During peak hours, Netflix accounts for more than thirty per cent of Internet down-streaming traffic in North America. Illustration by Leo Espinosa

In the spring of 2000, Reed Hastings, the C.E.O. of Netflix, hired a private plane and flew from San Jose to Dallas for a summit meeting with Blockbuster, the video-rental giant that had seventy-seven hundred stores worldwide handling mostly VCR tapes. Three years earlier, Hastings, then a thirty-six-year-old Silicon Valley engineer, had co-founded Netflix around a pair of emerging technologies: DVDs, and a Web site from which to order them. Now, for twenty dollars a month, the site’s subscribers could rent an unlimited number of DVDs, one at a time, for as long as they wished; the disks arrived in the mail, in distinctive red envelopes. Eventually, Hastings was convinced, movies would be rented even more cheaply and conveniently by streaming them over the Internet, and popular films would always be in stock. But in 2000 Netflix had only about three hundred thousand subscribers and relied on the U.S. Postal Service to deliver its DVDs; the company was losing money. Hastings proposed an alliance.

“We offered to sell a forty-nine-per-cent stake and take the name Blockbuster.com,” Hastings told me recently. “We’d be their online service.” Hastings, now fifty-three, has a trimmed, graying goatee and a slow, soft voice. As he spoke, he was drinking Prosecco at an outdoor table at Nick’s on Main, a favorite Italian restaurant of his, in Los Gatos, an affluent community in the foothills of the Santa Cruz Mountains. The sounds of Sinatra carried across the patio.

Blockbuster wasn’t interested. The dot-com bubble had burst, and some film and television executives, like those in publishing and music, did not yet see a threat from digital media. Hastings flew home and set to work promoting Netflix to the public as the friendly rental underdog. By the time Blockbuster got around to offering its own online subscription service, in 2004, it was too late. “If they had launched two years earlier, they would have killed us,” Hastings said. By 2005, Netflix had 4.2 million subscribers, and its membership was growing steadily. Hastings had rented a house outside Rome for a year with his wife, Patty Quillin, and two children and was commuting to his Silicon Valley office two weeks each month. Hollywood studios began offering the company more movies to rent; the licensing arrangements presented a new way to make money from their libraries and provided leverage against Blockbuster.

By 2007, when Netflix began streaming movies and TV shows directly to personal computers, it had all but won the rental war. Last November, Blockbuster said that it was going out of business; the previous month, Netflix had announced that it had thirty-one million subscribers in the United States, three million more than HBO, and that its stock was at an all-time high. In 2013, it launched an original-programming series, “House of Cards,” which became a critical hit. During peak hours, Netflix accounts for more than thirty per cent of all Internet down-streaming traffic in North America, nearly twice that of YouTube, its closest competitor. The Netflix Web site describes the company as “the world’s leading Internet television network.”

Hastings has succeeded, in large part, by taking advantage of what he calls viewers’ “managed dissatisfaction” with traditional television: each hour of programming is crammed with about twenty minutes of commercials and promotional messages for other shows. Netflix carries no commercials; its revenue derives entirely from subscription fees. Viewers are happy to pay a set fee, now eight dollars a month, in order to watch, uninterrupted, their choice of films or shows, whenever they want, on whatever device they want. “Think of it as entertainment that’s more like books,” Hastings said. “You get to control and watch, and you get to do all the chapters of a book at the same time, because you have all the episodes.”

Television is undergoing a digital revolution. Last autumn, in the company’s annual “Long-Term View” report to shareholders, Netflix argued that “the linear TV experience,” with its programs offered at set times, “is ripe for replacement.” Hastings told me, “We are to cable networks as cable networks were to broadcast networks.” But Netflix is just one of many contenders. “It’s like little termites eating away,” Jason Hirschhorn, an Internet entrepreneur and a former Viacom executive, told me. “I don’t think the incumbents are insecure enough.”

In the early days, television was both a box and the black-and-white world that issued from it: quiz shows, soaps, Ed Sullivan, Edward R. Murrow, “I Love Lucy.” Until the nineteen-eighties, the vast majority of the shows were commissioned and carried by ABC, CBS, and NBC, which started out as radio networks and were granted television licenses by the F.C.C., with the expectation that they broadcast at no charge to viewers. Audiences were rapt, and broadcasters made money by selling spots to advertisers.

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Today, the audience for the broadcast networks is a third what it was in the late seventies, lost to a proliferating array of viewing options. First came cable-television networks, which delivered HBO, ESPN, CNN, Nickelodeon, and dozens of other channels through a coaxial cable. Cable operators and networks charged monthly fees and sold ads, and even commercial-free premium networks such as HBO made money for cable operators, because they attracted subscribers. Traditional broadcasters saw their advertising income slow, but they compensated by charging cable companies for carrying their content, a “retransmission consent” fee made possible, in 1992, by the Cable Television Consumer Protection and Competition Act. Soon after, the F.C.C. relaxed rules that restricted the networks’ ownership of prime-time programs, which opened a new stream of revenue from the syndication of their shows to local stations, cable networks, and other platforms.

The advent of the Internet and streaming video brought new competitors. In 2011, Amazon made its streaming-video service, Instant Video, available free to every customer who signs up for its Amazon Prime program, which, for seventy-nine dollars a year, also provides free two-day shipping. The arrangement inverts the traditional advertising model: instead of forcing you to view commercials, video is the gift you get for shopping. Amazon Prime subscribers number about twenty million, although the number of those who are Instant Video viewers is certainly smaller. Last fall, Amazon released its first original series, “Alpha House,” created by Garry Trudeau. Apple, which popularized the purchase of digital music, offers video sales and rentals through iTunes. It is not expected to develop its own content.

The busiest “television” platform in the world is YouTube, which is owned by Google and has a billion unique visitors watching six billion hours of video every month. Ynon Kreiz, the executive chairman of Maker Studios, the world’s largest provider of online content, noted that its series “Epic Rap Battles of History,” broadcast on YouTube, and which offers comical face-offs between, say, a faux Miley Cyrus and Joan of Arc, attracts on average forty million viewers—almost four times the viewership of the finale of AMC’s “Breaking Bad.” YouTube makes money through what Robert Kyncl, a vice-president at Google and the head of content and business operations at YouTube, calls “frictionless” advertising, which allows viewers to click on a TrueView button to skip ads and asks advertisers to pay only when viewers watch the ad. YouTube claims that forty per cent of its views are on mobile devices, a leap from just six per cent in 2011.