Date: February 19, 2015
Subject: Netflix Case Analysis
Can Netflix recover from its missteps? Throughout 2010 and the first two quarters of 2011, Netflix looked like it would be an indestructible force in the industry with the number of U.S. subscribers doubling from 12.3 million subscribers in January 2010, to 24.6 million in June, 2011. Their growth in the U.S. and plans to expand internationally raised the stock price over 500% in that 18 month period. But when Netflix announced a series of strategy changes shortly there after, everything went into a tailspin. Netflix announced in July 2011 that they would separate the DVD on online streaming into two packages which raised the subscription price by 60%. With these changes 600,000 subscribers cancelled their subscriptions within the next eight weeks. The stock price plummeted, and public perception in the media and their customers reactions were very negative. On top of all the problems with Netflix’s changes, Starz, a premium movie channel supplier of Netflix’s content demanded over $300 million a year to renew their license with Netflix. Previously, Netflix had only been paying $30 million a year. It got so bad that in September of 2011, Netflix CEO Reed Hastings posted an apology on the Netflix blog taking the blame for all the miscues and attempted to rationalize the new changed his company had mistakenly implemented. With all these missteps and changes to the industry, I still believe Netflix has a superior product and brand name that will pull them out of this tailspin.
In 2012, competition with rivals increased tremendously. Although Netflix had about 30 percent share of the declining DVD market and a 56 percent share in streaming rentals. Many companies saw huge revenue opportunities using technology to provide TV and movie content to all types internet connected devices. Companies like HULU, Amazon Prime, and VUDU had very similar services for online streaming. Yet,...