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Individual Assignment: NetFlix.com, Inc.

Estimating the number of Subscribers Assumptions Made The number of new subscribers who signed up for the free service each month in a particular year remains the same. The ratio of number of subscribers who signed up for a month of free service to the total number of offers made each month remains the same. After a month of free service only 70% of the customers continue to subscribe. Thereafter they continue for 6 months. After 6 months only 40% of customers who subscribed remain. I have assumed that each month the number of customers who discontinue is 14% of those who were subscribed last month. Using compounding, I calculated a per month reduction in customer base instead of reducing them at the end of 6 months. R=1(28/70)^1/6 Calculations Year 2000 Total Dealer sale Consumer sales Free Subscription Per month %acceptance free per month 1420200 118350 0.295732995 1578000 2630000

Assumed that last three years that are forecasted in Exhibit 4 of case are for years 2000,2001,2002

Assumed total dealer sales are 2.63 mn. Calculated free subscription offers made per month. Consumer Sales= 0.6 x dealer sales Offers made by Netflix = 0.9 x consumer sales Per month offers made= offers made by Netflix/12

Year 2001 Total Dealer sale Consumer sales Free Subscription Per month per month accepted 1819800 151650 44847.90875 2022000 3370000

Assumed total dealer sales are 3.37 mn. Calculated free subscription offers made per month. Consumer Sales= 0.6 x dealer sales Offers made by Netflix = 0.9 x consumer sales Per month offers made= offers made by Netflix/12 Per month accepted = 0.29 x offers made

Year 2002 Total Dealer sale Consumer sales Free Subscription Per month per month accepted 2565000 213750 63212.92776 2850000 4750000

Assumed total dealer sales are 4.75 mn. Calculated free subscription offers made per month. Consumer Sales= 0.6 x dealer sales Offers made by Netflix = 0.9 x consumer sales Per month offers made= offers made by Netflix/12 Per month accepted = 0.29 x offers made

Revenue per customer


Customer who subscribes for 1 free month and 6 months paid

0 Subscription Shipping DVD's purchased Operating profit 0 4

1-6 months 120 25.8

Total 120 29.8

98.9 -102.9

59.4 34.8

158.3 -68.1

Customer who subscribes for 1 free month and 6 months paid

Breakeven period for one customer =18 months if he continues to subscribe each month

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