subscribers who can choose to depart at any time – versus the saturating growth and constraints on fee increases. Generative content production, once the technology is good enough, could significantly reduce these costs.

Generative content is already flooding channels such as social media. However, much of this currently below the standard that would entice Netflix. The technology, however, is improving fast, and might be good enough for serious trials within a few years. This is notably true for animation. Obviously, generative film or series which essentially seeks to replicate realistic people and scenes is farther away.

Several challenges exist here. First, viewers currently expect and prefer a proportion of known stars to appear in production, even as voices in animations, which can only occur within generative AI if the real stars are genuinely blended into generative content (e.g. through motion or voice capture) or generative AI is used to replicate them. A tussle is already underway between actor unions and entertainment companies over this latter prospect, with actors understandably keen to ban the replication of their likeliness and voices. However, it is not inconceivable that future generations of viewer may be convinced to become fans of entirely generated characters, or that entertainment companies license the rights to star’s personal essences.

Second, a challenge remains regarding competitive distinction. If all entertainment companies have access to the same generative AI technologies, how do they distinguish the resulting content? The likelihood is that some human inputs – such as on scripting or at least script choices or editing – will be required to create unique, outstanding entertainment.

Several other possibilities exist short of wholesale generated content which could be implemented sooner, as discussed below.

Dynamic personalized trailers

Generative AI could automatically generate tailored trailers that highlight the aspects of a show most likely to resonate with individual viewers based on their past viewing habits, increasing engagement and conversion (Dans, 2020).

Advertising and revenue diversification

With the recent introduction of an ad-supported tier, AI can tailor ad placements to individual viewer habits, maximizing ad relevance and effectiveness, which in turn attracts premium advertisers and increases revenue per user (Dans, 2020).

Real-time personalization

Beyond static recommendations, AI can adapt what viewers see mid-viewing session. For instance, interactive storylines or real-time adjustments to viewing formats could make Netflix offerings even more immersive (Dans, 2020).

Script-to-screen workflow automation

With AI and generative AI tools, Netflix can already begin streamlining elements of production, such as scene setting, storyboarding, and even generating preliminary scripts. This helps cut production costs and makes content creation more scalable (Grant, 2018).

Localized content and international expansion

AI can analyze regional viewing data to identify and promote local content, expanding Netflix’s reach in emerging markets with culturally tailored offerings (Patov, 2024).

Improved cost leadership through operational efficiencies

AI can streamline back-end processes, such as video compression and streaming optimization, which enhances viewing quality at lower bandwidth costs – a competitive advantage for global markets with varied infrastructure (Kamps, 2023).

Improved cost leadership through enhanced customer service

AI-driven chatbots and generative AI language models can answer customer inquiries more effectively and even personalize recommendations through customer interactions, enhancing customer satisfaction and retention (Dans, 2020).