‘Individual Assignment: NetFlix.com, Inc.

’
 Estimating the number of Subscribers

Assumptions Made

 The number of new subscribers who signed up for the free service each month in a

particular year remains the same.

 The ratio of number of subscribers who signed up for a month of free service to the total

number of offers made each month remains the same.

 After a month of free service only 70% of the customers continue to subscribe.

 Thereafter they continue for 6 months.

 After 6 months only 40% of customers who subscribed remain.

 I have assumed that each month the number of customers who discontinue is 14% of

those who were subscribed last month. Using compounding, I calculated a per month

reduction in customer base instead of reducing them at the end of 6 months. R=1-

(28/70)^1/6

Calculations

Year 2000

Total Dealer

sale   2630000
Consumer

sales   1578000
Free

Subscription   1420200
Per month   118350
0.29573299

%acceptance free per month 5

 Assumed that last three years that are forecasted in Exhibit 4 of case are for years

2000,2001,2002
 Assumed total dealer sales are 2.63 mn.

 Calculated free subscription offers made per month.

 Consumer Sales= 0.6 x dealer sales

 Offers made by Netflix = 0.9 x consumer sales

 Per month offers made= offers made by Netflix/12

Year 2001

Total Dealer

sale   3370000
Consumer

sales   2022000
Free

Subscription   1819800
Per month   151650
44847.9087

per month accepted 5

 Assumed total dealer sales are 3.37 mn.

 Calculated free subscription offers made per month.

 Consumer Sales= 0.6 x dealer sales

 Offers made by Netflix = 0.9 x consumer sales

 Per month offers made= offers made by Netflix/12

 Per month accepted = 0.29 x offers made

Year 2002

Total Dealer

sale   4750000
Consumer   2850000
sales
Free

Subscription   2565000
Per month   213750
63212.9277

per month accepted 6

 Assumed total dealer sales are 4.75 mn.

 Calculated free subscription offers made per month.

 Consumer Sales= 0.6 x dealer sales

 Offers made by Netflix = 0.9 x consumer sales

 Per month offers made= offers made by Netflix/12

 Per month accepted = 0.29 x offers made

Revenue per customer

    Customer who subscribes for 1 free month and 6 months paid

               

    0 1-6 months   Total    

Subscription 0 120   120    

 Shipping 4 25.8   29.8    

DVD's
purchased   98.9 59.4   158.3    

Operating profit -102.9 34.8   -68.1    

Customer who subscribes for 1 free month and 6 months paid

Breakeven period for one customer =18 months if he continues to subscribe each month