clock menu more-arrow no yes mobile

Filed under:

How Hollywood accidentally built Netflix

Netflix’s stunning rise wouldn’t have happened without unwitting help from the companies it now competes with.

Johnny Depp as Captain Jack Sparrow in a “Pirates of the Caribbean” movie running toward the camera and yelling.
Johnny Depp starred in the Pirates of the Caribbean franchise.
Screenshot via Disney

When Netflix started streaming TV shows and movies back in 2007, it had the market more or less to itself. At the time, video on the internet meant YouTube, where you could see dogs on skateboards or short SNL clips.

Now, everyone is racing to catch up to Netflix and launching their own streaming services. But the big media companies are far behind.

That’s their own fault. They watched Netflix build its streaming powerhouse right in front of their noses — and even worse, with their assistance.

That’s one of the stories we tell in this week’s episode of Land of the Giants: The Netflix Effect, which focuses on the impact Netflix has had on Hollywood and on the people who run it and work in it.

It’s a story that kicks off with a ride down Sunset Boulevard, where Netflix’s presence manifests physically. Billboards that used to advertise movies and TV shows from a variety of studios and networks are now dedicated solely to Netflix products because Netflix purchased the billboards outright.

But the story really starts in 2008, when Netflix broke into streaming in a big way, through a backdoor: It purchased the digital streaming rights to movies from Disney and Sony — that is, movies you’ve heard of, like Pirates of the Caribbean — from Starz, the pay TV channel. Starz had ambitions for its own streaming service, but those fizzled, which is why you have probably never heard of Vongo.

And that’s why Netflix got those movies for a song — around $30 million a year — while becoming a pretty good streaming service almost overnight. For context: In 2012, when Netflix wanted to make a new streaming deal for content from Disney, which by then had realized that streaming was a real thing, Netflix paid an estimated $300 million a year.

A contractual loophole let Netflix get Disney’s and Sony’s stuff without cutting deals with Disney and Sony. But soon enough, media companies were scrambling to sell their stuff directly to Netflix: They saw Netflix as an easy source of nearly free money — if Reed Hastings and company wanted to pay them for old shows and movies they were already selling other places, then they’d be happy to do it.

But that free money wasn’t really free: Netflix took the stuff Hollywood considered its leftovers and built a giant business with it — and ended up competing directly with the established media players, using their own content. Which leads us to today, where the biggest media companies in the world find themselves years behind what used to be a Silicon Valley upstart.

It’s a fascinating story, and you can hear it now.

Subscribe to Land of the Giants on Apple Podcasts, Google Podcasts, Spotify, Stitcher, or wherever you listen to podcasts.

Sign up for the newsletter Sign up for Vox Recommends

Get curated picks of the best Vox journalism to read, watch, and listen to every week, from our editors.