Netflix Cost Of Production Case Study

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Costs of Production Table 1 details the cost that Netflix has had over the past five years. Cost of Goods Sold (COGS) is the cost of inputs, while SG&A Expense shows operating costs. Table 1. Netflix Costs of Production 2011-2015 2011 2012 2013 2014 2015 Cost of Goods Sold (COGS) 2.04B 2.63B 3.08B 3.75B 4.59B SG&A Expense 779.6M 933.4M 1.06B 1.35B 1.88B Note. Data for Netflix COGS and SG&A Expense from Market Watch (n.d.). Netflix’s COGS has been steadily increasing over the past five years. This is due in part to Netflix increasing the amount of content they offer as well as the number of original series they are producing. Another reason why costs have been increasing is the higher cost of licensing. When Netflix first began offering their…show more content…
In this market, the long run average cost decreases as output increase making it very difficult for new companies to enter the market (textbook). Since the marginal cost per new subscriber is next to nothing, the average cost decreases with every extra subscriber. A new company would have a very difficult time because they would have similar cost, but many less subscribers making their average cost quite high. The two competitors that successfully entered the market after Netflix, did so with the financial backing of firms that were already successful and could absorb the initially high average cost. Another less important barrier is how well known and popular services like Netflix, Amazon Prime, and Hulu Plus already are. A new, not well known firm in the market would find it nearly impossible to compete with the firms that have already established names for themselves. These barriers of entry make it incredibly hard for new firms to enter this market, insulating Netflix, and the other companies, from new…show more content…
Since their revenue is trending upward, their costs can also continue to rise. If they increase supply, the demand for their product will also increase, increasing revenue to make up for the additional costs of production. I would especially recommend providing more original programing so Netflix can be differentiated from their competitors by providing products that only they offer. Given that Netflix has the largest market share in the oligopolistic market they would be able to easily influence the market allowing them to increase profitability. If Netflix expands their content, more people would want subscription to the service since there are few alternative options. As mentioned before, adding more original content will strengthen Netflix’s position in the market because the other competitors will not have the exact same product to compete directly with

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