How Did Netflix Become 2012 Biggest Business Success Story?

Over the last week, many of the major players in the world of technology have been releasing their financial performance figures for 2012.  Most of them, who had generally predicted a flat or even slight decrease in the market over the past 12 months, delivered results in line with expectations.

Those who underperformed, including Facebook, who only today have announced a huge reduction in profits, put it down to investment into research and development, or offsetting revenue to the first quarter of 2012.

One of the few companies to buck these trends and outperform all expectations has been Netflix, the online streaming service. Netflix had a troubled 2011, suffering an 80% drop in their share price during the latter half of the year. The early part of 2012 saw continued volatility in the share price, which is a certain way to scare off investors and cause high degrees of uncertainty.
How have Netflix managed to turn around what was seemingly a sinking ship 12 months ago, and put the doom-mongers in their place? These factors also equip Netflix to be a strong performing business long into the future.

Staying True

Despite facing criticism and even downright ridicule in some quarters, Netflix have remained true to their services. Online entertainment streaming is massive money, and is still growing. Soon, gaming will have moved to be predominantly online, too, so those who want to play the latest release on Xbox or Playstation can do so easily without having to leave their gaming chair.

As of early 2013, we still don’t know when or to what degree the demand for online streaming services will plateau. What is certain is that strong growth is going to be the trend throughout this year, and probably 2014, too. The refusal of Netflix to panic in 2011/12 has enabled the business to take prime position in the race to exploit this growth.

Brave Decisions

When Netflix split into two divisions in 2011 – DVD and streaming – analysts were quick to predict the business would soon founder, hence the alarming drop in share price. People wouldn’t pay for two services, and as a result would probably leave Netflix altogether, was the feeling.

That didn’t happen, primarily due to the business taking the brave decision, ultimately proven to be the correct one, to aggressively pursue growth of their streaming arm at reduced profit margins, effectively cannibalizing their own DVD business.

While analysts point to Netflix losing 400,000 DVD subscribers per quarter, the 2million taking up streaming accounts is more than offsetting this.

Although Netflix are undoubtedly one of the biggest business turnaround stories of 2012, they haven’t really done anything different, but stuck to the right strategy for their brand in the face of a challenging market.

Author Bio:

Karl is an online content writer across a number of industries, however specializes in areas such as technology, business turnaround, and media distribution.