These first annual reports show Netflix as a young company, when it was the butt of Wall Street’s jokes, and people were convinced they were about to get crushed by (in order) Blockbuster, Walmart, Amazon and Disney. Netflix was climbing a massive ‘wall of worry,’ delivering old-school DVDs by mail in little red envelopes.
Netflix pays too much to acquire customers, and their churn rate is too high
People won’t order DVDs in advance, they want the immediacy of Blockbuster
Netflix’s selection is too small, and it’s dependent on content it doesn’t own
Netflix is burning too much cash and will run out of capital
Netflix only appeals to coastal techies, will never have mainstream appeal
What most of the doubters failed to appreciate was that from 2002-2007, Netflix was steadily building assets that would set it up to be unbeatable when the much bigger streaming market came along:
A brand that stood for a much easier way to find and watch entertainment
A growing, loyal subscriber base and great word of mouth
Massive amounts of data on consumer viewing preferences
A technology team that could attract the talent needed to win at streaming
A focused, high performance, make-it-fun culture
If your company is successfully building these types of assets (brand, consumer habit, technology, team), don’t pay attention to anyone who criticizes you for going too slow, growing ‘only’ 60% a year, having prices too low or starting with relatively unglamorous technology (like DVDs by mail).
You need to be a true believer, and you need to convince many others to be true believers. And then you must deliver (execute well), year after year after year. If you do that – and have a big enough market – you can set the stage for explosive growth, and scale that competitors can’t match.
Here’s a few select pages from these early Netflix annual reports (download the complete reports above). Note the focus, and the fun!