Assumptions

NetFlix purch cost per DVD

Paid subscription (monthly)
Free trial months
Marquee queue size
DVDs watched per month
Shipping cost (RT) per DVD
NetFlx DVD stock per subscriber
New release (2 mo) percentage

New Subscriber Model

Month
Subsription status
Revenue
Shipping (initial stock)
Shipping (Movies watched)
Total shipping
Purchase DVDs (initial stock)
Purchase DVDs (new releases)
Total DVD CAPEX
Net revenue
Fraction retained (conditional)

$
$

17.55
19.95
1
4
4.25806452
$
1.00
5.63636364
20%

$
$
$
$
$

1
Free
4.00
4.26
8.26
98.93

98.93

800000
140000
660000
4.25806452

2
Paid
19.95

3
Paid
19.95

$
$

4.26
4.26

$
$

$
$

7.47
7.47

(107.19) $

8.22
70%

4
Paid
19.95

4.26
4.26

$
$

$
$

7.47
7.47

8.22

620000/110000
5.6

avg dvdd maintained

80%

5
Paid
19.95

6
Paid
19.95

4.26
4.26

$
$

$
$

7.47
7.47

8.22

7
Paid
19.95

4.26
4.26

$
$

4.26
4.26

$
$

$
$

7.47
7.47

$
$

7.47
7.47

8.22

8.22

20%

8
Paid
19.95

9
Paid
19.95

4.26
4.26

$
$

4.26
4.26

$
$

4.26
4.26

$
$

7.47
7.47

$
$

7.47
7.47

$
$

7.47
7.47

8.22

8.22

8.22

40%

NetFlix.com
New Subscriber Value
Discount rate (annual)
Subscriber outcome
Probability (unconditional)
Month
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61

107.2
45.024

20%
Subscriber drops after
1 month
6 months
5 years
30%
42%
28%

Expected
Value

Discounted
Expected
Value

Annual
Values

$63.57
-107.18534 -107.18534
$
89.03 $
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
89.03

-107.18534
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
8.22
$
89.03

-107.19
32.46
5.75
5.75
5.75
5.75
39.70
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
2.30
24.93

($7.54)

$24.84

$24.84

$24.84

$43.40

NetFlix Value
Value of a new subscriber
Discount rate
Terminal growth
Corporate cost growth

63.57
20%
3%
3%
2000

New subscriber growth

New subscribers
New subscriber value
Terminal value
Existing subscribers
Value of existing subsribers

2001

420,000
26,698,753.30 $

50%
630,000
40,048,129.95 $

2002
50%
945,000
60,072,194.93 $

2003

2004
50%
50%
1,417,500
2,126,250
90,108,292.40 $ 135,162,438.60
$ 818,925,363.26

120,000
7,628,215.23

Total subscriber value

Present value

34,326,968.53
$518,062,501.58

40,048,129.95

60,072,194.93

90,108,292.40

$ 954,087,801.85

Product development costs

G&A costs
Total corp costs
Terminal value
Total
Present value

$
$
$

7,635,390.00
2,147,550.00
9,782,940.00

$
$
$

7,864,451.70
2,211,976.50
10,076,428.20

$
$
$

8,100,385.25
2,278,335.80
10,378,721.05

$
$
$

8,343,396.81
2,346,685.87
10,690,082.68

9,782,940.00
$57,546,705.88

10,076,428.20

10,378,721.05

10,690,082.68

$
$
$
$
$

Net present value

$460,515,795.70

8,593,698.71
2,417,086.44
11,010,785.16
66,712,404.19
77,723,189.35

NetFlix Cash Flows

New subscriber growth

50%

Subscriber vintage (year)

Expected cash flow per subscriber

2
($7.54)

New Subscribers
Year 1
Year 2
Year 3
Year 4
Year 5

2000
420,000

3
$24.84

2001
630,000
420,000

4
$24.84

2002
945,000
630,000
420,000

5
$24.84

2003
1,417,500
945,000
630,000
420,000

$43.40
2004
2,126,250
1,417,500
945,000
630,000
420,000

New subscriber expected net revenues

Year 1
Year 2
Year 3
Year 4
Year 5

($3,167,356.86)
$0.00
$0.00
$0.00
$0.00

$15,649,850.21
$10,433,233.47
$0.00
$0.00
$0.00

$23,474,775.31
$15,649,850.21
$10,433,233.47
$0.00
$0.00

$35,212,162.97
$23,474,775.31
$15,649,850.21
$10,433,233.47
$0.00

$92,275,581.20
$61,517,054.13
$41,011,369.42
$27,340,912.95
$18,227,275.30

Total

($3,167,356.86)

$26,083,083.68

$49,557,859.00

$84,770,021.97

$240,372,193.00

Existing subscribers
Expected revenue

110,000
$2,732,513.53

Total expected subscriber net revenue

($434,843.33)

Total corp costs

9,782,940.00

Pretax cash flow

($10,217,783.33)

110,000
$2,732,513.53

110,000
$2,732,513.53

110,000
$4,773,810.20

$28,815,597.21

$52,290,372.53

$89,543,832.17

$240,372,193.00

$ 10,076,428.20

$ 10,378,721.05

$ 10,690,082.68

$ 11,010,785.16

$18,739,169.01

$41,911,651.48

$78,853,749.49

$229,361,407.85

88.452
0.3
98.9 + 8.3
0.7

M1

M2
-107.2
-107.2
-107.2

6M

88.452

99.75
117.802

1Y

2Y
219.45
64.57

3Y

70.44

4Y

70.44

70.44

5Y

153.022