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Netflix Case Study - Presentation Transcript

1. On-line DVD Rental NETFLIX Laurie Bouchard Kikuyu Daniels Stephen MacNeil John McDonnell Christine Palkoski 2. DVD Rental Overview o Primary after theater consumer distribution methods: DVD rental and purchase On-line content service (pay-per view, streaming) o Growth of DVD rental/purchase in 1990s Large movie studios recording in digital format DVD players more affordable o Enter Netflix, DVD rental strong in U.S. 3. Netflix Profile o Founded in 1997 by Marc Randolph and current CEO Reed Hastings o Originally offered DVDs on a fee per use basis o Introduced monthly subscription service in 1999 o 9.4 million subscribers as of Q4 2008 o 2009 forecast of 10.6 to 11.3 million subscribers 4. Netflix Competitive Advantage o First-mover advantage in on-line rental o Patented method of web-based DVD selection o Customer-centric, monthly subscription-based service It probably looks easy to imitate Netflix, but its quite difficult to get all the details right that matter to a consumer. Weve put four years effort into building our service. Reed Hastings, co-founder in 2001 5. Netflix Services o Service Plan Options: Unlimited Plans $8.99 1 DVD at a time $13.99 2 DVDs at a time $16.99 3 DVDs at a time Less popular plans of 4-8 DVDs at a time available *Unlimited online viewing on all unlimited plans 1 Limited Plan $4.99 1 DVD at a time (2 per month) * 2 hours of online viewing 6. Subscriber Growth (000s) 7. Service Features o No Due Dates o No Late Fees o No Cancellation Fees o Free DVD Shipping Both Ways o Blu-ray Substitution, for a Fee 8. Customer Loyalty o Consistently maintain 84% - 86% of existing customers quarter over quarter.

Voted #1 online retailer 8 consecutive periods by Foresee/FGI Research Achieved Through: Ease of Use Fast Delivery (97% in one day) Size of Selection (Over 100,000 DVD titles) 9. Competition o Movie Rental Stores Blockbuster, Hollywood Video, Movie Gallery o Movie Rental Kiosks Red Box o Downloadable Movies Apple, YouTube, Hulu On Demand o Movie Theaters AMC, Showcase 10. Main Competition Source: 2008 Data from Hoovers, SEC Netflix Blockbuster Redbox Industry Median Annual Sales ($M) 1,364.7 5,542.4 22.4 Employees 1,644 59,643 750 Gross Profit Marin 33.30% 51.90% - 36.00% Net Profit Margin 6.10% 0.50% - -11.50% Return on Invest. Cap. 19.8% 1.8% - 2.9% 12 mo. Revenue Growth 13.2% 0.6% - 8.7% 12 mo. Net Income Growth 24.0% 0.0% - 15.2% 11. Financial Position 12. Financial Highlights o Predictable Revenue Streams Not dependent on rental fees or late fees o Low Overhead Costs Contribute to Profits No store rent, utilities, salaries o Strong Growth Market entry timing, planned barrier to entry for competition, customer centric 13. Video Streaming 14. Video Streaming 15. Video Streaming o Opportunities for Netflix o Lowers shipping costs More can be spent on content while achieving same profit margins o No more planning ahead to watch a movie May attract a new segment of movie watchers o Partnerships for streaming LG & Samsung Blu-ray players Xbox360 Roku digital video players Tivo HD boxes 16. Video Streaming 17. Video Streaming o Threats for Netflix o Exclusivity agreements with content providers may effect availability of movies for streaming o More competition from big name companies (Apple, Microsoft, Amazon) and global competition from companies operating locally overseas
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Limits on Bandwidth usage from internet providers Price adjustments to cover new expenses 18. Exclusivity Issues Source: Netflix 2008 Investor Day Presentation 19. SWOT o STRENGTHS o First Mover Advantage o Strong Brand Recognition o High Customer Satisfaction o Large Movie Selection o Low Overhead Costs o Predictable Monthly Revenue Streams o Affordable Pricing o WEAKNESSES o Monthly Fee Discourages Membership From o Less Frequent Movie Watchers o Lack of Control Over DVD Return Time o Comparatively Small Movie Library Available to o Stream o DVDs Can Arrive Scratched or Broken Due to o Mailing Process o OPPORTUNITIES o Product Line Expansion Video Games o Expand Downloadable Movie Offerings o Print 3 rd Party Advertisements of Red Envelopes o Expand on Partnerships With Content Providers o and Technology Providers. o THREATS o Staying power of DVDs o Contractual restrictions on streaming content o Bigger competition in the streaming video market o DVD competition from Red Box, and Blockbuster
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