Randolph worked as a marketing director for Hastings' company, Pure Atria. They came up with the idea for Netflix while commuting between their homes in Santa Cruz and Pure Atria's headquarters in Sunnyvale while waiting for government regulators to approve the merger,  although Hasting has given several different explanations for how the idea was created.
They considered and rejected VHS tapes as too expensive to stock and too delicate to ship. When they heard about DVDs, which was first introduced in the United States on March 31, ,  they tested the concept of selling or renting DVDs by mail, by mailing a compact disc to Hastings' house in Santa Cruz.
But this is an apocryphal story that he and Randolph designed to explain the company's business model and motivation. Since that time, the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per-title rental fees.
They proposed that Netflix, which would rename themselves Blockbuster, would handle the online business, while Blockbuster should take care of the DVDs, making them less dependent on U. But the offer was declined. By early Netflix saw a huge increase in their subscription business. On June 14, , the company sold an additional , shares of common stock at the same price.
In , 35, different films were available, and Netflix shipped 1 million DVDs out every day. The original idea was a "Netflix box" that could download movies overnight, and be ready to watch the next day. By , they had acquired movie rights and designed the box and service, and was ready to go public with it. But after discovering YouTube , and witnessing how popular streaming services were despite the lack of high-definition content, the concept of using a hardware device was scrapped and replaced with a streaming concept instead, a project that was completed in Netflix grew as DVD sales fell from to Yet as the popularity kept growing, the number of titles available for streaming was increasing as well, and had reached 12, movies and shows in June Through its division Red Envelope Entertainment , Netflix licensed and distributed independent films such as Born into Brothels and Sherrybaby.
As of late , Red Envelope Entertainment also expanded into producing original content with filmmakers such as John Waters. In September , The New York Times reported that, at the time, Netflix mailed about , discs per day to its , monthly subscribers. Netflix capitalized on the success of the DVD and its rapid expansion into United States homes, integrating the potential of the Internet and e-commerce to provide services and catalogs that bricks-and-mortar retailers could not compete with.
Netflix also operates an online affiliate program which has helped to build online sales for DVD rentals. The company offers unlimited vacation time for salaried workers and allows employees to take any amount of their paychecks in stock options.
In November, it began offering a standalone streaming service separate from DVD rentals. Qwikster would carry video games whereas Netflix did not. Netflix operated in a total of 41 countries around the world. The change was controversial; some liked the new minimalist design, whereas others felt more comfortable with the old interface.
Netflix promoted that with this expansion, it would now operate in nearly all countries that the company may legally or logistically operate in. A notable exception was China , citing the barriers of operating Internet and media services in the country due to its regulatory climate.
Reed Hastings stated that the company was planning to build relationships with local media companies that could serve as partners for distributing its content in the country with a goal to concentrate primarily on its original content , but stated that they were in no hurry, and could thus take "many years".
Subscription growth has been fueled by its global expansion. Netflix continues to handle these tasks in-house in the United States. Netflix plans to leverage Millar and his current and future work for future original content. Customers with its high-end Sky Q set-top box and service will be able to see Netflix titles alongside their regular Sky channels.