junior- netflix

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Amanda Amezquita Sarah Boegner Sean Deer Kevin Wang

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Page 1: junior- netflix

Amanda Amezquita

Sarah Boegner

Sean Deer

Kevin Wang

Page 2: junior- netflix

Table of Contents

Executive Summary 3

Internal 4

External 5

Context 6

Competitor Analysis 7

Customer Analysis 8

Objectives 9

Opportunities 10

Proposal 11

Marketing Mix 12

Implementation 13

Profit & Loss Statement 14

Sensitivity Analysis 15, 16

Assumptions 17

Timeline 18

Next Steps 19

Exhibits 20-25

Works Cited 26-29

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Executive Summary

Netflix was launched in 1999 as a subscription service in order to give customers unlimited rentals of TV shows and movies. By 2014, Netflix has reached over forty countries and has won seven Emmy Awards. We propose to change Netflix for the better by offering an added downloadable feature to reach consumers on the go. By adding the extra package to a customer’s account, they will be able to choose which movies to make available in their queue for a specified period of time. This change enables watchers on the go a chance to be entertained without the constant worry of Wi-Fi or Internet connection. Our main objectives would be to fulfill the need of these customers, while gaining a profit for Netflix. In the past, we have not communicated to our customers the reasons why we make changes or raise prices and we want that to change. Communication is key and our company needs to strive to become more transparent. Data has proven that our customers don’t mind paying more if they believe it is valued. We need to make sure they know the price increase is to help produce a change to Netflix that is beneficial to their experience. Success will be measured by our customer satisfaction and thus it will show through our gain in profits.

We believe that this plan will be successful because of the unique marketing mix we have created which offers the most value to our target markets. Our strong brand name when combined with an ever-increasing variety of shows will guarantee increased customer satisfaction for new and current customers. Furthermore, there is no current competitor that offers an offline streaming service, which gives us the competitive advantage. This plan offers a way to remain the leading innovator in the industry, while maintaining and expanding upon the products our 50 million customers already know and love.

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Netflix Inc.: a leading subscription service based over the Internet that streams TV shows and movies. We are the world’s leading service in our area, able to reach customers over their Internet via TVs, computers, and mobile devices in the United States. Our mission is as follows,

“Our core strategy is to grow our streaming subscription businessdomestically and globally. We are continuously improving the customerexperience, with a focus on expanding our streaming content, enhancing ouruser interface and extending our streaming service to even more Internet-connected devices, while staying within the parameters of our consolidatednet income and operating segment contribution profit targets" (Netflix, 2014)

As we see it, our objectives are to become the “best global entertainment distribution service.” We want to be able to make these services accessible to film makers and help “creators around the world to find a global audience” (Netflix, 2014). To strengthen our company we need to know both our company strengths and company weaknesses. Our company prospers due to strong customer loyalty in the US, brand recognition, the size of our company, a big database, and our easy-to-use interface, search engine, and category browsing. We should keep in mind that we do not offer all TV shows and movies, we rely on Internet providers, we do not have much variety within our categories, and our competitors have an international advantage. See Exhibit 1 for strengths and weaknesses.

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The DVD market has been shrinking, while the digital one has become the trend of the future.

Accordingly, we distribute our resources based on this trend. We currently lead the market as an

Internet television network in North America, but we could still work on a more global stage

(especially compared with HBO, who has more than two and a half times as many subscribers

worldwide than us) (Auletta, 2014). However, we have plans to (or anticipate to) expand our

base in North America, Latin America, and Europe. We are already a starting service in six

Western European countries as of this September (Mccarthy, 2014). Again, we could pay more

attention on the developing world, such as China and Southeast Asia where there has been a huge

number of Internet users with a need for videos and programs.

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We face a Local Regulatory Agency in the Global Stage. For instance, CRTC, the Canadian Radio-television and Telecommunications Commission, would like to force Netflix to obey their local regulations (Goodyear and Agency, 2014).


The local streaming providers know their customers better and have already built a solid brand, as well as gathered a large amount of customized data. We could establish a partnership with or invest in the local providers, in order to see them as partners instead of competition.


The trend of vertical integration is a matter of discussion. We would want to own the whole supply chain, and currently we are working on it as we push into original movies. Our first premiere is set to be in selected theaters by August 2015. This is just the first of several major films backed by Netflix. All of our original films will premiere on the same day on Netflix and in select IMAX theaters globally (Mccarthy, 2014). Besides the original series and movies, we could investment more in:

Internet service providers, a great example is Google’s Google Fiber, which provides 1 gigabit upload/download net speed which is “100 times faster than today's basic broadband” as well as TV content, cloud storage, and other optional services.

Devices such as LeTV, a Chinese online video portal; they have launched their smart TV product line, which rapidly became the top six best seller in the market, as well as China’s top three video streaming sites (Custer, 2014).

Furthermore, we need to be cautious with our competitors and potential competitors. Different industries, like Amazon (with a huge subscriber pool, an efficient system, and their own devices) or YouTube (biggest subscriber pool, biggest percentage on mobile devices, possibilities of combining with Chromecast or other Google related services, and a huge data and searching algorithm, such as the one that Google has) have the potential to take some of our current customers or potential new customers. Moreover, we need to pay attention to how different countries could affect our brand. For example, LeVision Pictures, the Chinese film production branch of a video streaming site “LeTV”, stated one month ago that they would establish a $200 million dollar fund as part of a new Los Angeles-based subsidiary (Horwitz, 2014).


Currently, the technological trend is big data and we do a good job of it. A good example is House of Cards, we chose the topic, director, and actors based on the share of what their subscriber streamed (Carr, 2013). The customized experience is becoming more and more important for a tech company, “There are 33 million different versions of Netflix,” said Joris Evers, the company’s director of global corporate communications (Carr, 2013). We need to find a way to be the best Netflix through constant enforcement of positive customer experiences. Additionally, the extensive increase of net speed, the expansion of 4G, and wireless network around the world, emphasizes the importance of a share on mobile devices. According to Akamai’s state of the Internet for Q1 2014, there has been a 24% year-to-year net speed increase globally. For mobile data, traffic grew around 15% between fourth quarter of 2013 and the first quarter of 2014 (Akamai, 2014). The current market is prime with opportunities for Netflix to develop and grow.

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Competitor Analysis

Because we are in a wide range of the entertainment market, our competitors include cable TV, websites, games,

sporting events, books, and movie theaters. Domestically, we are ahead of competitors when it comes to customers

watching TV content online. See Exhibit 3. However, our biggest competitors are HBO and Showtime. Showtime

and HBO are also premium channels that offer programming to a large number of subscribers. Other major

competitors include YouTube, Hulu, Amazon, Apple, and cable providers.

HBO and Showtime

HBO offers an online and mobile streaming app, HBO Go. HBO has 114 million subscribers, more than two and a half

times the number of subscribers as Netflix worldwide. The HBO Go app gives unlimited access to all of HBO's programming. They have original

programming hits such as "The Sopranos" and "Game of Thrones" (McDuling, 2014). Additionally, HBO recently announced they would begin to

offer an internet-only subscription for all of its programming, which establishes direct competition with Netflix (Shaw, 2014). Overall, HBO has

the advantage of having a wider subscriber base and offers programming through cable TV, something that we have yet to offer. Additionally,

HBO's internet-only subscription is anticipated to be more expensive than Netflix. We are currently ahead of HBO in subscription revenue. See

Exhibit 4. Showtime is another similar competitor; Showtime has its own app, Showtime Anytime, which allows subscribers to watch all of their

programming on mobile devices (Rhodan, 2014).

Apple and Amazon

Additionally, Apple TV is a threat to us with its 17 million subscribers. Apple TV is a streaming video service, growing in

popularity and has the strength of easily expanding its market to include people who already own other Apple devices (Isaac, 2011). Moreover,

Amazon Instant video offers streaming movies and television shows. Their advantage is that they also allow customers to rent or purchase content.

Amazon Instant video has 20 million users and offers some original programming, such as the original series, "Alpha House." It is offered at a

lower, yearly rate, but does not have a large selection of programming, compared to Netflix (McGrath, 2014).


Likewise, Hulu+ is another streaming service that offers some original programming; although, Netflix has a greater number

of and more popular original programs. Hulu+ does have the asset of providing access to a lot of TV shows that are not out on DVD or available on

Netflix. Hulu+ carries episodes of most of the major US broadcast networks (5 out of the top 6), which we have been unable to do (McGrath,

2014). Often, episodes will appear on Hulu+ the day after they air (Isaac, 2011). However, one weakness of Hulu+ is that viewers have to watch

commercials in order to access its programming. With 5 million subscribers, Hulu offers some limited streaming services for free, without having

to pay for a subscription to Hulu+. Hulu was created by 21st Century Fox, Walt Disney Company, and NBCUniversal and is subsidized by

commercials on its website (McGrath, 2014).


Furthermore, YouTube can also be considered a competitor of Netflix. YouTube has a billion visitors each month watching

a total of about 6 billion hours of video each month. Viewership has expanded greatly due to mobile devices; 40% of YouTube's views are on

mobile devices, compared to just 6% in 2011 (Constine, 2013). YouTube makes money through advertisements attached to its videos, which

makes viewers have to sit through ads. On the other hand, YouTube has a very extensive and massive selection. Its broadcasters upload these

videos, with some videos being far more popular than others (YouTube, 2014).

Cable Providers

Cable providers also compete with us by offering on demand shows and videos for their customers. For example, CBS

recently announced that it would begin offering an online-only subscription to its programming for $5.99 a month. This service could potentially

allow viewers to watch local TV programming online (Shaw, 2014). Knowing our competitors and their advantages pushes us to become better and

motivates us to provide better quality to our customers.

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Customer Analysis

Families with Children 18 and Younger

Our customer demographics are an interesting lens to view the company as a whole. The company has a following of more than 50 million subscribers in over forty countries (Netflix, 2014). These 50 million viewers can be segmented down into several smaller groups that are more effectively targeted by the programs offered. The largest and most profitable segment available to us is families with children 18 years old and younger. This segment is perhaps the most important for two reasons. On one hand, we offer parents a convenient way to distract and entertain their young kids at any time. Additionally, these young viewers will form the basis for Netflix’s future customer base. As the kids grow into their teenage years, we offer a wide variety of shows that will still maintain their interest. By doing this, we build customer equity with these children and teenagers, locking in customers for years to come. We build a relationship with the kids early on and maintain it throughout their childhood in order to build brand equity and recognition that persists for an entire generation. Our goal is for the kids to purchase their own account and continue as a loyal Netflix customer.

College Students

The next important segment is College students aged 18-24. College students are important because of their familiarity with technology and their youth. A young demographic enables the possibility of a long-term relationship between the customer and Netflix, resulting in numerous years of a steady income. College students also have more leisure time to enjoy online streaming, compared to those who are working full time in their chosen careers. This increase of leisure time allows college students to maximize the utility of Netflix; thus, making it worth the $8 per month. In addition to these benefits, college students are notorious for the desire to “binge watch” shows (Solis, 2014). This mentality of watching perfectly corresponds to our preferred watch style, as illustrated by the release of entire seasons at once.

College students also compliment Netflix’s overall marketing strategy of targeting customers with annual incomes over $30,000 (Shaw, 2014). This threshold for income stems from the fact that many people view a Netflix subscription as a luxury expense that can be trimmed down in hard times. College students make an average of 66% more per year than those with only a high school diploma; most likely falling into the middle class or above (Education Portal, 2014). By targeting college students early, we will be able to build a strong relationship that will be maintained even after the student graduates and takes on a full-time career.

Baby Boomers

A new emerging, possible market is the baby boomer generation. This generation is more comfortable with technology than the previous generation (Microsoft, 2009). As a result, they will create a demand for convenient entertainment at an affordable price during their retirement. We have the ability to satisfy this demand because of the offered categories, especially in family and classic movies and shows.


Lastly, the most interesting and untapped market segment, the “travelers.” The traveler segment’s need in the entertainment industry has been drastically under met by all of the major providers of movies and TV shows over the Internet. This market segment has the very unique need of offline streaming, due to limited access of the Internet on the go. While the evolution of personal Wi-Fi hotspots has emerged, the slow speed and high cost makes this option less practical and less appealing. We can take this market segment by storm if we offer high quality TV shows and movies offline. This innovation, targeted directly at travelers, will help Netflix maintain its leading market share in the US. Between these four market segments Netflix will enjoy a solid foundation for many years to come.

See Exhibit 1 for opportunities and threats.

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Our company should:

o Focus on customer satisfaction

o Seek international opportunities

o Increase customer base

o Strengthen brand equity and recognition

In picking an opportunity to pursue, our primary focus is on the

customer. How can we help make the Netflix experience better for our current

customers? How can we increase our consumer base? Is it feasible to focus on

international ventures if it weakens our domestic positioning? These

customer-based questions are fundamental for us to answer as we go forward

with implementations. Mainly, we want our focus on our domestic customers

and enhancing their Netflix experience. We would aim for a year in changing

the online interface and hope to see results within two to three years.

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TV Channel

Fortunately, there are many opportunities we can pursue at Netflix. We could create a TV channel for Netflix and cross-market with Xbox and PlayStation. A TV channel would allow our customers the ability to watch our shows and movies as a network. This venture would act as a new option to current customers and would build brand recognition to potential new customers who are flipping through channels. However, this could be a weak source to gain new customers because we would only be able to show our original shows. Currently we do not have too many shows and movies to play and the ones that we do have would be on constant repeat, which could off-put customers and potential new consumers. We would want to have Xbox and PlayStation promote the Netflix service, because they already carry the app for Netflix.


Moreover, we could add a playlist option that will make Netflix more personable, connected, and convenient to each customer. However, this feature could potentially become overwhelming and make the site look congested to a user.

Downloadable Queue

Furthermore, we have the opportunity to make the shows downloadable; customers would be able to pre-download shows, allowing them to watch without Internet connection at a later date (say for a train, plane, or car ride). This option would reach to our most valued target market, the travelers. Customers would “download” a show/movie and it would then show up in their queue, with a three-day policy. A three-day rental policy would do well with our customers because data has shown that customers like to have a reasonable return time, but would also work well with our licensing agreements and profits. See Exhibit 5.Depending on which package they choose, they would be able to either store one (2g), two (4g), three (6g), or five (10g) TV show/movie space onto their account. These packages allow the customer to have flexibility over the amount and price they want to commit to. Additionally, these package varieties respect the customer’s concern for data storage on their hard drive. A second, possible opportunity to add to this downloadable feature would be to make shows and movies that are in our database, but not accessible unless DVD ordered, available to consumers through the downloadable feature. We would need to look into our licensing agreements with multiple providers, but we currently hold a power position with most providers. See Exhibit 6. Again, we would account for this option in their package choice and allow them access to the show/movie in their queue. This strategy is fairly safe, with its potential to help the company far outweighing the possible drawbacks. The plan could possibly alienate some of Netflix’s customers through the required price increases for the premium service. To mitigate this risk the pricing of this new service will not be required and instead be an optional upgrade. We will also conduct market sensitivity analysis to determine exactly how much customers are willing to pay for this new service. Additionally, the risk does exist that another company could target the traveler segment of the market more effectively and thus make the investment in the new technology wasted. However, since Netflix would be the leading company to implement this new strategy the risk of another company, at least initially, of doing this same strategy better is very small. Netflix has the customer base and brand recognition to appeal to this new segment.

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Atlas Package

We believe our best opportunity to pursue would be to market penetrate the Traveler segment with a product development of a new feature; the downloadable option. This option is most compatible with our forward thinking direction because it leads us to a new customer base and gains us a competitive advantage against HBO and Hulu+. Leading innovative technology in the music industry has already had positive reactions by users. Spotify is able to have songs available to users offline without Internet connection. This feature allows it to stay ahead of Pandora because its competitor is tied to the availability of the Internet. We know that 27.7 million Americans 18 and over use the Netflix mobile app (COMSCORE, 2014). This statistic shows that our new feature would correlate positively with current users who have a need to be on the go. We would offer this feature as an added package and call it the “Atlas Package.”


This new strategy inherently carries the risk of increasing the amount of direct competition faced by Netflix. By expanding into the “streaming online” category Netflix will face competition from DVD and TV show manufactures that sell them as a hard disk. In addition, as with any innovation, Netflix risks that some customers will not value the new feature and oppose the new changes and necessary price increases. This new feature will cost more money than the standard Netflix package and could increase the feeling that Netflix is “Nickel and Diming” the customers. This could pose the same problem as the price increase in 2011, which resulted in over a million lost customers and a 50% drop in the stock price (Mashable, 2014). To mitigate this risk we are offering this as an additional package to the standard platform. This new feature is optional and not mandatory for the customers (Forbes, 2014).


The rewards of this strategy are twofold. By being the innovator in the marketplace, Netflix will be able to exploit some of its brand equity and have consumers trust in this new idea. The ability for travelers to watch their favorite movies and shows in places without the Internet is invaluable. This innovation will also help Netflix with the goal of market development in regards to the traveler segment of the market. Since nearly 28 million Americans already use the mobile app, Netflix is poised to explode should the ability to stream Netflix exist without the need of Wi-Fi. By being the innovative company with strong brand recognition, and also tapping into this new and expanding market segment, Netflix will maintain its lead in the market and increase profits in the upcoming quarters.

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Marketing Mix


A downloadable feature as a new package offer is our primary amenity to Netflix. This feature would allow customers to download a TV show or a movie into their queue and be able to watch their program without the crutch of Wi-Fi or Internet connection; this convenience enables watchers to take their account on the go for twenty-four hours. Furthermore, the downloadable feature comes in a package of 2g, 4g, 6g, or 10g. This variety is for customers who are price sensitive or have a concern about taking up too much of their hardware space. With further market research and development, we can also offer customers the opportunity to download TV shows and movies that are in our database, but not available to watch online.


In order to not only survive in this market but thrive, we know that our product must have a comparative advantage, has to be easy to use and communicated to customers, can be tried right away, and compatible to our target market. Fortunately, our new feature has all of these elements; the key through our promotion will be to visualize this to our final consumers. To start, we would offer our customers a discount for their first month on the added package. We offer this discount as an incentive for our customers to try our product as soon as it is made available. Additionally, we would be pushing this product through pop-up notifications when customers login to their account. These notifications will be a series of steps showing our customers how to use the new feature, which again will encourage our customers to try the product. We hope this will engage the customers on our new change and peak their curiosity. Once our target market begins to download shows, they will soon realize our simple feature is compatible and convenient to their life.


We would put our promotions straight on our Netflix site. Not only does this grant us more control over placement and timing, but it also minimizes our cost. Most significantly, having our promotions reach our customers directly is going to be vital because our target market is within our current customer base. This channel of distribution will bring us closer to our final consumer, which establishes a stronger relationship and keeps us connected and more transparent. Because communication to our customers has been an issue in the past, staying transparent with our decisions and changes is key to customer satisfaction and building brand loyalty.


The price of our current package will remain unchanged for the time being to ensure that already satisfied customers are not forced out due to monetary constraints. However, as a company we need to continue to innovate and draw in additional customers. To accomplish this, we have decided to offer a new optional package that allows the customers to stream movies and shows offline. We have created four different price ranges in order for this package to appeal to as many customers as possible. The basic package allows for 2GB of offline data (roughly one movie or 2 hour long episodes of a show) for streaming at the price of $10.99 ($1.99 total increase), which is a mere $2 increase over the standard package. The other packages are 4GB, 6GB, and 10GB. These packages increase by $1 per upgrade with the 10GB package costing $13.99 ($4.99 total increase). By offering this wide range of options we will appeal to a broad range of customers and not disturb the satisfied customers we have now.

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Moving Forward

The implementation of our marketing plan will occur in the next one to three years, depending on the challenges encountered throughout the process. Some of the individual parts of the strategy, such as the optimal market segments to target will be easy to implement. Increasing Netflix original series programming and offline streaming capacities will both be more difficult to implement. Both of these strategies work to create a more distinct product for the customer (Top Investor Questions, 2014). By diversifying the offering, Netflix will remain as an innovator in the marketplace.

What We Need

In order to successfully implement these strategies successfully in the allotted time frame, the company needs to increase funding for research and development. Funding would go towards reaching licensing agreements with those providers who are part of our offline database and we would be able to offer a wider variety of shows to the customers (Maglio, 2014). Additionally, Netflix needs to invest in the technology to allow customers to upgrade their subscription and watch shows offline. This technology already exists and is utilized by companies such as ITunes and Spotify (Cipriani, 2014). This offline streaming option will take longer to fully implement due to the need of acquiring and testing the technology with movies and TV shows, as opposed to simply music.

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Profit & Loss

2015 2016 2017

Revenue/Net Sales 160221600 192614400 221205600

Cost of Revenues 25888156 29586464 35133926

Gross Profit 134333444 163027936 186071674

Operating Expenses

Additional R&D Expenses 75753800 68178420 56815350

Additional Advertising Expenses 55890800 55890800 41918100

Other Expenses (Gen and Admin) 25242140 32738556 42461259

Total Expenses 156886740 156807776 141194709

Pre-Tax Net Income -22553296 6220160 44876965

Tax Rate @ 35% 2177056 15706938

Net Income -22553296 4043104 29170027

NPV = (-22553296/ 1.177) + (4043104/ 1.177^2) + (29170027/ 1.177^3)

= $1,646,717

IRR = 23.04%

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Sensitivity Analysis

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Normal 2015 2016 2017

Revenue/Net Sales 160221600 192614400 221205600

Cost of Revenues 25888156 29586464 35133926

Gross Profit 134333444 163027936 186071674

Operating Expenses

Additional R&D Expenses 75753800 68178420 56815350

Additional Advertising Expenses 55890800 55890800 41918100

Other Expenses (Gen and Admin) 25242140 32738556 42461259

Total Expenses 156886740 156807776 141194709

Pre-Tax Net Income -22553296 6220160 44876965

Tax Rate @ 35% 2177056 15706938

Net Income -22553296 4043104 29170027

Best 2015 2016 2017

Revenue/Net Sales 171666000 204652800 232848000

Cost of Revenues 27737310 31435618 36983080

Gross Profit 143928690 173217182 195864920

Operating Expenses

Additional R&D Expenses 75753800 68178420 56815350

Additional Advertising Expenses 55890800 55890800 41918100

Other Expenses (Gen and Admin) 27045150 35077024 45494205.94

Total Expenses 158689750 159146244 144227656

Pre-Tax Net Income -14761060 14070938 51637264

Tax Rate @ 35% 4924828 18073042

Net Income -14761060 9146110 33564222

Worst 2015 2016 2017

Revenue/Net Sales 114444000 144460800 174636000

Cost of Revenues 18491540 22189848 27737310

Gross Profit 95952460 122270952 146898690

Operating Expenses

Additional R&D Expenses 75753800 68178420 56815350

Additional Advertising Expenses 55890800 55890800 41918100

Other Expenses (Gen and Admin) 18030100 23384683 30329471

Total Expenses 149674700 147453903 129062921

Pre-Tax Net Income -53722240 -25182951 17835769

Tax Rate @ 35% 6242519

Net Income -53722240 -25182951 11593250

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Four different packages for the new downloadable option are offered at the following prices:

$1.99, $2.99, $3.99, and $4.99

We anticipate that 14% of current domestic streaming customers will adopt one of the new

options in 2014, 16% of current domestic streaming customers will have adopted an option

by the end of 2015, and 19% by the end of 2016

We then calculated approximately how many of each specific package would sell per year.

We estimated that sales for the $1.99 package would be highest initially, with the

more expensive packages gaining more subscribers each year.

We based R&D, advertising, general, and administrative expenses based on Netflix's

expenses outlined in their 2014 annual report. We took a percentage of such expenses to

calculate additional expenses caused by the addition of the downloadable option.

Technology expenses would be higher initially as it would cost more money

initially to create the technology platform required for the new project

General and Administrative costs would grow gradually consistent with rates that

Netflix has seen in recent years

Advertising costs would be higher in the first two years in order to draw attention

to and market the new packages, but would decline slightly by the third year

Discount rate determined from CAPM Model: 17.7%

NPV is the sum of the present value of future after-tax net income, discounted at 17.7%

Corporate tax rate of 35%


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0-6 months: Start intensive market research and research and development to become knowledgeable on needed software. Would need to hire IT staff to install software to make programs downloadable for only specific timeframe.

7-12 months: Research licensing agreements with non-streaming providers and inquire to include their programs in our new feature. If yes, begin on adding their programs to feature, as well. If no, delete this as a possible option for new Netflix product.

13-18 months: Create pop-up step-by-step notifications for Netflix users as our promotion. Set this up to pop-up max of five times or until they run through the steps. After five times of not going through steps, have a banner option on the account. Customer would be able to go through feature when they want to during their account use. Once a customer closes the banner five times, we would have to assume they are not in target market or will use the product at a later time.

19-24 months: Launch new feature on Netflix site, alone with pop-up promotion and discount availability. Have continued market research to get feedback from final consumers. Based on feedback change product as needed.

25-30: Remove discount availability (by this time users will have used this option already or are in their month of discount use).

31-36: If available, add in non-streaming programs to packages. Continued market research should be continued throughout 25-36 months to enhance product as needed.

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Next Steps

Our plans are well stated and thought

through; however, we do know there are places

for further research to be done. We realize that

in order to go forward with allowing TV

shows/movies that are in our database but not

streamed online to be available for download,

we would need to review the licensing

agreements with the providers. Moreover, we

would need to perform more sensitivity analyses

to confirm the ideal price for each package

available. Furthermore, we would need to look

into the software technology that permits the TV

shows and movies to download onto a

customer’s account for only a specified amount

of time.

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SWOT Analysis


• Stopped throttling*- startup companies can’t do that

• *See Exhibit 2

• Expanding internationally

• Strong customer loyalty in USA

• Brand recognition

• Size of company

• Own TV shows/ upcoming movies

• Reed Hastings is on board for Microsoft, Facebook, and other non-profit

• Big database-shows demographics

• Easy to use interface/search/categories


• Competitors have advantage internationally

• Not all TV shows are offered

• Relying on internet providers

• DVD declining

• Only streams on internet—no TV show

• Weak variety within categories


• International market

• Eliminating DVD

• Gaining people at young age to get brand loyalty

• Netflix channel on TV

• Cross market with Xbox and PlayStation

• Adding playlist option for customers/better system for recommendations

• Mobile devices/ iPad – downloadable TV shows

• Sharpen category variety


• Licensing

• Uncertainty with content providers

• Other online streaming companies-HBOGO, Amazon, Hulu, YouTube

• Competitors increasing really fast

• Economic/Political uncertainty abroad

Exhibit 1

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• The massive increase in Netflix’s subscriber base over the past five years intrinsically brings with it a massive increase in the amount of bandwidth needed to maintain good service. Netflix grew to be the largest user of bandwidth out of any company using 34.2% of all bandwidth consumed during primetime (Spangler 2014). As a result, the largest Internet providers started to limit the amount of bandwidth available to Netflix making it difficult for Netflix’s customers to enjoy the service during peak watching hours. To combat this, Netflix reached a mutually beneficial deal with Comcast and Version to stop the throttling (Ramachandran 2014). This gives Netflix the competitive advantage over other companies who have not reached deals to limit throttling. Additionally, this pushes out potential competitors who could not afford to do this at all, or if they could, not at the same economies of scale as Netflix.

Exhibit 2

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TV Content

Exhibit 3

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Subscription Revenue

Exhibit 4

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DVD Returns

Exhibit 5

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Licensing Agreement

• The new Atlas package is contingent on the licensing agreements being successfully negotiated with the content providers to allow for temporary downloads. While this is undoubtedly a difficult hurtle, Netflix now has a very strong influence at the negotiating table when dealing with the cable companies (Forbes). This influence will allow Netflix to obtain this new stipulation in their leasing contracts. Of course this will come at a steep price, but Netflix has a solid record of paying the content providers well. All in all, Netflix is in the best position out of any of its competitors to implement the new Atlas package. Competitors will face higher average cost per customer, and do not have the same relationship dynamics with content providers as Netflix. This is a golden opportunity for Netflix to exercise its size and influence to revolutionize travel entertainment (Rogowsky, 2014).

Exhibit 6

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