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Netfix New Original Series InvestmentModel Created By: Daniella Comito
Model Updated On: 4/15/2014
Capital Budgeting Idea:
Directions on the use o this Model:
Critical ssumptions:
!esults o the Model and "hat the# Mean:
!ecommendations:
Netflix, Inc. can implement new capital budgeting ideas to create more value for their company. The idea presented in another new Original Series; lie their prior series !Orange is the New "lac! and !#ouse of $ards!. The model presentshighlighted in yellow under the year &'(). *ach of the stages of creating a T+ series are labeled; -re%-roduction, -Netflix has seen prior success with their original series, giving them reason to explore creating more. There is also a poseason renewal creating a second season of the original series/. This capital budgeting opportunity would have a starpaybac of under a year.
This model is intended to be easily interpreted by any non%financial person. It has been created to mae suggestions afor Netflix, Inc. This model is a fully functioning model with imbedded formulas; when one cell is changed, other cells reaccordingly. It was created to forecast the worth Net -resent +alue/ of a possible future capital budgeting opportunity explored here is the possibility of creating another new original series, lie Orange is the New "lac. The N-+ of this ogreen. This possible capital budgeting opportunity could be a deciding factor for another company that is looing at Necapital budgeting pro2ects with high positive N-+!s add value to a company. In the use of this model, yellow values canbased on different assumptions.
$ritical assumptions about Netflix, Inc. have been made in order to forecast the N-+ of a capital budgeting opportunityrepresent assumptions, these can be changed to recogni4e value drivers. 5reen cells represent important decision memillion/, I66 of 7(89 and paybac period which is currently '.& years for the estimated opportunity. If these decision minvestment would not be worth it. :ata Tables are at the end of the model to show value drivers. $urrent levels of eachgreen. $ells highlighted in blue represent a value that would increase the N-+ even further. 3ll critical assumptions incgiven value; this is located directly to the right of the value.
The results of this model indicate that the new original series opportunity is a good investment for the company. This incompany today. This is shown by the positive N-+ of 0('( million and a positive I66 of 7(89. 3lso, the paybac for thmaes the investment worthwhile because the company would have the cash flows available to pay bac the purchaseexpiration of their useful life. Through the use of data tables it was found that any of the value drives could be pushed vstill come out positive. *ven so it shows that Netflix could increase monthly rate to mae the opportunity wort more. It wcustomers pushes N-+ very high, this could be achieved by implementing new mareting to ensure that new customealso reviewed some costs of the investment and neither increased salary costs nor increased e1uipment cost pushed t
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$uture Contact Inormation:
Preferred Method of Contact: EMail
Daniella Comito: daniella!comito"#immon#!ed$
:ue to a positive N-+, I66, and short paybac period we would recommend investing in this opportunity. Through the that assumptions would have to be pushed to extremes to mae the pro2ect not worth while result in a negative N-+/.company and thus increase future cash flows.
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Netfix Original Series InvestmentModel Created By: Daniella ComitoModel Created On: %/20/2014Model Updated On: 4/15/2014
Yellow cells represent Assumptions
Green cells represent Decision Measures
ssumptions o the New Netfix Original Series %&'()re*)roduction
+anuar# through $e,ruar# %&'(
&otal Co#t of 'dea (eneration ) *2+000
Co#t of ,ho- creator per month ) 24+000
.or .ee# per Month 4
Co#t of ,ho- Creator Per .ee ) +000
$mer of 'dea (enerator# ) %
&otal Co#t of Ca#tin3 ) 5+100
$mer of Ca#tin3 .ee# 2Ca#tin3 Co#t Per Ca#t Director Per .ee ) 50
$mer of ho$r# Ca#t Director -or# per -ee 25
Co#t Per Ca#tin3 Director Per o$r ) %4
$mer of Ca#tin3 Director# %
)roduction
March through Ma# %&'(
&otal ,ta6 .riter# Co#t ) *20+000
$mer of ,ta6 .rite# 7
Co#t of One ,ta6 .riter for ,erie# ) 0+000
$mer of .ee# 10
Co#t per -ee of ,ta6 .riter ) +000Director of Photo3raphy .a3e )120+000
$mer of day# -ored y director of Photo3raphy 0
Director of Photo3raphy Daily .a3e ) 2+000
Prod$ction De#i3ner .a3e )24+000
$mer of day# -ored y prod$ction de#i3ner 0
Prod$ction De#i3ner Daily .a3e )400
(a6er .a3e )7+00
$mer of ho$r# -ored y (a6er 40
$mer of Month# 3a6er -or# %
Day# in a Month 20
$mer of o$r# a Day (a6er o$rly .a3e )20
8oley Mi9er .a3e )12+000
$mer of ho$r# -ored y foley mi9er 40
8oley Mi9er o$rly .a3e )25
Director .a3e )20+10
$mer of ho$r# -ored y Director 40
Director o$rly .a3e )42
&otal ead &alent .a3e )1+500+000
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$mer of ead ;ctor# %
$mer of epi#ode# -ored y ead ;ctor# 10
ead ;ctor .a3e per Epi#ode )50+000
&otal oneed &alent .a3e )1+000+000
$mer of oneed ;ctor# 20
$mer epi#ode# -ored y noneed ;ctor 10
oneed ;ctor .a3e per Epi#ode )5+000
Co#t of
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Income Statement Cash $lows $rom New Original Series %&'(%+200+24?
Operatin3 Ca#h 8lo-# ) >%+200+24?
Balance Sheet Cash $lows $rom New Original Series %&'(Co#t of E=$iptment ) >1+000+000?
;cco$nt#
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Monthly
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%&'. %&'1 %&'5 %&'6
) *20+000
7
) 0+000
10
) +000)120+000
0
) 2+000
)24+000
0
)400
)7+00
40
%
20
)20
)12+000
40
)25
)20+10
40
)42
)1+500+000
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%
10
)50+000
)1+000+000
20
10
)5+000
)150+000
%
) 2+500
20
20 20 20 20
)00+000 )00+000 )400+000 )200+000
) 1+000
10
) 25
) 4*+740+000 ) 4+70%+574 ) 47++55 ) 50+7+2*
) 7 7* 7 77
1 1 1
12
) *!77
500+000 505+000 510+050 515+151
1 1 1
1
) 4*7+400 ) 47+0% ) 47+
) 7 ) 7* ) 7
1 1
12
) *!77
5+000 5050 5101
1 1
* * * *
) 2%+014 ) 2%+014 ) 2%+014 ) 2%+014
15 15 15 15
) >1+7*0+1%*? ) >2+007+*%*? ) >2+050+1%2? ) >2+071+%40?
%4 %4 %4 %4
50 $#e of det
50$#e of e=$ity
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%&'. %&'1 %&'5 %&'6
) 4*+740+000 ) 4+70%+574 ) 47++55 ) 50+7+2*
) 4*7+400 ) 47+0% ) 47+
) *20+000
) 20+10
) 1+000
) 1+500+000
) 1+000+000
) 12+000
) 7+00
) 120+000
) 24+000
) 150+000
) 200+000 ) 200+000 ) 200+000 ) 200+000
) 44+%+240 ) 47+%2+774 ) 50+%*5+572 ) 51+%+142
) >15+05+202? ) >1+*70+21? ) >1*+12*+*01? ) >1*+4*1+7?
) 27+2%+0% ) %2+572+** ) %%+24*+71 ) %%+71+1*%
) 27+4%+0% ) %2+*72+** ) %%+44*+71 ) %4+11+1*%
%&'. %&'1 %&'5 %&'6
) 1+7*0+1%* ) %7+00 ) 40+%7 ) 41+20
) >2%+014? ) >2%+014? ) >2%+014? ) >2%+014?
) 1+74*+12% ) 1+5 ) 1*+%2 ) 1+174
) %1+4%0+12 ) %2+07+%2 ) %%+45+2*% ) %4+1%4+%*
of Aal$e added today 3iAen foreca#t#
per ann$m rate of ret$rn+ a#ed on foreca#t#
year#+ a#ed on f$t$re ca#h o- e#timate#
NPV Varying Number of New Customers
P@
) %50+%*7+74
50+000 Co#t of E=$ipment
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100+000
150+000
200+000
250+000
%00+000
%50+000
400+000
450+000
500+000
550+000
00+000
50+000
*00+000
*50+000
00+000
50+000
700+000
750+000
1+000+000
N)3 3ar#ing Monthl# !ate
P@
) %50+%*7+74
) 0!77 ead ;ctor .a3e
) 1!77
) 2!77
) %!77
) 4!77
) 5!77
) !77
) *!77
) !77
) 7!77
) 10!77
) 11!77
) 12!77
) 1%!77) 14!77
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%&'7 ssumptions8/xplanations:
't -ill tae a team of % -rite# to come $p -ith a ne- #ho- idea
't -ill only tae one month to create the idea for the #ho-
there are 4 -ee# in a month
't co#t# 000 a -ee for a #ho- creator
there -ill e % idea 3enerator# http://defamer!3a-er!com/here
Calc$lation
Ca#tin3 only tae# 2 -ee# http://electronic#!ho-#t$6-or#!coCalc$lation
Ca#tin3 i# ao$t 5 ho$r# a day http://-or!chron!com/m$chmo
't co#t# %4) an ho$r for a ca#tin3 director http://-or!chron!co
&here -ill e % ca#tin3 director# http://electronic#!ho-#t$6-or
calc$lation
&here -ill e 7 people on thi# drama comedy #erie# http://ment
calc$lation
&he #ho- -ill tae 10 -ee# to prod$ce eca$#e it -ill only e
't co#t# 000/-ee for a #ta6 -riter http://defamer!3a-er!comCalc$lation
there are 0 day# in % month#
they mae 2 a day
Calc$lation
there are 0 day# in % month#
mae 400 a day http://---!a#!com/=$e#tion/prod$ctionde#i3
Calc$lation
Calc$lation
-or# for % month#
-or# 20 day# a month
-or# ho$r# a daymae )20/hr http://---!eho-!com/infoF**5075FaAera3e#ala
Calc$lation
Calc$lation
mae# )25/ hr http://---!eho-!com/infoF42447FaAera3e#al
Calc$lation
Calc$lation
mae )42/hr http://---!eho-!com/infoF1200%2%F#alarydirec
Calc$lation
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there are % main actor#
there -ill e 10 epi#doe#
lead actor# mae 50 per epi#ode http://---!h$Gn3tonpo#t!co
Calc$lation
there are 20 ac $p and non lead actor#
there -ill e 10 epi#doe#
non lead# mae 5 an epi#ode
Calc$lation
#hootin3 la#t# % month#
it co#t# 2500/day to rent a #hootin3 location http://---!nytime
there are 20 -or day# in a month
co#t# 1mil for prod$ction e=$iptment http://cyercolle3e!com/t
20,tria3htline
)0 Calc$lation
Calc$lation
&he #erie# -ill e 10 epi#doe#
it tae# day# to edit one epi#ode http#://ca!an#-er#!yahoo!co
it tae# ho$r# a day to edit one epi#ode http#://ca!an#-er#!ya
&@ editor# mae )25/hr http://---!eho-!com/infoF**%5*21Fm
) 51+712+150 Calc$lation
100 Calc$lation
1 (ro- c$#tomer reAen$e each year y 1
there are 12 month# in a year
't co#t c$#tomer# *!77/month for neti9
520+%02 C$#tomer# -ill increa#e y 500eti9 ha# oAer 400 million c$
1 (ro-th in c$#tomer a#e -ill e 1
One or more #ea#on# co$ld e rene-ed
) 50+7% Calc$lation
) 77 Calc$lation
1 (ro-th in c$#tomer a#e -ill e 1
&ehre are 12 month# in a year
't co#t c$#tomer# *!77/month for neti9
5152 8e-er C$#tomer# -ill Join for e9tended #erie# a# oppo#ed to a
1 (ro-th in c$#tomer a#e -ill e 1
eti9 #pend# 1!2 million to prod$ce D@D# too rent o$t to c$#t* 'nAentory Day# i# * Day#
) 2%+014 Calc$lation
15 eti9 collect# money from c$#tomer# 15 Day# efore proAidin
) >2+1%%+%*?Calc$lation
%4 eti9 &a9
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%&'7
) 51+712+150
) 50+7%
) 200+000
) 52+421+04%
) >1*+2%+155?
) %4+57*+7
) %4+*7*+7
%&'7
) 42+0%
) >2%+014? ) %0+*+1*
) %0+05+40
) %75+0%+*2
N)3 3ar#ing Cost o /9uipment
P@
) %50+%*7+74
) 250+000
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) 500+000
) *50+000
) 1+000+000
) 1+250+000
) 1+500+000
) 1+*50+000
) 2+000+000
) 2+250+000
) 2+500+000
) 2+*50+000
) %+000+000
N)3 3ar#ing ead ctor "age )er /pisode
P@
) %50+%*7+74
) 10+000
) 20+000
) %0+000
) 40+000
) 50+000
) 0+000
) *0+000
) 0+000
) 70+000
) 100+000
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#-hatyo$rfaAoriteteleAi#ion-riter#mae1451%075/all
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neyca#tin3directormae14171!html
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tory ret$rn# and i# $#ed a3ain and the #ea#on# cant e p$rcha#ed el#e-here either http#:
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//an#-er#!yahoo!com/=$e#tion/inde9H=idI200100*0227%;;oD'm
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