Netflix is ubiquitous with personal cinema consumption whether it be on the family living room big screen or the laptop on the couch. Everyone remembers how Blockbuster was the place to go to rent a movie in sweats, but how did Netflix so successfully infiltrate their market?

Blockbuster had the opportunity to buy Netflix for $50 million back in 2000, and passed. It is very easy to Monday morning quarterback the situation and see this is as an obviously poor decision. But if you were CEO of Blockbuster in 2000, would you have bought Netflix for $50M? The business looked very different back then, and fortunately, Netflix is a public company and so is much of their useful data.

In my mind this is a classic case of a CEO dilemma; the cognitive battle between the data and true vision.

If we assume Blockbuster only had 1999 data to consider, they would have seen a company with 12% gross margins, a $30M operating loss, and a $110 CAC. If they had 2000 data to analyze, they would have seen a company with annual churn exceeding 300%; Netflix added 515k in gross new subscribers in 2000, but only had 292k at the end of the year . Netflix had a $50 CAC, and a LTV of only $24 assuming average monthly revenue per subscriber didn’t change between 2000 and 2001. Netflix was on track to post an operating loss of almost $60M. Back then, it certainly wasn’t clear that $50M was a bargain for a company with terrible customer unit economics and bleeding cash. At the time Blockbuster had $4B in revenues, 70% gross margins, and $75M in operating income. The company stopped making the churn rate and other figures available for public consumption, but in late 2011 this was hovering around 5%.

As the company’s leader, a CEO has to make prudent decisions on behalf of it shareholders when it comes down to brass tax by what they are fed by analysts and swayed by activists, but clearly, there is no substitute or metric for vision.

Fast forward to today where Blockbuster has long since closed its doors and its only quasi-worthy remaining asset has been picked up by Dish. Netflix, on the other hand, could spend as much as $5 billion in 2016 on programming, making it the second biggest spender on content buyer after ESPN.

Netflix CEO Reed Hastings wrote that “piracy continues to be one of our biggest competitors,” and referred to Popcorn Time by name, calling a graph showing its rising Google searches “sobering.”

Popcorn Time, the most popular service that offers a Netflix-like interface for accessing pirated films, is proving to be one of the most resilient. Its Argentinian creators said they were closing the “experimental” service, but then other developers began working on it because it has been made open-source. They’re working on changes designed to make the service virtually impervious to law enforcement. Making all the data available via P2P will mean that Popcorn Time will no longer rely on domains and centralized servers but only on its user base. Popcorn Time isn’t a new kind of piracy so much as an inviting new front-end interface for the BitTorrent underground. Mark Mulligan of Midia Consulting wrote that, “The next stage of piracy, and one rights holders need to be really worried about, is when the pirates start behaving like the rest of the internet and start making great user experiences.”

With 50% larger programming expenses than its next competitor, HBO, one has to wonder what Netflix’s plans are for the long run. Using an entirely different strategy than other rivals, Netflix aims to provide an inexpensive product by bringing down the cost barriers for customers, which fuels the cycle of even more inexpensive content. 

The ability to not only stream, but to create original content is an incredibly powerful shield against losing customers to piracy sites like Popcorn Time. As as long as there is content available to be pirated, these services will be around; the key for survival is having a better user experience – if Popcorn Time has a better variety of movies why would anyone pay for Netflix?