Situation and Relevant Facts

Objectives:
• Netflix’s goal:
• Targeting customers who bought DVD Players
• Promoting the business by getting Netflix coupon in the box of DVD Player
• Targeting this segment due to low competition and market was underserved and stores didn’t carry a wide
selection of DVDs
• Alternative ways to provide a home movie service that would better satisfy customers to offer VOD service that’s
why business was named as Netflix.
• Home delivery of DVDs through mail.
Current Business (In year 2006):
• Online subscription-based DVD rental service
• Video On Demand (VOD) – Video Streaming
Challenges faced by Netflix:
• Initially Delivery on same day was issue but resolved by increasing distribution centres.
• Delay in return of DVD from customers, and this was disappointing other customers to hire which impacts the
Netflix business by dissatisfaction.
• Customer churn was critical for Netflix. (Churn Rate in Year 2006 was 3.6% and in year 2002 was 6.3%)
• Limitations in VOD: Technology and content availability
• License issue for VOD due to piracy of download on internet and content acquisition cost
 Situation and Relevant Facts
• Important Facts:
• Netflix (founded 1997, CEO Reed Hastings) and by year end 2006:
• 70000 movie titles held on over 55 million DVDs.
• 44 Distribution centres across US
• Revenue $1 billion and free cash flow of $64 million by December 31, 2006
• Netflix could deliver to more than 90% of its 6.6 million subscribers within a single business day.
• Flagship subscription plan offered unlimited monthly rentals, allowing customers to hold up to
three movies in their possession at any one time for a monthly fee of $17.99
• Netflix focus on early technology adopters who had recently purchased DVD player as
compared to VHS cassette Video Format rented in video stores (Like Blockbuster)
• Main Competitor: Blockbuster - in 2006 having total 5194 stores in US out of this
4255 company owned and remaining franchised.