Kim Kruse March 17, 2011 BUSN 460- Strategic Planning and Policy Netflix Background/Strategy Netflix is the

world s largest online entertainment subscription service. Subscribers pay a monthly fee based on what package they want. All packages include unlimited online streaming and unlimited DVDs each month, but the price you pay will determine how many DVDs you can have at home at any given time. Netflix has grown to provide one day delivery service to all its customers. The library of movies has grown larger and larger each year to what can be watched instantly or through mail. Wal-Mart and Netflix has entered into an agreement to which they would refer to each other for online streaming and buying the actual DVD. Netflix has grown tremendously since 1999 when they first launched the online service. Revenues and movie titles had both increased dramatically over the last 5 years. Netflix s strategy is providing customers with a wide range of movies, an easy way to choose the movies, fast delivery of the selections, no due dates for the return, a convenient drop it in the mail return procedure, all together with aggressive marketing to attract subscribers and build awareness of the Netflix brand and services worldwide. Netflix wanted to avoid people having the hassle to go to the store, pick out a movie at the store, and then having to return the movie by a certain date. In 2008, Netflix has joined with LG Electronics, so subscribers could watch movies on their television screens. Also in 2008, they combined with Starz Entertainment to provide a more movies that would be available online to stream and was included in the subscription fee already without raising the prices. Netflix based their market on the idea that DVDs and Blu-rays would be the main format for the coming years. Management believes that internet streaming will surpass the mail delivery option in the future and the mail option will only be a small fraction of Netflix s main business. Along with Netflix s strategy, they have a wide choice of subscription plans that many people and families can choose from to fit their needs. Netflix has also created a software device, within the main database, to recommend movies to customers that they might like to see based upon what they have already watched and rated, of which 50% of rentals and online streaming come from this service. They also offer quick delivery capabilities to all customers using the mail option. Customers will receive their DVD within one shipping day. The distribution centers are spread throughout the USA and try to use the closest one to the customer if distribution center has the movie in stock. If that center doesn t it then moves to the next closest one to give the customer the movie they have selected they want next from their list. Netflix has several licenses with many companies for all the movies. Half way in 2008, Netflix had a net value of $126.9 million of content (DVDs). Netflix also uses several marketing channels to attract customers. They have used online advertising (banner ads, paid search listings, text on popular sites, and permission based emails), radio stations, television, direct mail, and print ads. They also produced advertising featuring a certain movie in which Netflix would get some cash back for. Netflix also provided free trials to attract more customers to try the service out. Problems and Issues

9678 .875% 13.40% 2007 7.18% 1. Netflix has DVDs sent to home whenever the customer wants.9 26. but the customer also has the availability to watch several movies online on their PC. Working capital for Netflix has grown.286 148.177 235. Both companies were offering similar services except for Blockbuster offered an actual store location that customers could use too. . but they show a strong investor confidence in the firm s outlook and earnings in growth are good. The customers cannot watch the movies directly on their television unless they have the DVD.900 Netflix is doing well in all the financial areas. except in 2005. Their operating profit margin has increased every year.82% 2005 . Blockbuster had a different strategy on how they would compete in the home delivery and online movie market. These are internal funds that they have available to pay off current liabilities and to not borrow as many funds in the future.7037 . Netflix s return on stockholder s equity has floated around a little bit. The price/earnings ratio of Netflix has varied for these years.205 203.56% 2006 6. but then made a great increase in 2006. This number should be greater than 1. 20.0 in order to pay off current liabilities. Vending machines Illegal downloading Financial NETFLIX Operating Profit Margin Return on Stockholder s Equity Current Ratio Operating Income/Revenue Profits After Taxes/Total Equity Current Assets/Current Liabilities Current AssetsCurrent Liabilities Current Market Price Per Share/EPS 2004 3.440% 18.0 33. but is normally at an above average level. This can also be helped with working capital. except in 2007 when the economy started to turn. Blockbuster is one company that has tried to compete in the same market. Netflix was the only company in the market and faced competitive pressure coming from the threat of entry of new rivals. which is 12-15%. because a lot of their business is done online.974 .567% 16. An issue that Netflix has is the availability to watch the movies on television. but it isn t too bad for Netflix. The current ratio of Netflix has been decreasing over the 4 years shown above.8 34.461% 11. It is well above what is rated good for companies. like Blockbuster.4 29. because they do not have that many assets.One problem that Netflix faces is other competitors.6437 Working Capital Price/Earnings Ratio 92.

Blockbuster purchased a video game retailer in England. They had thousands of stores in the USA and had some in 24 other countries. created several more options of plans. This helped them in the beginning but many stores across the nation lost revenue because the movies weren t returning on time. opened more distribution centers. had two week free trial periods for new customers. Blockbuster had 3 plans for which customers could choose from depending on how many DVDs they wanted to have at one time. This helped boost them in the gaming industry with video games for rent and also equipment such as the gaming systems themselves. they wanted to further increase sales and in-store selection of movies and gaming equipment. Blockbuster fell hard having to close several hundred stores across the world and posted net losses. They also expanded to online rentals in 2004. To help with this vision and strategy. They wanted to focus on growing its core movie rental business. broadening the product offerings at local stores. This was partly because of the split between Blockbuster and Viacom. but also the selection available to buy.Blockbuster Background/Strategy Blockbuster used to be the global leader in the movie rental industry. They were the leader in the movie and game rental market already. and develop new channels for delivery of digital movies. In 2004. Blockbuster expanded their inventory of movies for rent. which helped boost their sales back up. anytime. However when the market got more competitive. Blockbuster expanded their selection of video games as well. In 2007. which these all help boost their revenue. and Blockbuster also purchased Movielink. an online movie downloading service. they cut the price of the plans. all with unlimited rental limits. refurbished stores. The distribution centers across the USA sent out videos daily to the customers based upon the movies they have in their queue. Problems/Issues Financial . They boosted inventory by 20% to 60% in one year. They also included video game consoles for sale along with video games. cost stores more money to stock additional copies of the popular films. Blockbuster appointed a new CEO to the company to try and get Blockbuster back on top. They had experts in gaming work during peak hours so that customers could have help available if they had any questions. The acquisition of Movielink let Blockbuster customers the availability to rent or own movies online. Blockbuster also came up with a movie subscription service where people could rent out as many movies as they could in one month and the price determining how many they could have out at one time. One of the first things the new CEO did was improved the availability of new releases in movies. Blockbuster s strategic vision in 2002 was to become the complete source for movies and video games in the rental and retail area. placed vending machines in high-traffic areas. Blockbuster discontinued the late fees for in-store rentals. and they also integrated their online and in-store subscription program. In 2007. They also expanded their selection of independent films. Having movies not returned on time. which when the split happened there was an arrangement for all shareholders to receive a special divided on $5 causing a huge financial burden. In 2005. This move to be online was Blockbuster s idea of being anywhere. Online subscribers were sent two coupons each month for free instore rentals. Blockbuster moved to redo their strategy as they fulfilled their previous one.

040 30. Blockbuster has a negative amount in 2004. showing no growth at all. Any price/earnings ratio should be around 20 or if they are at risk or plan to grow slowly at 12. This ratio should be larger than 1 and the higher the better to show that they can pay off current liabilities and assets can be converted into cash easily.722 105.848 157 .5% 2005 -6.703% -117. Blockbusters return on stockholder s equity is well below the average during these 4 years.112 1. of which Blockbusters was negative for 3 years and at 5% in 2006.BLOCKBUSTER Operating Profit Margin Return on Stockholder s Equity Current Ratio Operating Income/Revenue Profits After Taxes/Total Equity Current Assets/Current Liabilities Current AssetsCurrent Liabilities Current Market Price Per Share/EPS 2004 -20.333% 5. Blockbuster has a negative outlook for 3 years and a very small one in 2006. The average return is from 12-15%.8401 1.692% -92. This shows the profitability of current operations for the company. Working capital shows the company s internal funds available to pay its current liabilities on time and money available to not borrow funds.024 Working Capital Price/Earnings Ratio -231. The price/earnings ratio shows the company s growth outlook to the future. which is still lower than the average.43% .115 Overall Blockbuster didn t do too well over these 4 years. .080 1. especially in 2004 the worst of the 4 years.7 -. Blockbuster is well below 12.42% 2007 .7 -.9 -. Blockbusters current ratio is alright through these 4 years.706% -12. Their operating profit margin in 2004 and 2005 were both negative. but the years after are positive showing that the company has some money to work with but not much because the amounts are low.45% 2006 1.

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