Starting as a small, obscure DVD rental start-up in 1998, Netflix has become the world's biggest internet television network, and management experts predict smaller local players may struggle to keep up.

University of Auckland Business School graduate Paul Rataul and lecturers Dan Tisch and Peter Zámborský analysed the company's growth, publishing their findings in Sage Business Cases.

"How did Netflix outmanoeuvre the titan that was Blockbuster Video? It was a real case of David versus Goliath," Rataul said.

"What Netflix did was do little experiments, little bets, with certain demographics and once they saw what happens they'd scale it up."


The team found one of the main features of the company's business model was its experimental culture, where the firm could test different content and operational methods, initially on a small scale.

The company had also managed to use its subscriber data to help generate personalised recommendations as well as guide Netflix Original movies and TV series.

"There's a theory that says companies gain a competitive edge through capabilities that produce value for customers, are rare or distinctive, difficult to copy and that are supported by the way the firm is organised," Tisch said.

"The quality and variety of Netflix's library, and Netflix Originals tick all those boxes."

According to Tisch it would be hard for other players to emulate the customer data and the relationships with studios, TV networks and stars that Netflix had.

"I predict the small players in New Zealand – Neon, Lightbox – are not going to make it," he said.

"You need a Disney to take on Netflix. Competitive offerings like Sky TV and Lightbox will go slowly, milking existing rights as long as possible."

Studies on which companies were successful in changing environments such as the one Netflix operated in, found this often boiled down to sensing and then seizing opportunities.


"That's what Netflix has done as it reinvented itself again and again, from online DVD rental, to Internet TV service, to TV and film concept developer, producer and distributor in one," Zámborský said.

Netflix may have positioned itself as the market leader but it faces heavy competition from the likes of Amazon Prime Video, Hulu, HBO Now and emerging players such as Malaysian firm iFlix.

Paul Rataul, University of Auckland graduate and founder of millennial career coaching firm Millennial Mindset. Photo/supplied
Paul Rataul, University of Auckland graduate and founder of millennial career coaching firm Millennial Mindset. Photo/supplied

The company was capitalising on westernised segments of the market but they would have to produce more local content to access the wider middle and lower classes, particularly in Asian countries Zámborský said.

Netflix Timeline


Netflix born as an online DVD-by-mail business in the United States after co-founder Reed Hastings was forced to pay $40 in late fees for a DVD movie rented from Blockbuster Video. Later that year, it stops selling DVDs and focuses on renting them after Amazon enters the market. Only 1 per cent of the US population own DVD players.

1999: Netflix introduces monthly subscription with a flat fee for rentals and no return dates.

2003: As DVD player ownership took off, so does Netflix, expanding its library and breaking one million subscribers in 2003.

Mid 2000s: Blockbuster Video finally drops its late-fee policy and introduces online rentals, but it is too little, too late.

2007 onwards: Netflix slowly switches gears from renting DVDs to streaming movies and TV shows as broadband speeds increase. Netflix begins licensing new and exclusive shows and films from movie studios and TV networks, guided by its trove of customer data. It strikes up strategic partnerships with the electronics giants on whose devices customers watch those shows, driving customer acceptance of internet-delivered entertainment.

2010: The majority of Netflix subscribers now watch more of their movies and TV shows via online streaming than by DVD.

2011: Netflix rebrands its separate DVD delivery service as Qwikster and shifts focus to streaming-only plans. One month later it retracts the rebranding after customer backlash, which costs it more than 800,000 subscribers.

2013: The first Netflix Original series, House of Cards, debuts to critical and popular acclaim.

2016: Netflix announces it is now available in over 130 new countries.