Netflix’s remarkable journey from a DVD mail-order service to an $82.7 billion entertainment giant: The story of how it came to dominate Hollywood

The Rise of Netflix: From Underdog to Industry Leader

Netflix’s journey reads like a Hollywood script. In 2000, founders Reed Hastings and Marc Randolph approached Blockbuster’s CEO, John Antioco, with an offer to sell their fledgling DVD-by-mail company—then serving about 300,000 subscribers—for $50 million. They also proposed to help Blockbuster build its own online rental business. Antioco declined, a decision that would later be seen as a major misstep. By 2010, Blockbuster had declared bankruptcy, while Netflix had transformed the entertainment landscape with its streaming platform.

Today, Netflix is a powerhouse, investing an estimated $18 billion in content for 2025 and expanding far beyond simply streaming others’ productions. In December, the company revealed plans for an $82.7 billion acquisition of Warner Bros., including the iconic HBO and HBO Max. This move comes years after Jeff Bewkes, then CEO of Warner Bros. parent Time Warner, dismissed Netflix as a minor threat, famously comparing its potential to “the Albanian army taking over the world.”

While Netflix has never attempted a deal of this magnitude before—and with Paramount also vying for Warner Bros. Discovery—the outcome remains uncertain. Regardless, Netflix has shown it’s not just an industry disruptor, but a company capable of redefining the entire sector.

A Culture of Bold Decisions

Netflix’s ascent is even more remarkable given its humble beginnings during the dot-com era. “Netflix should have never existed,” says Peter Supino, managing director at Wolfe Research. He credits the company’s success to a series of bold, sometimes risky, strategic choices that ultimately paid off.

Dominating the streaming space now means dominating entertainment as a whole. Netflix’s current market value—nearing $400 billion—surpasses that of traditional competitors like Disney, Warner Bros. Discovery, Fox Corp., Paramount, and Lionsgate combined.

How Netflix Changed the Game

• Netflix fostered a culture that encourages adaptability and risk-taking, often making unexpected strategic shifts.
• Initially, the company had no plans to produce original content—until it invested $100 million in House of Cards in 2011, without even seeing a pilot episode.
• Password sharing was once tolerated, but in 2023, Netflix began strictly enforcing a “one household” policy.
• Live streaming and advertising were off the table—until both were introduced in 2022 and 2023, followed by a major sports rights deal in 2024.

“When someone on your team makes a mistake, don’t blame them. Instead, ask yourself what context you failed to provide. Are your goals and strategies clear and inspiring? Have you outlined the assumptions and risks so your team can make sound decisions?”

Netflix also once resisted theatrical releases—until the Warner Bros. acquisition, when it committed to bringing films to theaters. “We’ve built a strong business by being bold and constantly evolving,” co-CEO Ted Sarandos told investors. “Standing still isn’t an option. We must keep innovating and investing in stories that resonate with audiences.”

Whether you call it innovation or outmaneuvering rivals, Netflix’s approach is widely recognized as a lesson in daring strategy. In his book, No Rules Rules: Netflix and the Culture of Reinvention, Reed Hastings emphasizes the importance of strategic pivots, noting that most companies fail when their industries change. He credits Netflix’s success to a culture that values innovation, empowers high performers, and minimizes bureaucracy, allowing the company to adapt as the world and its members’ needs evolve.

This philosophy stands in stark contrast to Hollywood’s traditional approach, where studios typically prefer to invest in proven franchises and sequels rather than take risks on new ideas.

Netflix’s willingness to take chances has set it apart. “We took risks that other companies avoided because they were too attached to their original formulas for success,” says Jessica Neal, former chief talent officer. She notes that this mindset sometimes means accepting short-term customer dissatisfaction for long-term gains—such as the unpopular but strategic 2011 attempt to spin off its DVD-by-mail service as Qwikster, which was quickly abandoned after backlash.

“Many companies see mistakes as failures, but we viewed them as opportunities to learn,” Neal explains. “You have to teach people how to do this, and hire those who are willing to embrace it.”

From Startup to Global Force

What began as a small DVD-by-mail operation now employs about 14,000 people worldwide. After nearly three decades of evolution, little remains of Netflix’s original business model, yet its internal culture has stayed consistent. This environment—described by Supino as “unsentimental”—may be the company’s greatest asset.

Explosive Growth

• 2000: Blockbuster passes on acquiring Netflix, which had about 300,000 subscribers.
• Today: Netflix boasts over 300 million subscribers globally.

In 2009, Netflix published a 125-slide presentation outlining its unique workplace culture. The document, updated over the years, highlights principles like prioritizing freedom over rigid processes, leading through context rather than control, and encouraging honest feedback—even when it’s uncomfortable.

As Hastings notes, Netflix’s culture is unconventional. There are no formal vacation or expense policies, and the company is transparent about performance and executive compensation. To ensure only top performers remain, Netflix uses the “keeper test”—managers ask themselves if they would fight to keep an employee if they wanted to leave. This approach has led to the departure of even high-ranking executives, including Patty McCord, the company’s first chief talent officer and a key architect of its culture.

“We focused on giving feedback and having tough conversations,” says Neal. “We believed that being honest was a sign of caring, and avoiding the truth was not.” This openness, she says, helped teams navigate challenges more effectively.

One memorable moment came when Time Warner’s CEO dismissed Netflix as the “Albanian army.” Rather than being discouraged, Netflix’s leadership embraced the label—Hastings even gave executives berets with the Albanian flag’s double-headed eagle, and staff wore Albanian army dog tags with pride.

Even then, the team believed they were destined for a Hollywood ending.

This article was originally published in the February/March issue of Fortune under the headline “How Netflix swallowed Hollywood.”

Originally featured on Fortune.com