The red envelope that ate television: how Netflix destroyed its own first business to build streaming
Netflix’s most important strategic decision was to make its original business obsolete before somebody else did.
The company was founded in 1997 by Reed Hastings and Marc Randolph. NetFlix.com opened in April 1998 as an online DVD rental and sales service at a moment when DVDs themselves were still a new consumer format.
The red envelope became iconic, but the company’s real advantage was never the envelope. It was using the internet to give customers more control over what they watched and when.
The first model still looked like a video store
Netflix initially charged customers to rent individual DVDs online.
The catalogue was much larger than most local rental stores could stock, and discs could be mailed directly to customers.
That solved selection and convenience, but late fees and per-rental transactions still resembled the old market.
The subscription model changed the economics
Netflix moved towards a monthly subscription that allowed members to keep a set number of DVDs and receive replacements as discs were returned.
No fixed due dates and no traditional late fees became central to the proposition.
The queue system also gave Netflix valuable information about what customers wanted to watch.
Recommendations made software part of the entertainment business
Netflix developed recommendation systems to help customers discover titles from a large catalogue.
This became strategically important because digital distribution removes shelf-space limits but creates a different problem: too much choice.
Personalisation later became even more important in streaming.
Streaming arrived while DVDs were still working
Netflix introduced instant viewing on PCs in January 2007.
The initial streaming catalogue was much smaller than the DVD library, and broadband quality varied widely.
Yet streaming removed the most obvious limitation of the mail model: waiting for a physical disc.
Netflix kept both services running while internet delivery improved.
Connected televisions turned streaming into a living-room product
Netflix expanded beyond web browsers to game consoles, streaming boxes, smart TVs, phones and tablets.
This device expansion was essential. Streaming could only replace DVDs if it became as easy to use on a television as conventional broadcast or cable.
Original programming reduced dependence on licensed catalogues
Netflix began commissioning and distributing original programming in the early 2010s.
Series such as House of Cards demonstrated that the company could compete not only as a distributor but as a studio and commissioner of content.
Owning more original programming gave Netflix greater control over global rights and differentiation.
2016 turned Netflix into a genuinely global service
Netflix expanded to more than 130 additional countries in January 2016, taking its service to roughly 190 countries.
Global distribution changed content strategy as well. Productions from one market could find audiences far beyond their country of origin.
The company finally closed the business that created it
Netflix shipped its final DVDs on 29 September 2023.
The DVD service had lasted 25 years and provided the customer relationships, recommendation experience and subscription habits that helped make streaming possible.
Ending it symbolised a rare corporate transition: the company had successfully replaced the physical service on which it was founded.
Advertising and games added new experiments
Netflix later introduced an advertising-supported subscription tier after years of positioning itself around ad-free viewing.
It also expanded into games and interactive entertainment, testing how far a streaming membership could extend beyond film and television.
Netflix’s history is really about distribution technology
The company is often described as an entertainment business, but its largest transformations came from changing distribution.
Mail-order DVDs removed the local-store constraint. Streaming removed the delivery delay. Global internet distribution removed many geographic barriers, while data and personalisation changed discovery.
This history gives future TechnologyBlog.co.za Netflix, streaming, television-platform and entertainment-technology coverage a single company authority page.
Sources reviewed include Netflix’s official 1998 launch release, 2007 streaming announcement, company anniversary material and the 2023 closure of DVD.com. Facts are current to 18 September 2026.
