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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Group Case Study 1: Netflix: What Comes Next? A Group Case Analysis
Jennifer Glasscock, Rishona Grant, Sean Grove, and Kristina Velasco: Group 3
BUSI 690-07
April 12, 2015
Liberty University

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Executive Summary- Netflix, Incorporated.


Netflix is currently a leader in the home video rental market. Netflix desires to find the
best ways to attract and retain customers. Currently, at $7.99 a month for service, Netflix offers
an extremely low cost alternative to cable television, which can cost as much as $100 a month
for a basic package. Netflix not only has a low-cost strategy but a differentiation strategy as well.
The current cable market forces customers to pay for items they do not want, while Netflix offers
customers an abundance of shows and movies that a customer can watch at any time without
being forced to see what they do not want. Netflix is also an ideal choice for families who want
wholesome family viewing because they can choose to watch only shows and movies that they
approve of, without other various channels streaming content they do not want to watch or is not
appropriate for their beliefs. Netflix faces challenges related to incurring higher costs for
specialized licensing agreements, which enable the company to provide customers such a broad
range of movies and television shows. The movie industry also faces constant turmoil with
changes in technology and consumer preferences, which could mean that Netflix will have to
develop new movie formats or streaming technology in order to remain competitive. Netflix will
continue to seek the best talent and provide an innovative and creative HR philosophy in order to
retain such talent.
The following paper seeks to analyze the internal and external environment, as well as
the strategy of Netflix. The current missions and objectives will be shared and a new mission will
be provided. In an effort to thoroughly assess this company the following analysis will be
completed; SWOT analysis, BCG analysis, and competitor analysis. Also financial
documentation will be provided to support the new strategy of Netflix reallocating resources
from the declining DVD department to the increasingly popular streaming business.

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Current Mission Statement


Netflixs current mission statement is,Netflix is the worlds leading Internet television
network with over 57 million members in nearly 50 countries enjoying more than two billion
hours of TV shows and movies per month, including original series, documentaries and feature
films. Members can watch as much as they want, anytime, anywhere, on nearly any Internetconnected screen. Members can play, pause and resume watching, all without commercials or
commitments. (http://ir.Netflix.com/).the inline cite must match what you use at the beginning
of your reference

Netflix Existing Mission Components


The following nine components make up Netflixs mission and capabilities.
a. Customer: Netflix customers are any man, woman, or child who enjoys watching movies
or shows on demand
b. Products or services: Netflix provides digital entertainment through television shows and
movies
c. Markets: The firm currently competes in North America, Latin America, and certain areas
within Europe
d. Technology: The firm is current on technology, as it offers videos and television shows
through online digital streaming.
e. Concern for survival, growth, and profitability:
Netflix has many concerns regarding their ability to remain a strong and profitable
company. Among those are the following concerns, as listed in the 2013 Annual Report.
Objectives/Existing StrategiesNetflix must be able to attract and retain customers. They
must be able to compete effectively through price and desired customer selections. They
have licenses with studios which are costly to maintain, and if the content does not
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

resonate well with consumers, the company will lose money because the agreement with
the studios cannot be abandoned. Netflix must continue to build and maintain brand
recognition. They use Facebook and Twitter as a means of mass advertising, and have
reduced expenditures in other forms of marketing, such as television and print ads.
However, licensing for copyrights continues to increase, so where Netflix may save
money in one area such as marketing, the company still incurs higher expenses in
licensing. In addition to the high costs to obtain copyright licenses, if Netflix wants to
continue to expand offerings and have a larger role in the selection of programming, the
company will likely be asked to contribute funds to production costs. Another primary
concern is that Netflix must be able to run off of the bandwidth in all areas to be able to
sustain the level of connectivity that consumers desire. There is a limited amount of
bandwidth available, and it is critical to Netflixs ability to provide a quality
entertainment experience to consumers. If consumers become dissatisfied over the ability
of their internet provider to be able to properly handle their expectation regarding internet
streaming, consumers may decide to drop Netflix service. Furthermore, there is a rapid
decline in a desire to use the United States postal service. The USPS is making cuts in
many places. Consumers who formerly enjoyed using the video rental service provided
by Netflix may decide it is too slow for them, especially with several options available
through cable and other services like Netflix. Customer privacy concerns remain an issue,
especially in terms of payment data being secured, to avoid problems with hackers and
personal information theft. Another issue cited by Netflix is the ability to pay debt.
Netflix seeks to pay several millions of dollars in indebtness.

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

f. Philosophy: Netflix philosophy is that they should be able to provide customers with the
best home video experience, whenever and wherever they are, with a selection that rivals
that of the competition in order to become a household commodity.
g. Self-concept: Netflix prides itself on the ability to satisfy nearly everyones tastes for
entertainment, from popular childrens programming, to favorite hit television series from
different generations, to popular new movies. They spend considerable time studying
popular programming to see what customers will want, as well as invest large amounts of
money in paying for licensure agreements to be able to offer the movies and television
show series they provide.
h. Concern for public image: Netflix is consumer-friendly with their low price strategy and
provide a more customized service for customers than cable. Netflix also makes it
possible for parents to sensor what children view, as television shows and movies have to
be ordered, and there are parental controls available. Netflix is careful not to pirate
movies or series, and is careful to continually monitor end dates on licensing agreements
and copyright
i. Concern for employees: Netflix is committed to keeping the best talent they have, and
continually seek to gain more highly qualified professionals. The company does this
through a revolutionary human resources program. Netflix does not have a formal
vacation policy for most employees (there is an exception for call-center and warehouse
employees) (McCord, 2014). A few of the guiding principles of Netflix talent
management program include the following: hire, reward, and tolerate only fully formed
adults; tell the truth about performance; managers own the job of creating great teams;
leaders own the job of creating the company culture; good talent managers think like
business people and innovators first and like HR people last (McCord, 2014).
New Mission Statement
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Netflix exists as a household name in both the (C3) domestic (U.S.) and foreign markets
in the video-on-demand entertainment industry, due to our commitment to (C6) provide a vast
offering of (C2) popular television shows and movies when and where our customers want them,
providing a highly customizable experience. We offer digital streaming through cable and
mobile applications to a wide range of (C1) customers, young and old, who enjoy all genres of
television shows and movies through (C5) reliable and (C8) ethical licensing agreements and a
(C7) low price. Netflix strives to continue to provide a premier entertainment experience to our
customers through ensuring that we find the (C9) most talented employees and retain them with
an excellent benefits package and by fostering a highly independent and creative work
environment.
Business Model
As per Rothaermel (2013), the translation of strategy into action takes place in the firms
business model (p. 11). It would appear that customers would prefer the brick-and-mortar movie
rental places because of convenience, however, Netflix capitalized on their ability to fund
licensing agreements instead of operate brick-and-mortar stores. As a result Netflix can offer a
wider selection, at a low price. Netflix also exposed popular movie rental icon Blockbusters
system of charging late fees that were often of a higher price than the movie rental, which
angered customers (Cohan, 2013). Netflix used that to their advantage by offering a one set fee
for a month of movie rentals, with no late fees attached. The Netflix business model consists of
the following major components: key partners, key activities, value propositions, customer
relationship, channels, customer segments, cost structure, and revenue streams. (see Appendix
A).
Strengths, Weaknesses, Opportunities, and Threats of Netflix

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Evaluating the SWOT analysis of Netflix (see appendix B, C, and D) shows that the
company was able to capitalize on the weaknesses of the brick and mortar movie rental retailers
by providing consumers with a larger selection at lower price point.. When faced with the threat
of the cable television industry, Netflix gained an edge by paying millions of dollars into
copyright licensing agreements to have access to popular television shows and movies. Netflix
also realized consumers dissatisfaction with cable packages offered digital streaming through
game consoles and computer applications. These examples demonstrate how Netflix transformed
threats into opportunities. An example of how Netflix transformed a weakness into a strength is
the lack of a physical storefront and a large workforce of employees. Netflix utilizes the U.S.
Postal Service (USPS) for its movie deliveries. This helps keep costs low and keeps Netflix
from having to maintain a physical space. As a result, Netflix is able to pay for the licensing
agreements that make it highly successful. Netflix is not for the customer who wants every
television channel and the broadest cable television package available. Instead Netflix is for
budget-conscious, movie and T.V. show lovers who would rather customize their entertainment
programming experience rather than spend excessive amounts of money by paying for shows
that they do not want. Good...more detailed discussion of the SWOT component would be
useful. Detailed discussion of BCG goes here
Competitve Forces Analysis
A complete competive analysis involves the evaluation of Porters five forces. These five
forces include the threat of entry, the bargaining power of suppliers, the bargaining power of
buyers, the threat of substitutes, and the rivalry among existing competitors. In order to better
understand Netflixs positioning within the in video-on-demand industry (VOD) each of these
forces will be evaluated.
Threat of Entry
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

The threat of entry determines how easily it is for organization to enter into the VOD
industry. Entering into this market requires an extremely large amount of funds. Another issue
quality assurance. One of the concerns for customers is video quality. Advancing technology
makes this a small concern, since such technology is obtainable. Also the logistics required
within this industry prove that businesses with experience tend to be most successful. With these
factors in consideration the threat of entry is low.
Bargaining Power of Suppliers
The bargaining power of suppliers is high. There are a limited number of suppliers that
Netflix may purchase movies from. This is due to the fact that Netlfix must purchase movies
from various studios they were created at. An example of this is Netflix contract expiration with
Viacom, in which it lost popular shows from Nickelodeon and Nick Jr. such as SpongeBob
SquarePants (Chozick, 2013). Since these studios are the sole creator of the movies that Netflix
wish to purchase they are able to set prices as they see fit in order to maximize their profits. One
way that Netflix has tried to lessen the power of suppliers is by creating several television serios
on their own (Cohan, 2013).
Bargaining Power of Buyers
Buyer power refers to the ability of buyers to place pressure on producers within an
industry (Rothaermel, 2013). The bargaining power of buyers is moderate. Although no one
individual buyer can influence the industry, loyalty and reputation within this industry is
important for success. Customers that are more sensitive to price have several options to choose
from. Even more so since movie watching is not a necessity, elminiating cost is not an option and
switching prices is very minimal.
Threat of Substitutes
The threat of substitutes occurs when another product and/or service is able to replace
what Netflix offers. This could be due to comparable costs, value, and availability. Netflix faces

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

several alternatives which include store retails, online retailers, on-demand, pay-per-view,a nd
movie theaters.
Rivalry Among Existing Competitiors
There are many different firms within the industry and that there are a variety of
alternatives that consumers can watch movies from. Advancing technology has increased the
competition that Netflix faces from competitors. Cable service providers, Blockbuster, Amazon,
Hulu, Redbox and even illegal downloading from internet sites are all rivals that Netflix are up
against. Also, the reality is that there isnt much differientation between all of these competitors.
The BCG Matrix misplaced
The BCG Matrix shown in Appendix E shoe four distinctive sections: the star, the cash
cow, the question mark, and the dog. On the right side we see the star and cash cow; outlets that
bring the most profit to Neflix. Netflix's streaming service is clearly the cash cow. Available on
devices such as internet connected TVs, Blu-ray disc players, game consoles, computers,
smartphones, and tablets, these are Netflix's streaming services that are accessible to 30 million
members globally.
Competitive Profile Matrix and Analysis
The Competitive Profile Matrix developed measures Netflix against two of its
competitors, Amazon Prime and Redbox. This Competitve Profile Matrix uses 12 factors to
measure against; partnerships, product offerings, customer service, store locations, rental time,
advertising, , customer loyalty, market share, product quality, ease of use, and competitive
pricing. (see Appendix F). This analysis reveals that among the three companies Netflix leads in
areas of product offerings, market share, product quality, and global expansion. On the other
hand Amazon Prime excels in customer service, rental time, enabled devices, , and customer
loyalty. Redbox ranked highest in pricing, financial position, and ease of use. Although for the
purposes of the Competitive Profile Matrix these companies may appear to have low ranks each
of them hold a strong competitive positioning.
Competitors Ratio Analyis
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

The ratios of Amazon Prime, Redbox, and Netflix provide some insight into how these
businesses stand against one another. (see Apendix G). In terms of current and quick ratio Netflix
appears to be stronger than both Amazon Prime and Redbox, which means Netflix can pay back
debt more quickly. The Return on Equity (ROE) is highest at Redbox and lowest at Amazon. The
net profit margin ratio complete shows that Redbox brings in more profit after expenses than
Netflix and Amazon Prime. Between all the companies Amazon Prime had the highest total asset
turnover, with Redbox coming in second indicating that how well use their assets to create
revenue.
Current and Historical Financial Statements Analysis
Netflixs gross profit has progressively increased in the last three years, whereas the net
income has increased tremendously over this period by an overall percentage of 83%. (see
Appendix H). This has resulted from the record 13.0 million new members in 2014, compared to
the 11.1 million that were inquired in 2013 domestically. Also, the introduction of two additional
higher priced membership plans has played a role in increased revenues.
Another substantial increase has been in their operating income from $50K in 2012 to a
little over $400k in 2014. This is partially offset by the increase in cost of revenues due to the
increase in licensing expenses for current as well as new streaming content provided to its
customers. paragraphs need to be 3 7 sentences
The interest expense has had a significant increase, 72% in 2013, and 45% in 2014 which
results from the increased long-term debt obligations and the amortization of debt issuance costs
as seen on the Cash Flow statement (see Appendix I). In the cash flow statement, the amount of
operating expenses has increased since 2012, and is a trend that if foreseen to continue. As stated
above, the more content Netflix acquires, the more expenses they incur due to licensing costs

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

associated with the rights to stream content to their viewers. Operating expenses overall has gone
from $4K in 2012, to $-250K in 2014.
The cash flow from investing activities has recovered with an 83% increase in 2014
compared to 2013, providing Netflix with less of a loss in that area. In 2013, the net cash
provided by financing obligations saw an astonishing increase from a little over $5K in 2012, to
almost $500K in 2013. This flowed in 2014 with a slightly higher increase of 13.74%.
As seen on the balance sheet (see Appendix J) the overall total assets continue to increase
of about an average of 30% each year, whereas a significant increase has been the total
stockholders equity by 79% from 2013 to 2014. This is mainly due to the increase in paid-in
capital with a 157.76% increase from 2013 to 2014.
Current and Historical Ratio Analysis
The following section will analysis the financial rations of the past and present. (See
Appendix K). Each ratio will be evaluate and its releveancy will be explained.
Current Ratio
The current ratio in 2012 was 1.3 and has increase every year to 1.5 in 2014. The current
ratio is a measure of a companys ability to pay back its short term debts. The higher the ratio is
over 1 the more liquid the company is and shows a greater ability to pay its debts over the next
12 months. However, Netflix needs to increase its liquidity to improve it position if seeking
capital on a short-term basis.
Quick Ratio
The quick ratio is similar to the current ratio with the exception that inventory is excluded
and measures of a companys ability to pay its debts immediately. The quick ratio for Netflix was
1.3 in 2012, 1.4 in 2013, and 1.5 in 2014 respectively. This shows that Netflix has the ability to

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

convert its current assets into cash to pay off short term debt immediately if needed, but this
needs to improve.
LTD to Equity/ Debt-to-equity (D/E) ratio
Essentially, the D/E ratio is the measure of a companys current book value. In 2012,
Netflix had a D/E ratio of 1.4 which means that Netflix had 1 dollar and 40 cents of debt to every
1 dollar of equity. This was reduced in 2013 to 1 dollar of debt to every dollar of equity. This
trend continued in 2014, where Netflix only had 80 cents of debt to every 1 dollar of equity. This
signifies that Netflix is not very leveraged and has reduced the amount of debt it is incurring to
grow.
Total Asset turnover ratio
The total asset turnover measures a companys ability to generate sales using its assets.
The higher the ratio, the more efficiently a company is using its assets. Netflix had .9 total asset
turnover ratio in 2012, followed by .8 in 2013 and 2014, respectively. This ratio fluctuates
greatly between industries but it does imply that Netflix may need to adjust the way it uses it
assets to create sales.
Gross Profit Margin ratio
The gross margin ratio examines the amount of money a company gains for every dollar
that it earns. Companies with a higher gross profit margin tend to be more profitable than
companies with lower margins. However, this is highly contingent on other factors. Netflix had a
.3 gross profit margin for 2012, 2013, and 2014, respectively. This means that for every dollar in
revenue that Netflix earned, it only took in 30 cents of it. This indicates that its cost of revenue is
too high and it would be beneficial for the company to find ways to cut cost.
Net Profit Margin Ratio

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Net profit margin ratio tells what percentage a company actually earns after all expenses
are paid out. Netflix did not earn enough net income in any of the 3 years analyzed to register a
ratio .1 or above. This indicates that over the period of 2012-2014, Netflix was not very
profitable.
Return on Equity Ratio
The return on equity ratio analyzes how much profit was made from its investors money.
Netflix was able to generate about 10% in returns for its stockholders in 2013 and 2014. In 2012,
the percentage was less than 10% and did not return a ratio value.
Alternative Strategies
Netflix has the opportunity to source for the infrastructure and technology to provide
VOD services to its customers. Moreover, it is even better for the company since it can first
review its competitors VOD structure and develop better and stronger VOD services that are not
prone to limitations facing its competitors (Kriete, 2013). Netflixs online infrastructure mainly
used for online customers could also be used to provide VOD online. This would see the
decrease in problems such as damaged or lost DVDs.
With the continuous growth in technology, the world keeps changing erratically and
exponentially. Bearing that in mind, Netflix should adapt strategies that will see it remain
relevant even with the continuous changes in technology being witnessed daily. One of the
recommendations that Netflix should adapt is the second screen engagement. Second screen in
the entertainment industry basically means the emergence of tablets and smart phones. These
electronic devices are now commonly serving as extensions of consumers primary watching
mechanisms. Research indicates that more than 80% of smart phone and tablet owners report use
their devices while watching TV (Kriete, 2013) . For example one may be watching a movie

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

while at the same time gathering information about it in Wikipedia. Having shown interest in this
technology, Netflix should fully embrace it since it would go a long way in increasing their client
base. Moreover, this technology if fully adapted will greatly impact Netflix growth since their
apps among the largest in the sector.
Pro-forma Financial Statement Analysis
The proposed strategy is to move Netflix completely out the struggling DVD mail
subscription segment and focus on the streaming content segment. Evaluating this strategy
against the current strategy shows that there would be 17 percent more cash available in 2015, 24
percent more in 2016, and 26 percent more in 2017. (see Appendix L). This is accomplished by
the cash accumulated from the sales of DVD equipment and properties, and the proceeds from
sale of the DVD content library. This extra cash flow enables Netflix to become more liquid and
creates greater revenue than the current strategy.
Evaluating the proposed strategy against the current strategy of Netflix over the next 3
years (2015-2017) the income statement of both strategies are both profitable. However, the
proposed strategy would cut down the cost of revenue by 3.5 percent in the first year (2015), 6.5
percent in the second year (2016), and 9.7 percent in the last year (2017), while increasing
revenue by 1.8, 3.3, and 4.4 percent in 2015, 2016, and 2017 respectively. (see Appendix M).
This is increase and revenue and decrease in cost would yield 11 percent greater gross profit in
year one (2015), 20 percent greater in year two (2016), and 26 percent in the final year (2017).
Furthermore, there would be a reduction of 8 percent in 2015 in sales, general and admin with
the implementation of the proposed strategy. In the years 2016 and 2017, sales, general and
admin would be 15 and 22 percent lower than the current proposed strategy. These factors add up

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

to a 50 percent increase in net income in the first year (2015), 74 percent in the second year
(2016), and 86 percent increase in the last year (2017) over the current strategy.
Overall, this translates to higher shareholder equity on the balance sheet, which would be
24.6 percent higher in 2015, 44.8 percent higher in 2016, and 71 percent higher in 2017. (see
Appendix N). Although the proposed strategy would reduce total assets by 15.2 percent in 2015,
14.4 percent in 2016, and 9.2 percent in 2017, it would produce greater return on those assets
and increase the overall value of Netflix.
Pro-forma Ratios (Proposed Strategy vs. Current Strategy) Analysis
When the current strategy of Netflix is compared to the proposed strategy, the most
critical financial ratios favor the new proposed strategy. This is especially true when evaluating
the current and quick ratios over 2015-2017. (see Appendix O ).The current strategy would yield
a 1.5 current and quick ratio over that time span. Whereas, the proposed strategy would produce
a .3 increase over the current strategies 1.5, which totals a current and quick ratio of 1.8 in 2015.
This grows another.3 to 2.1 in 2016 and another .3 in 2017 to bring the current and quick ratio to
2.4 by the end of 2017. Also, the debt to equity ratio is .1 lower with the proposed strategy in
2015 and .2 lower in 2016 and 2017 than the current strategy employed. Furthermore, gross
profit margin is .1 higher for each year with the proposed strategy. Due to the rounding of
millions, it is unclear of the additional benefit provided by the proposed strategy over the current
strategy when evaluating net profit margin, return on assets, and return on equity.
Recommended Strategy Excellent
The proposed strategy of increasing revenue for Netflix is to reallocate resources from
the DVD department to the streaming business where the resources are needed. The DVD
business is slowly becoming obsolete.
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Formula: (see Appendix Q)


Where C0 = 314, 674 (Total Cash flows for 2013 from Operating, Investing and Financing
Activities (314,000,000)
Ct = Future expected cash flows to 2017 (2,000,000,000)
T = Time period of four years from 2013 to 2016 (4 Years)
R = Interest rate of 15%
NPV = 2,000,000,000 - 314,674
(1 + 0.15)4
= $ 828,832,000
After adopting the recommended strategies, Netflix net present value would total to
$828,832,000
Analysis
It is worth noting that after implementation of the strategy, income is expected to rise by
roughly 15% each year to 2016.
EPS = Total Earnings After Tax
Number of Ordinary Shares
EPS (2013) = 48,421,000
26,173,514
EPS (2014) = 55,684,150
26,173,514
EPS (2015) = 64,036,775
26,173,514
EPS (2016) = 73,642,288

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

26,173,514
EPS 2013 = 1.85
EPS 2014 = 2.13
EPS 2015 = 2.45
EPS 2016 = 2.81
The earnings per share would increase gradually from 1.85 in 2013 to 2.81 in 2016. The
specific recommended strategy for Netflix is to capitalize on its streaming business and exit the
DVD market strategically to help the customers in that department transit seamlessly from it to
the streaming department (Noren, 2013) following the suggested timetable (see Appendix P ).
This would ensure that the company retains a large proportion of its clients. The strategy is the
best for the company because it mitigate against the primary weakness of the company which is
loss of revenue from the DVD department due to sharply declining membership. The above
strategy will cost the company around three million dollars in marketing, upgrading present
infrastructure and investing in more infrastructure and technologies. The strategy is supposed to
yield the company about 15% growth in earnings for the next four years upon where the earnings
will plateau necessitating the adoption of a different strategy depending on the market situation
at that time. In other words, Netflix is worth more than it costsit makes a net contribution to
value.
Proposed New Model a bit more is needed to articulate value
As far as the Netflixs current strategy is concerned, the following two main points can be
considered as a new proposed strategy that can better assist in improving the firms ability to
reach its target market. The overall proposal has the focus in delivering a faster, on-demand, and
more convenient viewing experience. However, in this proposal, the structure in how the
technical core can structure a system to implement is the main objective.
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

1. The key is to meet the standards and exceed customer expectations, an extremely wellorganized facility distribution and provisions are necessary in order to deliver a consistent
and high-quality service to Netflix members.
2. As far as the subscription-based structure is concerned; a tooling situation is needed for
demonstrating and accumulating facility fundamentals (clear service descriptions, for
instance) as well as an operational means of handling the structural development.

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Appendicies
Appendix A very nice

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Appendix B good; just need verbiage a bit more in writeup

Appendix C

ExternalFactorEvaluationMatrix(EFE)

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Opportunities
Strongtalentpool
Digitalageoftechnology
Videoondemandcapability
Reliablelicensingagreements
LowThreattoEntry
FreeAdvertisingavailable
CustomerServicerealtimereviews
Highcustomerdesire
Competitiveprices
Requirementtopartnerwithproductioncompanies

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3


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Threats
Marketregulation
Issueswithtechnologyorbandwidth
Risingcostoftechnologyandinternetpricing
Abilitytosecurelicensingagreements

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Declineinmailordersales

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Inabilitytosecurenewandskilledtalent
Copyrightlitigation
IssueswiththeUSPS

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Issuesinpaymentprocessing

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TOTALS

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3.50

Appendix D You indicate that all element are equally important. Is this realistic?

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InternalFactorEvaluationMatrix(IFE)
Strengths
Strongbrandname
Excellentworkenvironment
Competitivepricing
Strongrelationshipswithproductioncompanies
Diverseproductselection
Expansionintoforeignmarkets
Providecustomizedcustomerexperience
Useoffreeadvertisingmedia
Abilitytooffervideoondemandthroughapps
Strongfinancialposition

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Appendix D (continued)

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8.

Weaknesses
Longtermandfixednatureofcontentcommitments
Relianceuponstudiosandproductioncompanies
RelianceuponUSPS
RelianceuponserviceproviderstoofferNetflix
Abilitytoprotectintellectualproperty
Highriskoflawsuitsforpropertyrights
Abilitytoadapttochange
Vulnerabletopiracy

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3


9.
10
.

Vulnerabletocyberattacks

0.05

0.05

Risktoshareholderopinionofdebt

0.05

0.10

TOTALS

1.00

2.65

Appendix E Need to use the one in our template link

Appendix F
Competitive Profile Matrix
Factors
Partnerships (Networks)
Product Offerings
Customer Service
Global Expansion
Rental Time
Enabled Devices
Financial Position

Weight
0.12
0.12
0.05
0.08
0.03
0.08
0.07

Netflix
4
4
2
4
3
3
3

22

Amazon Prime
3
3
4
3
4
4
2

RedBox
2
2
3
1
1
1
4

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3


Customer Loyalty
Market Share
Product Quality
Ease of use
Price Competitiveness

3
4
4
3
3

0.08
0.10
0.09
0.08
0.10

4
2
3
2
2

2
3
2
4
4

Ranking 1-4 (4= major strength, 3= minor strength, 2= major weakness, 1= minor weakness
Appendix G:
Amazon Prime

Netflix

RedBox
2013

2014

2012

2013

2014

2012

2013

2014

2012

1.1

1.1

1.1

1.3

1.4

1.5

1.0

1.1

1.1

0.8

0.7

0.8

1.3

-0.7

-0.4

1.0

1.1

1.1

0.4

0.3

0.8

0.5

0.4

0.5

0.6

1.3

10.0

10.1

10.0

10.7

1.9

1.9

1.6

0.9

0.8

0.8

1.4

1.2

1.5

0.2

0.3

0.3

0.3

0.3

0.3

0.3

0.3

0.3

0.0

0.0

0.0

0.0

0.0

0.0

0.1

0.1

0.0

ROA

0.0

0.0

0.0

0.0

0.0

0.0

0.1

0.1

0.1

ROE

0.0

0.0

0.0

0.0

0.1

0.1

0.3

0.3

1.1

Current
Ratio
Quick
Ratio
LTD to
Equity
Inventory
Turnover
Total
Asset
Turnover
Gross
Profit
Margin
Net Profit
Margin

Appendix H

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Appendix I

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Appendix J
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Appendix K
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Current and Historical Ratio Analysis


2012

2013

2014

Current Ratio

1.3

1.4

1.5

Quick Ratio

1.3

-0.7

-0.4

Long Term Debt to Equity

1.4

1.0

0.8

Inventory Turnover

0.0

0.0

0.0

Total Asset Turnover

0.9

0.8

0.8

Gross Profit Margin

0.9

0.8

0.8

Net Profit Margin

0.0

0.0

0.0

Return on Total Assets

0.0

0.0

0.0

Return on Equity

0.0

0.1

0.1

Appendix L
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Appendix M very well done


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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Appendix N

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Appendix O
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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

Pro forma Ratio Chart


Proposed Strategy

Current Strategy

2015

2016

2017

Current Ratio

1.8

2.1

2.4

1.5

1.5

1.5

Quick Ratio

1.8

2.1

2.4

1.5

1.5

1.5

Long Term Debt to


Equity

0.4

0.3

0.3

0.5

0.5

0.5

Inventory Turnover

0.0

0.0

0.0

0.0

0.0

0.0

Total Asset Turnover

0.9

0.9

0.8

.8

0.7

0.7

Gross Profit Margin

0.4

0.4

0.5

0.3

0.4

0.4

Net Profit Margin

0.1

0.1

0.1

0.1

0.1

0.1

Return on Total Assets

0.1

0.1

0.1

0.0

0.0

0.1

Return on Equity

0.2

0.2

0.2

0.2

0.2

0.2

Appendix P
31

2015

2016

2017

Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

NPV Analysis
2015

2016

2017

Outflow

$10,450

$0

$100

Inflow

$94,308

$1,03,904

$1,25,947

Cash Flow

$83,858

$1,03,904

$1,25,847

10%

$1

$1

$1

NPV

$76,227

$85,825

$94,511

PVF @

Appendix Q

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Running head: CASE ANALYSIS 1-NETFLIX GROUP 3

References
Amazon.com, Inc. (2015). About Amazon Prime. Retrieved on April 9, 2015. Retrieved from:
http://www.amazon.com/gp/help/customer/display.html?nodeId=200444160
Chozick, A. (2013, June 4). In Viacom Deal, Amazon Scoops Up Childrens Shows.
NY Times. Retrieved from: http://www.nytimes.com/2013/06/05/business/media/viacomstrikes-deal-with-amazon-to-stream-childrens-shows.html?_r=0
Cohan, P. (2013, April 23). How Netflix Reinvented Themselves. Forbes. Retrieved from:
http://www.forbes.com/sites/petercohan/2013/04/23/how-Netflix-reinvented-itself/
Kriete, L. (2013). NETFLIX Strategic Plan .NETFLIX .Retrieved from:
https://lpelin.expressions.syr.edu/trf483/files/2013/05/final_strategic_report.pdf
McCord, P. (2014). How Netflix reinvented HR. Harvard Business Review [Online]. Retrieved
from https://hbr.org/2014/01/how-Netflix-reinvented-hr
Noren, E. (2013). Analysis of the Netflix Business Model .Digital Business Models. Retrieved
from: http://www.digitalbusinessmodelguru.com/2013/01/analysis-of-Netflix-businessmodel.html
Netflix, Incorporated. 2013 and 2014 Annual Reports. Retrieved from
http://ir.Netflix.com/annuals.cfm

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