Case Study: NetFlix.com, Inc
NetFlix.com, the world’s largest online DVD rental company, was founded by Reed Hastings and Marc Randolph in 1997, and is headquartered in Los Gatos, California. The company started its online DVD rental business by launching Netflix.com, offering pay-per-DVD rental services by delivering DVDs via mail. As the company prospered during late 1999, Netflix replaced its pay-per-DVD revenue model with a fixed monthly fee system that allowed customers to rent up to 4 DVDs per month with no due dates or late fees. In February 2000, it launched a new plan, where, with a monthly fee of $19.95 instead of its previous $15.95, subscribers were able to have up to 4 DVDs in their possession at one time. The website allowed subscribers to make their own lists or “queues” of movies that they browsed and selected to watch. Then, it shipped movies that were at the top of the queues of subscribers via mail. It also provided subscribers with individualized ratings on all movies that customers had previously rated after viewing. As the company enjoyed tremendous success, it decided to submit its S-1 filing for an initial public offering. However, soon after it was submitted, the NASDAQ stock market fell 25% to 3,794, making it more difficult for a company’s IPO to succeed with uncertainty in the financial markets. In July 2000, Reed Hastings, CEO of Netflix, needed to decide whether the company should proceed with the IPO or withdraw it. Investment banks predicted that the IPO of Netflix would succeed if it showed positive cash flows within a twelve-month horizon, but the executives at Netflix were unsure whether they could achieve that goal.
Identification of Problems:
Netflix is losing market share and profitability to competitors and technological advances. Monthly fee discourages membership from less frequent movie watchers. Lack of control over DVD return time.
Comparatively small movie library available to stream....
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