Netflix Case

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Submitted By rahvir
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Netflix - a new business model that redefined movie rental industry.
Netflix, a web based DVD rental company was a successful company that captures market share from players like Blockbuster and Hollywood. It entered into online video streaming business simultaneously. With the recent developments in internet bandwidth capacity, this opened a new horizon in movie renting business. Netflix plans were very competitive providing unlimited DVD rentals with no late fees. This feature paired with the online streaming option along with an intelligent system that proposes and predicts customers liking index helped Netflix develop a large customer base. The online streaming sector had the advantage of providing additional revenue with no marginal cost, making the service very profitable. The only costs that incurred were copyright acquisition costs. The costs of acquisition of a copyright of DVD is less when compared to cost of online streaming license. This made Netflix to start up with a limited number of online movie titles and TV programs. However, Netflix's attempt to divide these services into two individual services and increase the price of the plans by 60% impacted its customer base and profitability. There is a growing concern among investors as the company's performance is below expectations in the recent times.
The negative growth problem
Netflix was well known as a company that provided got return on investment. The company performed remarkable well when compared to its competitors such as Blockbuster and Hollywood. The recent out-of-control cost-growth story deteriorated the company's reputation as a profitable firm and has lead to negative earnings growth in 2012. As much as diversification of online titles is important, the management ignored the short run aspect with the capital costs sky-rocketing . Clearly, the management did not have a…...

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... content to build their libraries and thus have to negotiate with the studios to have access to the TV shows and Films that their users want to watch. With larger firms (such as Hulu and Amazon Prime) competing for the same content, Netflix has minimal ability to negotiate low prices. Aside from the content itself, the industry relies heavily on the servers and storage for servicing subscribers. In Netflix’s case, it outsources a majority of their infrastructure to Amazon Web Services (AWS), a cloud platform offered by Amazon with 11 geographical regions around the world. With so much invested into the AWS platform, switching to another cloud provider would be difficult and would likely disrupt the operations which would adversely affect subscribers. Competitive Rivalry: Moderate The SVOD industry is oligarchical, with few players taking up most of the market. Although Netflix has most of the domestic market share (89% in the first quarter of 2013), it is slowly losing share to Hulu, Amazon, and most importantly, HBO[8]. Hastings, Netflix CEO, has stated “the network we think is likely to be our biggest long-term competitor for content is HBO” citing similar revenues, domestic subscriber base, international reach, and programming.[9] While Netflix’s library is nearly fifteen times larger than HBO’s, HBO’s budget for original programming is more than three times larger at $1 billion and has nearly 10 times the international subscriber base.[10] In......

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