Week 10 Task

Read the text on Netflix and answer the questions below

[Your notes should clearly state your answer and the reasons supporting your
answer, using the economic concepts you have learnt and their application to
the possible decisions the company could make]

What market structure do you think Netflix operates in? Justify your answer
and explain how this might affect how Netflix makes decisions of economic
importance to it. Use diagrams as you think appropriate.

Discuss the price elasticity of demand for Netflix’s services. How is this likely
to change as new competitors enter the market and offer streaming services at
lower prices to consumers? Illustrate your answer with appropriate diagrams

How can Netflix continue to grow as a company? Discuss its possible options

NETFLIX

“Netflix’s decision to raise prices for UK customers by up to 20%, following a similar

move in the US, is the latest sign of the mounting financial pressure the streaming
giant is facing to keep its balance sheet in shape as it prepares for the arrival of
deep-pocketed rival Disney’s eagerly anticipated service later this year.

The company’s breakneck pursuit of global streaming domination means putting

growth before profits, and the cost of amassing 150 million subscribers – 10 million
of those in the UK – is mounting. Netflix’s annual programme budget stands at
$15bn (£12bn) and the company has amassed a total of $42bn in debt and longer-
term payments relating to content.

The arrival of streaming rival Disney+ later this year will add significant pressure. At
launch in the US, it will be half the price of Netflix, backed by hugely attractive
content including Marvel’s superhero films, the Star Wars saga, Pixar creations
ranging from Toy Story to The Incredibles, as well as The Simpsons and hit Disney
films such as Frozen.

Disney is already pulling its content from Netflix and the price demanded by those
still willing to license content is soaring. WarnerMedia’s Friends is Netflix’s most
popular show and it has had to triple its payment to $100m to hold on to it for just
one more year.

Netflix’s strategy of increasing prices – the last rises in the US and UK came in 2017
– has so far had no impact on customer loyalty and the growth rate of new
subscribers. However, as the next stage of Netflix’s growth is set to come from vast
markets, such as India, with lower average incomes, its pricing will have to be very
low to be competitive.

Given Netflix’s global scale, the company could consider the careful introduction of
advertising in some markets. Founder Reed Hastings has always been against the
idea, but last year Netflix tested ads, or rather trailers for films and shows, in the
countdown gaps between episodes when viewers were binge-watching. Sir Martin
Sorrell, the former head of the world’s biggest marketing group, WPP, has said
Netflix would have to consider advertising “as an alternative revenue generation
opportunity”.

Netflix’s booming popularity will see it become the equivalent of the third most-
watched TV channel
in the UK this year, behind only BBC1 and ITV – making it a hugely attractive
proposition for advertisers.” .
[ Extracted from The Guardian 22.11.2019]