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Case Blaine Kitchenware

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CASENI

N etFlix.com, Inc.
In July 2000, Reed Hastings, chairman ,md CEO of NetFlix.com, Ine., faced a criticaI deci:;jon. Thrl'C months earlier, following one of tl1l' worst episodes O!l record for the NASDAQ market, NetFlix had submitted it:; 5-1 filing for its initial Pllblic offering (Iro).! A:; il rl'sult of thl' market downturn, many Internet companies had been forced to withdraw their 1['0s. Invl,:-;tment bankers indicated to Hastings that NetFlix would 11(.'Cd to show positive cash flows within a twdw-month horizon in order to have a succes.,,,flll offering. Hastings knew that NetFlix was at a crucial stage. With revenU($ doubling evcry six months, NetFlix was enjoying tremendolls stlccess. But continucd succcss depcnded on thl' company's ability to sustain triple-digit growth (or the fOfesceable future. Soon, Hastings would have to decide whether or not to proceed with the company's anticipated IPO. Hastings askl..'\l Barry McCarthy, the chicf finnnciai officer, to re-('vnluate the cash flow requircments of thc company's currcnt business pian, to suggest modificùtions that would improvc the company's projected cnsh flows, and to makc ù rccommcndation on whether the company should go forward with its plùnned offcring. As McCarthy rcviewed the existing NetFlix business model, hl' considered possiblc chùnges that might allow thc company to procccd with its planncd IPO ùnd yet sustùin thc typc of futtlrl..' growth that would be nccL,:-;sary for thc compùny to achieve its long-run objcctivcs. McCarthy was acutcly aware of thc company's currcnt financing m't'd, but he worried about thc cffect thùt changes to the business pian might hnve on thc company's current operatillns.

TheCompany
NctFlix.com, fne. was founded in 1997 by Recd Hastings ùnd Mùrc Rnndolph. NctFlix opcratcd ùn Internct-bùscd unlimitcd rcntal subscription service for digitùl video disc (DVD) formattcd movics. The DVD providcd ù ncw technology for storiog ùnd playing movies with image and sound qUùlity cxceeding thùt of traditional vidcocassettcs. A DVD was similùr in sizc to an audio compact disc and was capablc of holding no cntirc featurc-Iength film, as well as additional information such as subtitles in diffcrcot l'lI1guagcs, additional shortcr vidl..'oS about thc mùking of the film or othcr rclated subject mattcr, and information about thc élctors, director, ùnd produccrs. With its high quality and ùdditional fcatures, thc new DVD tcchnology provided an ùttractivc altcrnùtive to traditional vidcocasscttcs for thc home video market. By combining thc supcriority of the new DVD

I After r.,aching il hist{lrical high {lf 5,(148 on March lO, 21XlO, th., NASDAQ Composite Index h"ù fall.,n 25'1.. tu 3,794 by April 18, 2(XJO, the day of the Nctl-'Iìx S-1 filing.

NeIFlìx.com, Inc.

tL'Chnology with the convenience or the Internet, NetFlix provided home movies.

il

new way to sclect and to rent

Rnndolph nml1nged production of the NetFlix web site, inclllding the featurcs, fllnctionality, and contL'nt on the site. Randolph bdieved that conSUn1ers were often frustrated in their dforts to scll'ct and view movies nt traditional video storcs because of limite..i sclections and il focus on new rdense movies. With its unlimited "virtual" she\f spnce for stocking videos, th ..' NetFlix wcb sile focuscd on improving the experiel1ce of sclecting

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