Netflx Case Analysis

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  • Topic: Streaming media, Netflix, Subscription business model
  • Pages : 11 (3161 words )
  • Download(s) : 15
  • Published : April 25, 2013
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Background
Netflix is an American provider of on-demand internet streaming media and flat rate DVD-by-mail that was established in 1997 in Scotts Valley, California by Marc Randolph and Reed Hastings. The concept of Netflix came to fruition when Hastings was strong armed into paying $40 in late fees after returning a movie well past its due date. Hastings’ initial investment of $ 2.5 million was to be used as start up cash for Netflix. The Netflix website was launched in April of 1998, employing a mere 30 employees and offering a limited selection of 925 movies available for rent via an online pay-per-rental model costing $4 per rental plus $2 shipping and late fees applied. In September of 1999 the month subscription concept was introduced, thereby eliminating the pay-per-rental model in early 2000. Netflix built a reputation on their business model of flat-free unlimited rentals without due dates, late fees, shipping and handling or per title rental fees. Netflix had their initial public offering (IPO) on May 29, 2002 selling over 5 million shares of stock at $15 a share and in June of the same year Netflix sold an additional 825,000 shares of stock at the same price. By 2005 Netflix had grown substantially, they were now offering over 35,000 title films and they were shipping a million DVD’s a day. In 2007 after delivering its billionth DVD Netflix began moving away from the business model of mailing DVDs and introduced video-on-demand via the internet. In September of 2011 Netflix announced that they would be re-structuring its DVD home media rental service leading to the loss of nearly a million subscribers. Things began picking back up for Netflix shortly after the initial announcement and by January 2012 they had gained over 610,000 subscribers. In early 2013 Netflix announced that they would be hosting their own awards ceremony, the Flixies, and would be adding a Facebook sharing feature to the Netflix interface. Company Strategist

Upon launching the company’s online movie rental service in 1999, Reed Hastings, founder and CEO of Netflix was on a mission to continually improve the company’s service offerings and afford the company the opportunity its movie rental competitors. Hastings’s goals were quite simple: build the world’s best internet movie service and to deliver a growing subscriber base and earnings per share every year. Hastings was personally responsible for engineering the company’s creative yet simple subscription based business model and strategy that lead Netflix to become the world’s largest online entertainment subscription service in turn revolutionizing the way that most people rented movies.

Netflix utilized a subscription-based business model allowing members to choose one of eight “unlimited’ subscription plans that ranged in price from $8.99 per month to $47.99 per a month. Additionally, the company offered a “limited” plan for $4.99 per month that entailed a maximum of two DVDs per month with up to two hours of video streaming. Every new subscriber was automatically awarded a free one month trial that gave access to Netflix’s entire library. After the initial trial period subscribers were automatically enrolled into a plan unless they cancelled their subscription. Netflix offered streaming content in a variety of ways through Netflix-controlled software that could run several different, Netflix ready devices such as, the Nintendo Wii, Microsoft’s Xbox 360, Sony’s PlayStation 3, Netflix capable blue ray players and special Netflix players. However, the company made sure that subscribers would be able to enjoy without the need for any special hardware by allowing subscribers to use any Windows PC or Intel based Apple Mac with sufficient video capabilities. In addition to Netflix’s subscription-based business model Netflix also developed a multipronged strategy to build an ever-growing subscriber base that included: •Providing subscribers with a comprehensive...
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