The Streaming Wars

Abstract

Reed Hastings bet on broadband in 2007, and won. Netflix transformed itself from a DVD-by-mail company into the dominant streaming service, institutionalized binge-watching, and forced Hollywood to disrupt its own distribution. What followed was not a victory of technology over content, but an expensive race that recreated the fragmentation of cable television in worse form.

Netflix: The Broadband Bet

In 1997, Reed Hastings and Marc Randolph founded Netflix as a DVD-by-mail service: competition for Blockbuster, without late fees. The business model was solid. The actual goal was something else.

Hastings saw streaming as the endgame from the start. The company name “Netflix” (not “DVDs by Mail”) was a signal. When broadband penetration in US households crossed critical mass in 2007, Netflix launched its streaming service: initially as an add-on to the DVD subscription, at no extra charge.

The catalog was limited: streaming licenses were expensive, and studios traded them warily at first. But the user experience was transformative: no waiting, no mailing back, no browsing shelves. One click, instant start.

In 2010, Netflix launched in Canada, its first international market. In 2011, Latin America and the Caribbean. The global expansion was unprecedented in speed. By 2016, Netflix was available in 190 countries.

YouTube and the Other Channel

In parallel to Netflix, an entirely different form of video distribution emerged. YouTube (Chad Hurley, Steve Chen, Jawed Karim, February 2005) was democratized from the start: anyone could upload, anyone could watch. The first video, Jawed Karim at the zoo (“Me at the zoo”, April 23, 2005, 19 seconds), hinted at nothing of what would follow.

Google bought YouTube in October 2006 for 1.65 billion dollars, criticized at the time as overpriced. It was one of the best deals in tech history. YouTube became the world’s second search engine, the platform for a new generation of creators, and unplanned competition for linear television. Applying the same streaming logic to games proved harder: see Dead End: Google Stadia.

The business model was ad-funded. The content was free. That created a different dynamic than Netflix: no subscriber lock-in, but massive reach. The Creator Economy (YouTubers living primarily on advertising and sponsorships) grew into an industry with its own superstars, agencies, and rate cards.

House of Cards and the Turn to Original Content

Netflix’s critical strategic decision came in 2011. The studios recognized that Netflix was becoming too powerful and began withdrawing licenses or raising prices drastically. Disney, NBCUniversal, Viacom: all threatened or acted.

Hastings’ answer: original content. If studios pull their material, Netflix produces its own.

House of Cards (February 2013) was the first big test, and a methodological innovation. Netflix released all 13 episodes of the first season simultaneously. That was not chance but a data decision: Netflix knew from usage patterns that people consumed series in blocks. Binge-watching was not invented, but it was institutionalized.

House of Cards became a prestige success, with nine Emmy nominations for its first season, including Best Drama Series (the first major Emmy nomination for a streaming-only series). Netflix was no longer a distributor. It was a studio.

What followed was escalation: Orange Is the New Black (2013), Narcos (2015), Stranger Things (2016), The Crown (2016). In 2019, Netflix spent over 15 billion dollars on content. More than HBO, more than CBS.

Hollywood Strikes Back

The studios had raised Netflix, and recognized the threat too late. From 2019 they systematically pulled their content and launched their own services:

Disney+ (November 2019): Marvel, Star Wars, Pixar, the Disney classics, in one bundle. 10 million subscribers on day one. 100 million in 16 months (Netflix had needed 10 years for that).
HBO Max (May 2020, renamed “Max” in 2023): Warner Bros., HBO prestige content, DC.
Peacock (NBCUniversal, July 2020): The Office, Parks and Recreation, Frasier.
Paramount+ (March 2021): Star Trek, Yellowstone, the MTV archive.
Apple TV+ (November 2019): small catalog, high production quality, positioned as a hardware differentiator.

At the same time, the license deals through which Netflix had shown third-party content for years expired. The Office moved to Peacock. Friends to HBO Max. The MCU to Disney+.

Info

Streaming fatigue: the irony of fragmentation

Cable television of the 1990s had a structural problem: customers paid for 500 channels and watched 5. “Cord-cutting” was the reaction: cancel the cable subscription, stream flexibly. The promise: pay only for what you watch.

By 2023, a US household with Netflix, Disney+, Max, Peacock, Paramount+, and Apple TV+ paid more than an average cable subscription, without linear sports rights. Fragmentation had not destroyed the bundle; it had recreated it in worse form: more passwords, more interfaces, more monthly charges, and no provider with everything.

The solution? Bundle deals between competitors. Disney/Hulu/ESPN+. Apple bundling in Apple One. Paradoxically, a new cable television emerged: digitized, but structurally identical.

The Relapse into Advertising

Netflix’s original promise was an ad-free experience. The subscription was the deal: pay monthly, see no ads.

In 2022, after the first subscriber decline in Netflix history (200,000 in the first quarter), Netflix broke the promise. Netflix Basic with Ads launched in November 2022 at a lower price. Disney+ followed shortly after in December 2022. Max, Peacock, and Paramount+ already had ad-supported tiers.

The logic was economically compelling: ad-supported streaming tiers generate more revenue per user than cheap subscription tiers. Advertisers paid for targeting precision. The model of linear television returned, wrapped in modern UX.

At the same time, all services tightened their password sharing rules. Netflix’s crackdown in the first half of 2023 drove subscriber numbers up in the short term, and demonstrated how much latent demand sat behind shared accounts.

Dead End: Quibi

Warning

Quibi: 1.75 billion dollars for a wrong thesis

Jeffrey Katzenberg (DreamWorks co-founder) and Meg Whitman (eBay, HP) raised 1.75 billion dollars for a premise: people on smartphones want quality content in segments under ten minutes (“quick bites”, hence Quibi).

Quibi launched in April 2020, two weeks after the global COVID lockdown began. The target group (commuting urbanites with 7-minute windows) was sitting at home. The app was phone-only at launch; no casting to TV, no shared accounts.

In October 2020 (after six months), Quibi announced its shutdown. The IP remnants were sold to Roku for just under 100 million dollars.

The failure was not a technical question. It was a fundamental misjudgment of user behavior: people on smartphones were already watching YouTube, TikTok, and Instagram, free and with endless content. Quality productions for 8 dollars a month, mobile-only and short-only (its one technical trick was Turnstyle, which reframed each show when you rotated the phone): that was not an unmet need. It was a thesis that convinced nobody except investors.

Legacy

The streaming wars changed the entire entertainment economy. Production budgets exploded: Netflix reportedly spent about £100 million on the first two seasons of The Crown, more than any British television drama before it. Writers, actors, directors, crews: all profited from the demand in the short term.

Then came the correction from 2022: consolidation, budget cuts, layoffs, mergers (Discovery + WarnerMedia = Warner Bros. Discovery). The classic boom-bust pattern of a new technology platform.

What remains: linear television is dying slowly, but not quickly. Streaming services took over the mass market but did not solve the structural problems of the old medium (who pays for quality content, who controls distribution, how rights are traded). They only digitized them.