Netflix Financial Analysis Essay

1. Netflix’s original marketing strategy offered several flat-rate monthly subscription options; in which, members could stream movies and shows via the Internet or have disks sent to their homes in a pre-paid and pre-addressed envelope. Free from the despair of due dates and late fees, members could keep, up to, eight movies at a time. Upon the return of a disk, Netflix would automatically mail out the next movie from the customer’s video queue. Members were able to change and update their queues as frequently as they liked. The sheer innovation of Netflix’s strategy encouraged several competitors to enter the market to compete directly,

To understand Netflix’s positioning in the home video industry - offering of movies in the comfort of the home - it is useful to employ Porter’s 5 forces framework to identify the gap they are filling and their strengths and weaknesses.

The purpose of this paper is to help provide microeconomic analysis of Netflix Company to give an insight of the business market in which it operates. Ever want to rent a DVD and not have to worry about the return date, or stream a favorite TV show on the go? Now that dream is a reality thanks to Netflix allows people to rent DVD and Blu-ray without having to worry about the late fee or due dates. Along with the rental services, customers can stream movies or TV shows online anytime, anywhere all without commercials interruptions.

The point of the current ratio is to measure the ability of a company to pay off debt obligations. Netflix has a constant ratio hovering around 1.25-1.5 for the past five years (Appendix II, Exhibit 2). While this ratio would ideally be over 2.00, it does not indicate anything good or bad within the company. It is similar to this industry average, and is also similar to its Time Warner and slightly above Amazon. Because this ratio is similar to its competitors, investors should not worry about the company’s ability to meet payment deadlines. Having a ratio of over 1.00 indicates that Netflix has more current assets than current liabilities, which means that Netflix is unlikely to go bankrupt in the near future because it can afford to pay immediate obligations. Also, it is good that the ratio is not too high (above 3.00) because this would indicate that the company is not using its assets efficiently. Netflix has a steadily increasing ratio ending with 1.54 in 2016 (Appendix II, Exhibit 2). This indicates that Netflix has been slowly growing its current assets in relation to current liabilities which is a positive sign for investors.

One the one hand, the fertility of the industry opened the doors to corporations that sighted substantial growth potential. New entrants with big pockets such as Walmart could pose a certain threat to Netflix, by exploiting a playing card based on cost reduction. On the other hand, barriers to entry became relatively significant as established video rental retailers such as Netflix have the experience and the knowhow to market movies to people. In this industry, firms that do not have a technological advantage can’t compete. The best example is Netflix’s CineMatch program that offered personalized film recommendations based on customer’s rental patterns. This way, Netflix was able to better serve its subscribers. From a cost perspective, the movie rental industry requires high capital expenditures, and the major expenses are highly related to acquisitions of DVD library and investments in technology (exhibit 2 continued). Thus, we may say that entry is difficult in this industry as the competing firms have reputation, experience and recognizable brand names.

Netflix exhibits dominant economic characteristics in the online movie rental business. They enjoy strong market size and growth rate when compared to rivalry competition. The number of rivalries are increasing, and the market remains dominated by only a few sizeable rivalries like Blockbuster Video, Wal-Mart, Walt Disney Movies and Movielink’s Downloadable Movies. Netflix is determined to offer new and innovative technology to sustain their competitive advantage.

Entering and transforming the video rental industry was a large undertaking for the start-up company. The first marketing objective the company undertook was the process of building a brand. Netflix’s identity was crucial to future growth and success. Without a strong brand, competitors with deep pockets could have easily duplicated the company’s business model. Secondly, leveraging technology was critical to establishing the business and infrastructure growth. The consumer base was the final objective Netflix sought to achieve. Retaining and growing subscribers were fundamental to revenue and marketing goals.

Blockbuster and Hollywood Entertainment could not keep up with the changing of technology, whereas, Redbox and Netflix were in front of technology. Today, “Netflix is the world’s leading Internet television network with over 69 million members in over 60 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films” (Netflix Overview,

Growing competition as a challenge represents the various companies that are now entering the market of online media-streaming. Companies such as HBO, Amazon, Google, and Hulu Plus have all began to offer media-streaming on the same electronic devices as Netflix, Inc. Currently Netflix, Inc. remains in the lead amongst its competitors; however, there is no guarantee that this advancement is a permanent one. It is inevitable that emerging companies will come up with creative ideas to gain the competitive edge and receive more consumers. For example, Amazon.com has “amplified

Also Netflix needs to prepare a better plan to recover old customers, gain new customers and make sure that the people who still have Netflix keep it. Establishing a bundle price for both online streaming and DVD rental will allow The Netflix Company to recover some market shares and remain the leading overall digital film company. The recommendations are as follows:

In Netflix’s own description of its vision for sustainable long-term future, the company describes a few critical elements necessary for growth [Netflix.com]. Its vision encompass the evolution of internet TV, replacement of “linear TV” by the internet TV, development of interactive applications, and enhancement of streaming capability to virtual limitless access capability.

This study will assess strengths and weaknesses of Netflix Inc., and illustrate their position in the current marketplace for their given industry. Issues will be addressed, and recommendations will be made for the company to continue to succeed and grow in this industry.

Netflix Inc. is in the entertainment market, which is a part of a larger video, film

Netflix is an entertainment company that specializes in streaming media and online video-on-demand. Over the years, it has grown to include film and television production and other distribution services. Its business model has changed, and so has its overall production cost grown to keep up with the increased market share. As a result, its current position in the market has made it more exposed to competition from other firms, which is why it needs to develop new strategies to remain profitable. Netflix has grown over the past years despite competition and its unprofitability (Helft, 2007). Therefore, to understand its success, it is important provide a microeconomic analysis of Netflix, its history, its products, and the market.

Streaming technology has reformed the way people view entertainment today. Online streaming gives viewers control over when and how they watch their favorite TV shows and movies. Over half of smartphone and tablet owners use at least one television type of application at least once a month (Page, 2015). Services like Netflix, Hulu, and Amazon Prime offer access to shows via TV, gaming systems, smartphones, and tablets from any location with wifi. Netflix’s competitive strategy and accurate predictions of the future of streaming has made it the leader in its industry. Using the three circles analysis will show that by understanding its customers’ needs, its own offerings, and its competitor’s offerings, Netflix continues to dominate the industry and is moving towards the future.