The Foreseeable Financial Outlook on Netflix
Dorothy Dilger
Dr. Javier Fadul
Finance, MBA 645
March 30, 2014
I. Introduction
II. The History of Netflix
A. Discuss how Netflix’s pricing strategy induced the need for change
B. A transition that brings customer satisfaction
III. Netflix Today
A. Adding additional distribution centers to increase DVD delivery lead time
B. How agreements and partnerships helped Netflix to lower their costs
IV. Outside influences creates financial risk
A. Netflix and its competition
B. Relationships with major studios and electronic firms
V. How might financial trends hinder Netflix’s performance?
A. Netflix’s desire to improve streaming services
B. A rapid decrease in DVD subscriptions may cripple Netflix financially
VI. What does the future show for Netflix’s stock?
A. Volatile stock
B. Possible rising costs
C. Opportunities
Reed Hastings, co-founder of Netflix headquartered in Los Gatos, CA, began the company’s operations in 1997 after receiving an enormous late charge from a movie rental he returned long overdue. However, Hastings had the desire to be different than traditional movie outlets; whereas, customers had to drive to the location, pay a certain amount for each movie they rented, and were given a deadline in which to return the movie. Instead of using a method established by other video markets “to attract customers to a retail location, Netflix offered home delivery of DVDs through the mail” which eventually led to a booming business towards streaming forms of entertainment (Shih, Kaufman, & Spinola, 2009, p. 3). Direct and indirect competitors, along with outside obstacles, to a greater extent present a financial threat for Netflix. As a result, Netfl...
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... received from domestic DVD rentals. However, there is concern that rising costs in areas may potentially lead a reduction in earnings-per-share. For example, “internet services providers [are] one of the biggest potential threats to Netflix” at the moment, considering net neutrality (Kriete, 2013, p. 6). Net neutrality simply means wireless providers would charge Netflix more to provide better bandwidth to its subscribers which may cause Netflix to increase consumer prices. However, it could also affect how they compete with other streaming media providers; therefore, influence their bottom line. Accordingly, Netflix’s plan is to develop a working partnership with internet providers that can become a win-win situation for both. Otherwise, Netflix may take a chance in losing subscriber sales; thereby, severely decreasing its earnings per share of common stock.
Gamble, J., & Thompson A. A. (2013). Redbox's Strategy in the Movie Rental Industry. In Essentials of strategic management: The quest for competitive advantage (pp. 295-303). New York, NY: McGraw-Hill/Irwin.
When we think of those skilled in the art of rhetoric, we often jump to those we know are trying to convince us of something, like politicians, salesmen, lawyers, etc. We do not always consider corporate CEOs part of that group though Netflix CEO, Reed Hastings, would have us believing another thing. On March 20th, 2014, Hastings published an article titled “Internet Tolls And The Case For Strong Net Neutrality” on Netflix’s official blog. Just under a month before the blog was posted, Netflix settled a deal paying Comcast, America’s largest cable and Internet service provider (ISP), for faster and more reliable service to Comcast’s subscribers (Cohen and Wyatt). These “internet tolls” go against the culture of net neutrality in America, which in its essence is when no piece of information is prioritized over another on broadband networks. Hastings took to their blog to advocate for net neutrality and against abusive ISPs. Whether he was conscious of his rhetorical finesse or not, he wrote quite convincingly thus turning this blog into an excellent rhetorical artifact. Reed Hastings’ blog post aims to convince American Internet consumers that strong net neutrality is important by appealing to their values of choice, frugality and empathy while simultaneously making ISPs seem ill intentioned and Netflix seem honorable.
? Netflix provides a subscription-style e-commerce service. Over 95% of customers pay at least $17.99 a month which includes unlimited rentals with up to three titles at a time. A comparably low monthly fee, allows Netflix to lead market share of online DVD rentals while competing with traditional brick and mortar rental stores. Meanwhile, Netflix might keep the customers who try the service and happy with it continue paying the monthly fee. Therefore, Netflix has fewer problems in predicting revenues.
The average Blockbuster store carries roughly 1,500 movie titles. Netflix carries more than 12,000 titles. It has movies that you can't find anywhere else. And Netflix uses collaborative filtering technology to send you emails that alert you to movies that you might otherwise never consider. Netflix saw the video- and game-rental market moving to DVD and built its business around that trend. Netflix doesn't rent videocassettes, only DVDs (in part because they're lighter and cheaper to mail). Netflix was able to identify and implement a strategy fo...
The idea inspired Reed Hastings and Marc Randolph, and then they founded Netflix in Scotts Valley, California in 1997 (Netflix, 2014). The company comes into play by developing a subscription-based streaming platform for movies and television shows. Unlike the traditional movie rental businesses such as Blockbuster and Redbox, Netflix’s innovation offers service via Internet, and it does not have any physical stores but instead delivers DVDs through postal mail in the U.S. Since then, Netflix has become the world’s leading internet television network with constant growth of customers to over 48 millions members in more than 40 countries in the North America, Europe, and the Latin America (Netflix, 2014). In this analysis, the main focus is examining the current market environment for Netflix. It identifies the type of market structure that Netflix is currently competing. The analysis also expands on the competitions, product differentiation, pricing strategy, and measuring the level of easy entry-and-exit.
Netflix was established by Marc Randolph and Reed Hastings in 1997 in California. Initially, the company offered a DVD-by-mail service for a monthly, flat rate subscription fee. Videos were sen...
Reed Hastings, co-founder of Netflix headquartered in Los Gatos, CA, began the company’s operations in 1997 after receiving an enormous late charge from a movie rental he returned long overdue. However, Hastings had the desire to be different than traditional movie outlets; whereas, customers had to drive to the location, pay a certain amount for each movie they rented, and were given a deadline in which to return the movie. Instead of using a method established by other video markets “to attract customers to a retail location, Netflix offered home delivery of DVDs through the mail” which eventually led to a booming business towards streaming forms of entertainment (Shih, Kaufman, & Spinola, 2009, p. 3). Today, Netflix exists along with several competitors; however, offers the most streaming content available for viewing, and continues to grow its subscriber base both domestically and globally. Although, direct and indirect competitors, acquisition costs, and several barriers present a financial threat for Netflix, the company has managed to grow with the acclamation of partnerships, expand to international territories, and vastly increase its price in shares of stock.
Video Rental and Streaming has partly been of the most significant avenues of the general home entertainment industry in the United States for many years. It promotes constructive development through various channels such as Information Technology, Public Multimedia and it also has a huge impact on people’s lives and their entertainment on demand. One of the best companies which provide this high-advanced service is Netflix, Inc (Netflix). It was incorporated on August 29th in 1997 in California by Reed Hastings & Marc Randolph; listed on NASDAQ as NFLX in 2002. Netflix is the world’s largest Internet subscription service streaming television shows and movies with over 40 million members in 40 countries (Netflix, 2013).
The leaders of the company knew that they needed to increase revenue in order to be able to provide more content for their streaming service (Wingfield, 2011). By splitting the two services DVD and streaming content apart, Netflix was able to use the profit the DVD service provided, to help fund the increased content the streaming side would need to provide in order to become successful in the future. The splitting of the two services also served to encourage the subscribers to choose one service or the other—and most of them chose the steaming service. Netflix was able to transition these subscribers to their streaming service before a competitor online provider could lure them away (Hartung, 2013). Netflix felt that the streaming service was the future of the company and therefore they needed to make the decisions that would align themselves for that future.
Cord cutting is the use of streaming media services like Netflix, Hulu and Sling TV in lieu of traditional cable subscriptions. This trend away from traditional cable subscription presents a significant threat to important revenue streams. One of the key strategies for companies in the cable industry is to offset the costs of expensive services like cable with more profitable services like internet. With significant numbers of individuals ridding themselves of traditional cable subscriptions it will be increasingly difficult to maintain profitability while maintaining a similar level of service. Cable companies face significant threats from companies that offer internet based streaming media services like Netflix.
1. What is the difference between a. and a. Briefly describe each of the four major challenges that Netflix faces. Which challenge is the easiest to address? Why do you need to be a member? The four challenges faced by Netflix are described below.
In this paper I will discuss how Blockbuster video became bankrupt to its competitor Netflix. In 2000, Reed Hastings, the founder of a fledgling company called Netflix, flew to Dallas to propose a partnership to Blockbuster CEO John Antioco and his team. The idea was that Netflix would run Blockbuster’s brand online and Antioco’s firm would promote Netflix in its stores. Hastings got laughed out of the room. We defiantly know what happened next.
Sometimes I really miss video stores; the experience of walking into a huge store filled with shelves of films, TV shows and video games was lost in the upheaval of modern technology taking the lead in entertainment. Now you can simply walk up to a Redbox and choose from a semi limited selection of films and games at a far lower price, but like video stores there is a late fee if your item is not returned on time. Though if you are looking for a larger catalogue there’s always Netflix who’s fully costumed to providing customers with an entirely at home service that takes late fees out of the equation. Netflix started business in 1997 as simply a service for online movie rentals. Two years later they extended their service to a subscription
In 2000, Netflix shifted their goal from DVD rental to steaming video. The company do this with Hastings stating and foreseeing that “DVD is not a hundred year format”. So Hastings introduced online content format so the costumer can watch the video and TV episode in their computer without additional cost. But this system have some problem with their movies stock. So, to increase their movies stock they collaborate with Movie Producer like 20th Century, Warner Brother or Sony Pictures.
The success of an organization depends on multiple factors. While strategy, human resources and company culture form the key factors for the success of an organization, there are other important factors that are needed to take the organization’s success to the next level.