Network Marketing

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NETWORK MARKETING

(Netflix Case)

By Gracie Lee (B94705011), Jennifer Huang (B94705035), Charles Virgile (A97749219), Nicolas Valaize (A97749221), Vincent Montmoreau, Fabien Palmero

1) Would you buy Blockbuster stock or short it at the time of the case? How about Netflix? Why?

We would rather short stock of Blockbuster, since we conjecture that the price of it will decline. Our conjecture is based on the following reasons: A. Competitors: This is the main reason of our inference. Blockbuster is facing challenges from both DVD rental companies, such as Netflix, and VOD industry. We conclude profit of Blockbuster will shrink because of them. B. Source of DVD: According to the practice, movie suppliers will authorize VOD downloads or cable TV a few months after DVD hit the market. However, it’s not for sure that movie suppliers will always follow this practice, thus, this might be a potential threat to Blockbuster. C. Canceling late fees: Originally, this is strategy is adopted by Netflix. In order to remain competency, Blockbuster did it as well. But this decision soon turned out causing 0.4 billion US dollars loss, we conclude this may lead to a decline of Blockbuster stock price.

For Netflix part, we would prefer buying its stock.
A. DVD-by-mail service as a pilot: Beyond the traditional DVD rentals, Netflix provided a more rapid and conveniet way to deliver goods and can respond instantly both in ordering and unsubscribing. Due to being the first company providing such service, Netflix has already hold the most marketshare. B. “All you can eat ” model: If customers want to see more movies, they would return the previous DVDs soon and Netflix could keep more DVDs in hand. Or if a customer possesses one DVD a long time , then the cost of sending another DVD is reduced. This model also beat Netflix’s competitors and force them to follow such rules since most subscribers prefer no expiration date of a rental ....
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