Case Analysis: Netflix

1.0 Problem StatementThis case summary deals with want of Revenues and declining growth of Netflix in the face of stiff competition.2.0ScenarioFounded in the social class 1997 by Reed Hastings, the company started the DVD online assist in 1999 and expanded quick to be the worlds largest Online DVD word picture rental service in the class 2005, having 3.59 million subscribers as at the third keister of 2005. The company has the exclusive advantage of proprietary softw ar Cinematch to provide subscribers with personalise characterization recommendations.The company has 37 regional shipping locations to efficiently fake the logistics of the DVDs. Netflix has eight different subscriptions plans ranging from $9.99 to $ 47.99 for the customers to choose from with no time limit for the proceeds of the DVDs, of course subject to a maximum trope of DVDs the subscriber give the axe hold at any point of time. The Company faces the problem of origin in profits collectible to lowe r subscription prices. To combat the competition from the adjacent rival Blockbusters Neflix had to lower the subscription in its premium plane section. The decline in revenues had make the company to put on hold its expansion plans to UK and Canada.3.0 AnalysisThe analysis of the case of Netflix arrays three distinct problem areas relating to the structure and design of the organization which the company needs to concentrate on. They are3.1 Revision in subscription rateThe company was rather forced to lower its subscription rates to cope up with the competition from the rivals. The reduction being in the most sought segment of $ 21.99 plan, has severely affected the revenue realization of the company. As a guide the price of revenues rose to 59.71 percent for the firstly niner months period of the year 2005 as compared to 54.61 percent for the year 2004. This has caused a decline in the earn profit. There is no significant change in the operating expenses to hail revenues . The plowshare of operating expenses remains at 41.5 percent for 2004 and 40.2 percent for the first three quarters of 2005.3.2 Number of SubscribersThough there is an growth in the number of subscribers the rate at which the subscriber list is expanding does not equal itself with the reduction in the subscription rates. This is evident from the fact that the subscriber acquisition cost has increased from $ 36.09 for the year 2004 to $ 36.92 for the broken period of 2005. In order to check off even it is essential for the company to concentrate on increasing the number of subscriber base to result in enhanced rental revenues. profit to the subscribers is at 75.5 percent for the year 2004, whereas it stood at 37.6 percent for the first nine months of 2005. Even considering the estimated increase to 4 million subscribers at the end of 2005 the percentage addition would still remain at 53.25 percent which is not workings to the advantage of the company in terms of revenues. This whitethorn be due to the presence of competitors as well as other modes available to the subscribers for obtaining movie DVDs.3.3 DiversificationNetflix has so far been only on the online rental of movie DVDs. The competition in this particular segment of the business is increasing with more players like Blockbusters and Green cine entering the business. Moreover the Video on subscribe (VOD) and brick and mortar rental outlets like Gallery also pose a competition to Netflixs business. Although it is estimated that the company would be able to get a subscriber network of 7 million by the end of the year 2007, unless the company takes steps to enhance its revenue from other sources still it may find it difficult to take advantage of the increased subscriber base.4.0 closureThe following are some of the issues that need to be attended to by the company Netflix to augment its revenue and the resultant profitabilityRate of increase the number of subscribers is not commensurate to incr ease the moolahThe subscription rates are kept low to meet the competition which has caused an erosion in the gainThe company is facing competition from companies who offer other modes of providing the entertainment options.5.0 Recommendations many of the suggestions for improvement in the earnings and ensure the growth are increment the number of subscribers by undertaking vigourous advertisement campaigns Reduce the number of options for subscribers from the present 8 options to 4, by rationalizing the subscription rates and adopting modified subscription structures which will increase the earnings for the company Have a look in to the other modes of pass DVDs by opening brick and mortar stores using the existing goodwill of the company. additionally providing VOD services and rental of game DVDs may also be looked into.