NEHA | POOJA | AAKAR | SONALI | ESHANA | BARKHA

Will Netflix be able to sustain its position

as a leader in media industry and retain
it’s customers perception by entering in the
online video market?
Netflix- Company’s
Background & History
• Online subscription based DVD rental service
• Netflix’s flagship subscription plan offered monthly
rentals allowing customers to hold up 3 movies at any
time for a monthly fee of $17.99
• Revenue of $1Billion in 2006
• Founded in 1997 by Mark Rudolf and Reed Hastings
• Originally Netflix offered home delivery of DVDs
through mail
• Introduced monthly subscription service in 1999
• 9.4 million subscribers as of Q4 2008
• 2009 forecast of 10.6 to 11.3 million subscribers
• Netflix Competitive Advantage
• First-mover advantage in on-line rental
• Patented method of web-based DVD selection
• Customer-centric, monthly subscription-based
service
Netflix Services Netflix Service Features
Service Plan Options: • No Due Dates
• Unlimited Plans • No Late Fees
• $8.99 1 DVD at a time • No Cancellation Fees
• $13.99 2 DVDs at a time • Free DVD Shipping – Both Ways
• $16.99 3 DVDs at a time • Blu-ray Substitution, for a Fee
• Less popular plans of 4-8 DVDs at a
time available
• Unlimited online viewing on all
unlimited plans
• 1 Limited Plan
• $4.99 1 DVD at a time (2 per month)
• 2 hours of online viewing
Customer Loyalty
• Consistently maintain 84% - 86% of existing customers quarter over
quarter.
• Voted #1 online retailer 8 consecutive periods by Foresee/FGI
Research
• Achieved Through:
• Ease of Use-order through websites that included a search engine allowing customers to
sort through its selections by title , actor, director and genre
• Fast Delivery (97% in one day)
• Size of Selection (Over 100,000 DVD titles)
Netflix- Subscriber growth
Subscriber growth
7000

6000

5000

4000

3000

2000

1000

0
1999 2000 2001 2002 2003 2004 2005 2006

Column2
 The history of Home Video Rental
• In 1997 the home video market was a
fragmented industry- mom and pop
retail outlets
• Customers rented movies on VHS
(Video home system) cassette, from a
retail location for a specific period of
time and a paid fee of 3$-4$ for each
movie rented
• Market leader – Blockbuster Inc
• The success of Blockbuster was based on customer’s impulsivity towards
renting a movie last minute.
• The demand for the newest releases represented 70% of total rentals,
hence obtaining the newest releases was a priority
• Growth strategy: opening new locations, expanding geographic coverage,
increase penetration and share in the existing market
• Locations were chosen based on local data (customer concentration and
proximity to competition)
• Occupancy and payroll: significant percentage of total costs
• Shelf space in each store dedicated to hit movies, with the newest releases
• Popular and high-profile movies costed around $18 per film
• Financial success depended on maximizing the days that any individual
movie was out for rent
• Reluctant to stock lesser known and independent movies as demand was
inconsistent
• Sell previewed copies of its new releases at discount, generating
incremental return on its investment and clearing shelf space for the next
new wave of movies
 • Encouragement of timely return allowing it
Late Fees: to be rented by another customer
Extended viewing • Delayed returns –lead to increased level of
fees stockouts – reducing customer satisfaction

$600 million for • Increase in the popularity of the DVD format

Blockbuster had helped to grow industry movie rental
revenues from $8.5 billion to $8.7 billion.
• It nearly achieved 100% recognition with
active movie renters

Critical
10% of
asset
REVENUES
utilization