Netflix Risks

1878 Words Apr 28th, 2012 8 Pages
Netflix
Netflix was founded in 1997 and is headquartered in Los Gatos, California. Netflix is a company that provides online movie rental subscription services in the United States. The company offers its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD) and Blu-Rays. Its members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs. It also partners with consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members ' TVs from Netflix.
Netflix entered the rental entertainment industry at a time where Blockbuster was king and renting movies required
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Finally, the other option for Netflix is that, if they are not sure if interest rates are going to go up or down, they can still hedge against this risk by issuing a long term callable bond so that if interest rates do drop significantly Netflix can call its debt back and reissue at the lower rate.
Another way that Netflix has been and plans to continue expanding its membership is by offering its services abroad. In fact, Netflix has already entered the Canadian market and is in the process of offering its services in the United Kingdom. Obviously this is great news for Netflix shareholders however going international also brings additional risks. One of the major risks that we foresee would be exchange rate risk. For example, when Netflix starts to offer its services in the United Kingdom, it will have to decide on what it will charge its British customers a month. However, it will have to do so in pounds, which is the local currency.
If for example, we assume that Netflix charges its U.S. customers 10 dollars a month for its services and that it wants to charge the same real value to its U.K. customers, if the pound/dollar exchange rate is .5 pounds for 1 dollar then Netflix would have to charge its U.K. customers 5 pounds a month. However, interest rates are constantly changing and if Netflix doesn’t do something about this risk then its cash flow would be constantly changing. For example if the pound depreciates against the

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