Final Exam –
Part 1 – Analysis of Netflix
1. and 2. Brief Overview of Netflix’s Business Model
In order to better understand Netflix’s business model, there are 3 topics discussed at here: 1) the current business model analysis based on Alex Osterwalder’s methodology; 2) the history of Netflix’s business model which will give us more insights of what happened to Netflix in the past, and where it will go in the future; 3) the challenges and issues of current business model.
Current business model
The following is the current business model canvas of Netflix.
As we can see above, Netflix’s revenue comes from subscription fee. The quality of video content is very ...view middle of the document...
It’s a good strategy change to save cost, improve profitability, and improve customer experience. But Netflix didn’t take current streaming plus DVD customers’ concerns into consideration, which lead to the decrease of number of subscriptions. And Wall Street has concerns on the subscription growth at International market also. Take all of these things together, Netflix’s stock price drop from almost $300 to $64 per share within 6 months at 2011. It’s a great lessons learned of changes of business model. Netflix finally made decision to retain domestic DVD business at 2011.
The challenges and issues of current business model
After 2011, Netflix continue to put focus to grow domestic and international streaming subscription, and take big data technology into content creation. Right now, Netflix’s stock price grows to $295.11 per share. It’s almost back to the peak of 2011.
But there are still some challenges to the business model of Netflix. The biggest challenge is coming from big data technology. Netflix already use big data from customers’ rating, locations, ages, access frequency, access time, etc, to fine turn recommendation system. Netflix can also use big data technology to forecast what kinds of content will be popular, how much Netflix can invest to create self-owned content, what will be the return on investment?
The House of Cards is a best sample that big data technology can help Netflix to create self-owned content with great popularity. It was released at Feb 2013 with great success. Back in 2011, before the company made its bid of “House of Card”, it looked at the show, examined its subscriber data, and determined that it would, in fact, be a hit. It’s one of the most sophisticated attempts at data-driven programming we’ve ever seen. According to financial report of Q1 2013, Netflix beat Wall Street expectations as the dominant video rental service added 2 million new U.S. streaming subscribers, and its shares soared 24 percent.
If this big data based content creation model is workable and repeatable, it will bring revolution to American pay-television industry, and create a new business model to Netflix: based on subscribers’ preference and big data technology, create self-owned valuable content. Netflix will get into content creation business, which was dominated by his partners before.
3. Compile the Following Information
a) Market price per share on the date of the balance sheet for each on the last 3 years
The market price per share on the date of the balance sheet for each last 3 years as below:
Fiscal year end 31 Dec | 2012 | 2011 | 2010 |
Share price ($) | 92.59 | 69.29 | 175.70 |
b) Number of shares outstanding for each of the 3 years’ balance sheet dates
The number of shares outstanding is coming from Netflix’s 2012 annual report. They are weighted-average common shares outstanding and used in computation.
(In thousands) | 2012 | 2011 | 2010 |