Topics: Renting, Business model, Subscription business model Pages: 2 (554 words) Published: January 26, 2013
SUMMARY Inc., founded in 1997 by Reed Hastings and Marc Randolph, is a company operating in the DVD rental service sector, based on the use of Internet. This start-up has profited of the combination between the innovation of the DVD format technology and the convenience of Internet to differentiate itself from the competitors, Blockbuster first of all. Thanks to some promotional policies and agreements with DVD players manufacturers, NetFlix has, so far, acquired many subscriptions and the CFO previsions of future cash inflows take into account an even better growth of subscribers in the future of the business. Each subscriber, after the payment of a monthly fee, can select his preferred movies among an unlimited, virtual, stock of videos. The DVD is then shipped and it can be kept as long as the customer wishes. The company uses the method of the so-called Marquee Queue to create a preferential list of movies for each subscriber, which allows the system to send the next preferred DVD to the customer, after the return of the previously rented one. Making use of the Personal Movie Finder Service, a subscriber can see the evaluations which are made by other customers about a specific movie. After the launching of the website of the company, the revenues have increased rapidly (from $1.4 mln in 1998 to $5.0 mln in 1999). Nevertheless, the material sales and marketing expenses due to the promotional policies have impacted on the business results negatively both in 1998 and 1999, together with the cost of maintaining an extensive and up-to-date library. (Net Losses amounting respectively to $11.1 mln, increased to $29.8 mln). In July 2000, the CEO and Chairman of the company, Mr. Hastings, has to face a critical situation concerning the anticipation of their IPO. In order to register success with the offering, the investment banks outline as a requirement to have positive cash flows from the company within a twelve-month horizon. The CFO, Barry...
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