Netflix Inc.: Proving the Skeptics Wrong

Netflix, a subscription-based movie and television show rental service, offered content to subscribers either via DVDs delivered by mail, or through Internet-based streaming. After splitting the two services, the company lost subscribers, and its stock price plummeted. Most observers were skeptical that Netflix could maintain its profit margins, given the increased cost of acquiring streamable content. However, Netflix not only reduced its cost per user but also increased its subscriber growth both in the United States and internationally. Were these moves sufficient to deliver the growth needed to support its rising stock price? Netflix also faced increased streaming costs because it used disproportionately more bandwidth than other streaming companies. Would these costs mean that the Netflix business model was no longer viable?This is a follow-up case to Netflix, 9B09M093, which describes the company’s innovative business model of delivering DVDs by mail, and Netflix Inc.: The Second Act—Moving into Streaming, 9B16M080, which describes the after-effects of the dual-subscription model.

Collection: Ivey Business School (Canada)
Ref: IVEY-9B16M081-E
Format: PDF
Number of pages: 12
Publication Date: Nov 18, 2016
Language: English
Review date: Nov 18, 2016

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Description

Netflix, a subscription-based movie and television show rental service, offered content to subscribers either via DVDs delivered by mail, or through Internet-based streaming. After splitting the two services, the company lost subscribers, and its stock price plummeted. Most observers were skeptical that Netflix could maintain its profit margins, given the increased cost of acquiring streamable content. However, Netflix not only reduced its cost per user but also increased its subscriber growth both in the United States and internationally. Were these moves sufficient to deliver the growth needed to support its rising stock price? Netflix also faced increased streaming costs because it used disproportionately more bandwidth than other streaming companies. Would these costs mean that the Netflix business model was no longer viable?This is a follow-up case to Netflix, 9B09M093, which describes the company’s innovative business model of delivering DVDs by mail, and Netflix Inc.: The Second Act—Moving into Streaming, 9B16M080, which describes the after-effects of the dual-subscription model.
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Year: 2015
Geographic Setting: United States
Industry Setting: Information, Media & Telecommunications;

Learning Objective

The instructor can use this case to develop the details of the capabilities that Netflix needs to succeed in the video streaming business. Students will appreciate why an organization’s success in one business does not necessarily translate when the same business model is applied to the organization’s expansion decisions.This case is suitable for an advanced MBA or executive education course in competitive strategy, strategic management, or business models.

Netflix Inc.: Proving the Skeptics Wrong

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"Netflix Inc.: Proving the Skeptics Wrong"