Netflix Inc.

Netflix delivers movies to people's homes, and has led the last two revolutions in that field. First it pioneered the DVD-by-mail business that put thousands of local video stores out of business by making late fees a thing of history.

The company became a high-flier of Silicon Valley and a business-school lesson in how to make a smooth transition from old technology (sending out DVDs by mail) to new (delivering streams of movies and shows on the Internet). Since then, Netflix has changed the way tens of millions of people watch films and television shows.

During the summer and fall of 2011, the problem it faced was self-inflicted. In July, in an attempt to raise cash to license more streaming content, the company increased the price for its combination Internet streaming and DVD service, angering customers. On Sept. 18 it abruptly said it would split up the two services, frustrating fans of both. The DVD-by-mail service, which is how the company began, would become the Qwikster brand with its own management team. The name Netflix would remain for movie streaming.

In the days following the announcement, tens of thousands spoke out against the plan and price change on Netflix’s Web site and others, and Netflix stock slid sharply.

Netflix expected some of its 25 million subscribers to cancel in the wake of the price change, but the cancellation rate exceeded expectations. The company said in mid-September that it expected to report a quarterly decline of about one million in the third quarter, which ended on Sept. 30.

On Oct. 10, Netflix said it was abandoning its plans to rent DVDs on Qwikster, admitting that it had moved too fast when it tried to spin off the old-fashioned DVD service into the new brand. Under the new plan, the price change would remain in effect, but the two services would not be untethered. That means that subscribers who want both online streams and DVDs won’t have to manage two accounts and pay two bills each month, after all.

But the changes at Netflix extended beyond price increases and customer dissatisfaction. 

In September 2011, Netflix and DreamWorks Animation, the company behind successful movie franchises like “Madagascar” and “Shrek,” announced they had completed a deal to pump DreamWorks films and television specials through Netflix. The deal replaces a less lucrative pact between the film studio and HBO.

The Netflix accord, which analysts estimate is worth $30 million per picture to DreamWorks over an unspecified period of years, is billed by the companies as the first time a major Hollywood supplier has chosen Web streaming over pay television.

It is also a bet by Jeffrey Katzenberg, the animation studio’s chief executive, that consumers in the near future will not distinguish between the two. Netflix will begin streaming DreamWorks films starting in 2013.

The DreamWorks contract comes as Netflix is trying to navigate a dense thicket of challenges. Competition from the likes of Apple, Amazon and Vudu, a streaming service owned by Wal-Mart, is increasingly fierce; Dish Network, which plucked Blockbuster out of bankruptcy earlier in 2011, has announced a Blockbuster-branded streaming and DVD-by-mail service.

Access to movies and TV shows is what matters most to Netflix, and Hollywood, after helping to build up the company with generous deals, is starting to play hardball. In February 2012, Netflix is expected to lose the right to stream films from Walt Disney Studios and Sony Pictures Entertainment, as a result of a failed renegotiation with the premium cable channel Starz.

The films from Starz helped to jump-start Netflix’s streaming service several years ago, but according to Starz, the two companies could not come to terms on a new contract. Netflix said it would acquire content from other sources, essentially spending its subscribers’ money elsewhere.