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Netflix

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by

Daniel Molina

on 30 April 2014

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Transcript of Netflix

COMPANY BACKGROUND
1995: DVD was introduced
1997: DVD is available in the US
1997: Netflix is created
Reed Hastings Marc Randolf
Convenient, Fees, Vision
1998: Netflix goes live with per rental plan

DVD is the future - light and easy to ship via USPS

Ahead of Our Time
1999 $30 million from investment group Arnault - introduce subscription plan- no more pay to rent
Partnered with film studios- revenue sharing
Access to new releases in large quanities
Bestbuy Partnership - Ads in DVD equipment
2002 Went public - $15 a share - Today $323
By 2003 a million subscribers - first profits
Blunder
2007 Introduction of Streaming
Shares hit $299
Divide Company - Qwikster for DVD rentals
Raise subscription costs 60%
Two companies not linked - not single service
Lost approximately 800,000
Stock drops 75%

Today
DVD profitable but dying market
Subscriptions 7.5m (down 475k)
Competition - Big Pockets - Losing Content
New Programming is only unique quality - Costly - Off Balance Sheet
Total Streaming in US 29.8m*
Total Streaming outside US 7.75m*
Total Streaming subscripts up 1.2m

Strategies
Differentiation
Introduced a product none offered
Disruptive Tech to brick and mortor

Product Mix Differentiation
Titles not offered in B&M - Independent films Bollywood and Documentaries

Service Differentiator
Regional Dist Centers
Quick Delivery over competition
Technological Differentiation
Patented tech CineMatch - customer viewing patterns
Agreements with TiVo and Roku - first non DVD viewing - hard drive

First Mover Differentiation
First exclusive DVD rental outlet online - DVD to your door ordered over internet
Strategic Partnerships &Alliances
1998 Amazon - Out of DVD Sales
2000 Blockbuster
2000 Major Goal Revenue Sharing Warner Home Video, Columbia Tri-Star others follow
2001 Best Buy (Sam Goody)
2009 Smart devices
2013 - Disney Pixar for 2016
Offensive Strategies
Independent Films
Free Rental Coupons
Free Trial Memberships
Blockbuster - Brick and Mortar
Unique Programming
House of Cards in 4k Technology
Defensive Strategies
2001 Walmart and Columbia House Online - Distribution Centers
2006 Patent Infringement Lawsuit
2014 Comcast Agreement - 30% of Comcast service is Netflix - Pay Up or Else
Vision
“To be the best visual entertainment provider, with a smart and easy to use online interface and fast and reliable delivery.”

Mission
“Our mission is to provide more and better visual entertainment to more people in more places. We strive to continually improve customer experience by expending our media library, augmenting the online experience and increasing the pool of devices that can provide our services, while increasing our profit.

We will strive to be a model corporate partner in the communities where we do business, offering opportunity for employment and advancement based on ability irrespective of race, creed, sex or sexual orientation. Moreover, we will strive to build on our diversity to create a work environment that encourages a free exchange of ideas in an effort to continually strive for progress, creative change and continuous improvement.”

Stakeholder Analysis
Five Forces Analysis
SWOT Analysis
SWOT Analysis
Interactive Planning
Ideal State
To be the #1 streaming entertainment service provider globally
Static Modeling
If Netflix continues to do exactly what they are doing… we feel they will be out of business in 2 years
Formulation of the Mess
Do not have rights to stream most recent titles
Have them in DVD
Drives some customers to other providers for TV shows
No technological differentiator with streaming video
Had a differentiator with DVD
Original Programs
Thought to be a draw for subscribers but expensive to produce
Customer loyalty is only as strong as your price and content
Type I Constraints
Control of access to titles by producers
Protected by copyright laws
Legal limitations on streaming to audience
Country restrictions
Treaties with producers to not stream to select Countries / regions
Many countries do not enforce copyright laws
Producers looking to protect their IP

Type II Constraints
Limited resources forced a choice between updating the delivery system and original programing
Original programing is proving to be very costly
Prohibitive so far to negotiate exclusive release to Netflix of current programing
Comcast is charging more to carry the signal due to the command of the bandwidth
Type III Constraints
Born out of innovation
Continues to be very innovative
Do not see this as a significant constraint
Innovation
The DVD is available the same year they create
Disruptive Technology to Brick and Mortar Stores
Subscription Plan – Flat Fee – No Penalties
Regional Distribution Centers
Patented CineMatch
One of first to do mass streaming - Give it away with DVD subscription to introduce to public
First on-line movie distributor to offer unique programming - Award winning
OK to fail - many projects terminated - streaming
the only thing harder than starting a strategic initiative is killing one
Binge Watching
The future of television is streaming

Subscribers Worldwide
Future Growth area = high cost
DVD becomes obsolete, but more profitable
Cost overcoming revenue due to original content - not on books
"Cooking" the books ?
Original and exclusive content capitalized
Ends Planning
Netflix will need to continue to increase the number of subscribers
Concentration on international
Netflix will need to continue to offer exclusive and produce original programming to set itself apart from competition but must find ways to reduce the production costs
Netflix will need to change their approach to releasing the original programming
Eliminate Binge watching for marketing and reduce risk of new content failures
Netflix will have to negotiate agreements with networks and film studios - this will require increased revenue due to competition
They have to increase their subscription cost to offset the added cost of unique programming.
Buy the rights to television shows and eliminate cable and satelite subscribers. The future of television is streaming! Apps instead of channels
Continue to use the subscription business model.
FANTASY LAND !?
“At $900 million of total long-term debt, we will have an extremely modest debt-to-equity ratio,” Reed Hastings & David Wells

“We continue to grow membership and revenue faster than content expense,” Reed Hastings


Hard Numbers
Revenue in 2013: $4.375b
COGS in 2013: $3.083b
Total Operating Expenses in 2013: $1.06b
EBIT in 2013: $171m
Net Income in 2013: $112m (2.5%)
$7.2b of content obligations?
Every show is around $50m
Full transcript