Netflix Case Study Essay

NETFLIX

Introduction

Netflix was established by Reed Hastings with an idea to offer a home movie service that would do a superior job at satisfying customers than the traditional retail rental model, eventually evolving a business model that was highly disruptive to retail video rental chains. The combination of a large national inventory, a recommendation system for viewers across a broad catalogue and a large customer base made Netflix a popular name among customers, especially as a distribution channel for lower-profile independent films. Over these years, its revenues have increased an average of 23.6% a year to $4.4 billion; its net income rose 12.5% a year to $112 million; and its stock price soared a whopping 1,503%.

Business Model

The reason quoted was that the two businesses were becoming quite different, with dissimilar cost structures, dissimilar benefits that need to be marketed differently, and there was a need felt to let each grow and operate independently.

The move quickly led 800,000 subscribers to bolt, contributing to a 25% plunge in its stock. Netflix had to go back on the policy announcement a few weeks later.

Reasons for failure

"There is a difference between moving quickly—which Netflix has done very well for years—and moving too fast, which is what we did in this case," Mr. Hastings said in a statement. Netflix's titles are very limited, and unless one had a TV, or gaming console that supported Netflix, it had to be watched on a computer, netbook, or tablet -- which few outside college probably preferred.

Moreover, Qwikster was pitched as a way to offer users more convenience. But it was perceived as an act of forcing about 12 million customers with joint streaming-DVD accounts to create two accounts, at two different domain names, with two separate credit card statements and two different sets of ratings and preferences, all on a new website. It also included a 60% increase in subscription prices.