Case Studies 1

Netflix- Case study 1

Candice Fowler

BAM 479- Strategic Management

Siena Heights University

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Case Statement

Netflix Inc. was developed in 1997, as a means to provide individuals with entertainment

via DVD (that eliminated the hassle of recurring late fees), and video on demand (utilizing the

internet). The corporation became an instant success and proved its dominance by putting

numerous bricks and mortars out of business such as Blockbuster and Family Video (Lam).

However, even with Netflixs exceptional achievements, the company faces declining profits and

indecision. Netflix must decide as to whether a reevaluation of the company must be conducted

or if other measures are more apt to stabilizing profits and begin to raise profit margins once

more.

Vision Statement

The vision for Netflix, Inc. is to provide a variety of home entertainment for each

individual within the home. This accomplishment will be provided because Netflix has a

profound strategy to pursue up to date deals that will enable individuals to obtain movies via

DVD, streaming and online services.

Mission Statement

Netflix Inc. is dedicated to providing entertainment at a large variety, quality and

guarantee to patrons, employees and partners. Putting all consumers first, we make every effort

to build trust, and gain relationships that will benefit everyone. Netflix has established a culture

that gives employees the freedom, responsibility, promotion and development that will make

them capable to communicate; innovate and impact themselves as well as consumers. Today,

Netflix negotiations, collaboration and development efforts ensure that our company has built

lifelong success and that Netflix will flourish in perpetuity.

Mission Statement Evaluation Components

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Mission Table Evaluation Matrix

Customers Yes
Product and Services Yes
Markets Yes
Technology Yes
Concern for Survival, Growth and Yes
Profitability
Philosophy No
Self Concept Yes
Concern for public image Yes
Concern for employees Yes

As we evaluate our mission statement, we noticed that out of the nine components eight

of the required components were utilized. Boasting in ones own success is not an image that

Netflix wants to express, but the company is aware of the direction in which we are going and

therefore, eight out of the nine components can be applied. Out of the nine components not

utilized is philosophy. The above table does express that the mission table would be exceptional

if included.

Customers are our first priority and therefore should be acknowledged because we are

grateful for Netflix trust and use of our products.

Products are mentioned in the mission statement to explain that we take pride in the

merchandise we distribute and will always provide the best quality.

Markets is applied to our mission statement and states that we guarantee excellent quality

to our partners.

Concern for survival, growth and profitability is implemented in the mission statement by

acknowledging that success was created by the achievements of the organization and therefore

will not be undervalued.

Technology is identified in the mission statement because majority of the products

Netflix operates with utilizes the internet to obtain.

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Netflix can include self concept in the mission statement, because of the hard work and

dedication the company and its employees proved by receiving and maintaining partnerships

despite competitors rivalry.

Concern for the public is exercised in the mission statement by guaranteeing a large

variety and quality of entertainment for the entire family.

Concern for all employees is expressed in the mission statement by establishing values

for employees that will give them freedom, responsibility, promotion and development.

Milestones

Netflix began its journey nearly nineteen years ago, and in those nineteen years has

established a wide variety of home entertainment via DVD, live stream and phone app, that no

other online service took the initiative to design or create. Netflix has always strived to provide

home entertainment to each individual within a household.

In 1997, Netflix was created by Reed Hastings and by 1999, began its DVD by

mail organization that gave individuals the option to return rentals at Netflix

discretion.

2002,Netflix made its first public offer which accumulated 400 million in new

capital currently

In 2007, Netflix began streaming Netflix services to individuals whereby they

could utilize personal computers.

Partnered with consumer electronics which enabled them to stream on the Xbox,

Blu-ray disc and PS3

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By 2010, Netflix became available to individuals via iPad, iPhone, iPod Touch

and Nintendo Wii; they also reached 43 countries worldwide during this year.

2011, a website by the name of Qwister was implemented for consumers utilizing

DVD by mail service

2012, proved to be a prominent year which grossed 23 million subscribers, and

received 31 primetime Emmy nominations.

2014, Netflix won seven Emmy Awards for TV series Orange is the New Black

and House of Cards. As of today, Netflix has obtained 50 million members

worldwide.

As of 2017, Netflix can be accessed globally.

As of today, Netflix has shown stability, strength and responsibility in an professional

manner that represents the drive for success that are implemented in Netflix mission

to develop profound strategies that will that will flourish in perpetuity. (Cahn)

External Factor Assessment

An external factor assessment is needed to explain the successful opportunities along

with the threats of Netflix throughout industry. In todays economy coming up with

innovtive ways to secure an establishment can be challenging.

Key External Factors

Opportunities Weight Rating Weighted Score

1 Most important factor is aggressively 0.07 2 0.14
pursuing up-to-date content deals
2 Low unemployment rates caused more 0.07 2 0.14
leisure time for individuals to utilize
netflix
3 The increase of internet features has 0.06 2 0.12
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increased the popularity of live streaming

videos.
4 Single user accounts that allow movie 0.07 2 0.14
streaming.
5 Growth opportunity to streaming services 0.07 3 0.21
for online gaming and live sports
6 Multiple marketing channels 0.04 3 0.12
7 Streaming available without commercial 0.10 3 0.3
interruption
Threats Weight Rating Weighted Score
8 Restrictions from new released content 0.06 1 0.06
due to locked in deals by HBO
9 Deal between Disney and Sony expires in 0.05 3 0.15
2011
10 International agreements lead to exposure 0.08 2 0.16
of political, economical and regulatory
risks
11 Intense competition in the industry 0.06 3 0.18
among major companies.
12 An increase in movie tickets and video 0.07 2 0.14
sales
13 May endure nonrenewal or renegotiation 0.10 2 0.2
of contracts
14 Immitation of Netflix services by its 0.07 2 0.14
channel providers
15 The rate of employment has affected 0.03 3 0.09
consumer spending
Total 1.00 2.29

According to the external assessment above, Netflix has opportunities in which they

can improve. Content deals was the number one factor for the organization to

continue achievements. One of the examples that can be obtained from the textbook

explains how Netflix aggressively pursues new content deals. In August 2010, the

company negotiated a 1 billion dollar, five-year agteement with Epix, a premium TV

channel provider, for access to an expansive library of titiles that pay TV cannot

offer. (David) If the company continue to be persistant and aggressive, more deals

can be conducted and partnerships can be established.

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Another opportunity that is acknowledged in the external assessment is the single user

accounts . This new subscriber experience allows individuals to stream movies to a

certain location. Multiple stream work is in the making, but until then Netflix is

negotiating a family plan that will allow numerous accounts within one household.

The goal is to have individual satisfaction without interruption from others wanting to

seek different entertainment options. (David)

Threats that all organizations face is competition.. Companies such as Mircorsoft,

Apple and Amazon have DVD and streaming similar but do not have the subscriber

support and recommendations that Netflix provides. According to the wall street

journal streaming services have declined for Netflix by 2%, due to Microsoft new

streaming services. Netflix is dedicated to its consumers, and this is expressed by the

creation of user interfaces on the website ready devices that are tailored to

subscribers individual rental and rating history

Another threat Netflix to the industry is the international agreements that may lead to

exposure of political, economical and regulatory risks.Specific risks include cultural

adaptation of content and interfaces; international financial operation; greater

political, social and economic instability, additional legal complexities of

international trade and local laws; complex tax effects; fluctuations in currencies and

exchange rate risks (David)

Overall Netflix is doing extremely well with its reports of over 10,000 DVD titles

for rental by mail and more than 20 million members in the United States and

Canada (David) However, there are other threats that are imposed on the company,

and the assessment gives valuable information that can be improved upon.
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Internal Factor Assessment

The Internal Factor Assessment gives a thorough assessment of strengths and

weaknesses acquired by the Netflix organization. As mentioned in the recent analysis,

Netflix has many competitiors and delivering outstanding services will make the

organizaion dominant over it rivals. The IFE gives a substantial amount of

information to evaluate internal factors that will determine the companys

attainments.

Key Internal Factor

Strengths Weight Rating Weighted Score

1 Ownership of patents, 0.07 2 0.14
trademarks, copyrights
and confidential
agreements
2 Expanded internationally 0.07 2 0.14
in 2010
3 Multiple accounts in one 0.05 3 0.15
home
4 Paramount Pictures 0.06 3 0.18
agreement to 5-year
license in Canada
5 High rating online for 0.04 2 0.08
customer satisfaction
6 Advertising is regional 0.07 3 0.21
and nationally, through
TV, radio and direct mail
7 Over 20 million 0.08 3 0.21
subscribers
8 Revenues equal 2.4 billion 0.06 2 0.12
Weaknesses Weight Rating Weighted Score
1 Lack of preferred content 0.06 3 0.18
and sufficient DVDs
2 Rely on channel providers 0.05 3 0.15
for content delivery
3 No vision or mission 0.06 1 0.06
statement
4 Wait period of 90 days to 0.07 2 0.14
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utilize new releases via

Pay TV
5 Canadian sales has not 0.06 2 0.12
generated a profit
6 Cloud computing services 0.08 2 0.16
is provided by number one
competitor (Amazon)
7 Annual fee is 20% higher 0.07 3 0.21
than number on
competitor
8 Netflix was not included 0.05 3 0.15
in the top ten online video
ranking
Total 1 2.40

The IFE above shows that Netflix major strength is Netflix ownership of patents,

trademarks, copy rights and confidential agreements. Having ownerships of these important

entities provided Netflix with a better advantage over its competitors. Netflix has a reputation

that would lure any company to invest and partner with the organization as a means to

accumulate it profits. For example a new licensing agreement with Paramount Pictures will

increase streaming services which gives consumers more variety of the available 350 movies

titles and recent movies from Paramount Pictures. (David)

Another strength that is illustrated in the assessment is its 20 million subscribers. This

ensures investors that services are selling and Netflix operation/production adheres and carries

out tasks appropriate for the production of the company. Netflix incorporates data from more

than 3 billion subscribers ratings that are used to provide recommendations that are tailored to

specific user preferences to create demand and maximize content utilization (David)

A weakness that surrounds Netflix is Netflix inability to include a mission/vision

statement. A vision/mission statement is needed before alternative strategies can be formulated

and implemented (David), but although it is important to implement a vision/mission statement

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befor strategies; Netflix has changed this weakness to a strength as stated in a general strategy

statement Netflix core strategy is to grow a large subscription business consisting of streaming

and DVD by mail content We believe this creats a competitive advantage as compared to a

streaming only subscription service (David).

Netflix scored 2.40 percent for overall strengths and weaknesses, which implicates the

company is strong, but requires improvements with some areas. Continued dedication to its

products, customers and strategy will guarantee higher profits for the entertainment industry.

SWOT Analysis

Netflix is one of the largest entertainment entities within the industry. The company has

opportunities with billion dollar investors such as Paramount and Starz, and developments

(single user accounts) that will increase the pleasure of obtaining movies for individual purposes.

Threats include numerous competition and imitation of services provided as well as the

development of new and existing technologies.

Strengths of Netflix include the ownership of patents, trademarks, copyrights and

confidential agreements, introducing multiple accounts per home, over 20 million subscribers

and a 5 year license agreement with Paramount Pictures. Weaknesses are also visible, giving the

perspective that in order to prevail; a company must make sacrifices that include the reliability of

competitor computing services and eliminating a vision/mission statement and replacing it with a

strategy. To obtain balance, Netflix must look for opportunities and strengths that will outweigh

the weaknesses and provide a strong and prosperous organization.

Strengths
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Since the development of Netflix there has been a goal oriented attribute that caused the

company to gain strengths obtained. Information obtained reports that the company expanded

internationally; high ratings online for customer satisfaction, 5-year agreement with Paramount

pictures, 2.4 billion in revenue and employed approximately 2180 individuals full time (David),

all of which are encouraging to new investors and potential consumers. The company also

developed innovative ways to obtain and retain existing consumers by offering a family plan that

will encourage multiple accounts in one home. In addition, the company has a 5 year agreement

with Paramount Picture in Canada (David) as an effort to gain and increase profits and is also

great business decision for potential investors.

As a means to get closer to Netflix consumers, Netflix has dedicated advertising and

technology to the needs of consumers. Advertising is done via multiple marketing channels.

Facebook, Twitter and Instagram are just a few social media sites that Netflix use to grasp an

audience of all gender, age and nationalities. Technology is forever changing and in order to

suffice all the needs of each consumer Netflix makes the experience of utilizing Netflix services

fun and easy. Integration of the companys website, order processing, fulfillment operations and

customer services (David), enables the company to deliver exceptional service that every

individual rely on.

Weaknesses

There are many weaknesses that the company is faced with in regards to competition in

the industry. One of the biggest weaknesses being the reliability of channel providers delivery

content in a reasonable time, as well as drop in stock prices due to intimidation of cable

providers, internet services and television (David).

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Netflix is also subjected to delay in new content available. This delay is due to an

agreement with pay TV that stipulates Netflix is unable to attain new releases until 90 days after

the content has been available. (David) This suggests to users that another option should be used

instead of waiting an additional three months to view interesting content. Annual fees are also

20% higher than competitors, such as Amazon that offer unlimited DVD streaming at a rate of 79

dollars while Netflix offers streaming 95 dollars annually and DVD are eliminated, this could

impose on the companys profits and subscribers as well as revenue for future years.

Netflix was not mentioned in the top ten online video ranking, which could hurt the

creditability of the companys reputation. Notability is what drives consumers to pursue products

and services and if Netflix does not receive additional recognition they may fall behind.

Opportunities

Opportunities that Netflix has obtained have to do with the hard work exercised on behalf

of the companys strategic plan. Aggressively pursuing new content deals is the number one

obligation of the company. Partnering with organizations such as Starz and Paramount Pictures

gives the company an advantage to build a reputation and trust with other investors. However,

the company does have original series, comedy specials and documentaries whereby the can

expound upon.

A company does not continue to flourish by consistently providing the same services. In

order to be different from the rest, Netflix has plans of producing single user account to

individuals with a household. This opportunity will provide users with the option of watching a

variety of content instead of being confined to the needs of others. Included in this new business

venture would be streaming without interruption. Majority of individuals want entertainment

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without the extra content of commercials. Utilizing this option will supply individuals with the

enjoyment they seek.

Threats

Many of the threats imposed upon Netflix are due to the competitiveness of the

entertainment industry. In order for the company to thrive in perpetuity, being noticed

internationally is important. International agreements can lead to unwanted exposure of

regulatory, economic and political risks. Among these risks would include cultural adaption of

content and interfaces; international financial operations, greater political, social and economic

instability (David)

Another threat that Netflix has to face is the imitation of its products and services. Netflix

is so vulnerable to other companies imitating Netflix services because they rely on many of them

to collaborate and distribute services. Although the company has patents and copyrights of its

content, another provider can easily manipulate a service to adhere to the needs of the consumer.

Meaning that if the product is slightly altered or revitalized a company can request a reissuing of

the patent. Netflix is also facing the pressure of new and existing technologies. These new and

existing technologies pose a threat because some of the content can be viewed free of charge.

YouTube, Movies 123 and Google are just a few. Competition is fierce! Amazon, Apple and

Microsoft are the key players in providing services. According to eMarketer, two thirds of

internet users, or 147.5 million people in the United States want online videos and this number is

expected to reach 193.1 million. Industry barriers to entry are low since start-ups can be

launched at a relatively low cost (David).

Porters Five Forces Model

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The five generic strategies, created by Michael Porter gives an analysis of competitive strategies

that give a broad description of different industry objectives and how they affect a companys

outcome. The strategies include cost leadership-low cost, cost leadership best value,

differentiation, focus low cost and focus best value.

Cost Leadership low cost

Cost leadership low cost is a strategy that implements products at a low price that enable

consumers to shop wise without regret. According to the profitability information obtained from

MSN Money, Netflix; as a company has maintained a 2.11 billion dollar net profit margin

whereas the industry totals 14.48 million (Money). Netflix is known in over 30 countries and in

order to maintain Netflix profits, aggressive strategies such has obtaining new content deals from

various channel providers must be implemented to ensure cost effectiveness. Netflix offers

consumers multiple accounts per home, video streaming and DVD by mail, which satisfy

individuals and also generate profit (Kriete) The industry average profit margin 5-year annual

average populates over 400 billion and is steadily climbing. Profitability within an organization

is an important factor that results in longevity. Return on assets can lead to decisions on rather a

company should take risks or proceed in a steady pace that will not affect revenue. This ratio

gives an adequate amount of information that make up profit (Investopedia).

Cost leadership best value

Cost leadership best value is aimed toward providing the best service to customers at the

lowest payment possible (David) Information provided by MSN indicates that Netflix company

asset turnover was up 0.17%, when company and industry management effectiveness was

compared. Return on equity percentage indicates the industry as a whole is up 19.88% and the

company is consuming 7.61%. This 12.27 difference illustrates that the company return on
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equity could be strengthened if investments from shareholders is monitored consistently.

Although statistics does not specify that the cost leadership best value is a main source for this

failure, one can conclude that providing products and services to consumers at a rate lower than

competitors can have a negative effect. Debt ratio compares total debt to total assets which

generates an idea of how much leverage is utilized from different organizations. Less percentage

rating means that a company is unable to depend on leverage and therefore, equity becomes the

stronger entity (Investopedia).

Differentiation

Differentiation can be linked to cash flow and is geared toward individuals who are more likely

to purchase products regardless of how much the merchandise entails. According to MSN, the

growth rate of Netflix has been inconsistent. The company sales revenue for last year was 35.90

percent whereas the industry as a whole was 0.03. Net income for the company was -3.80% and

the industry was 3.84%. Earnings per share has been up and down from 1.50 billion, December

6, 2016, eventually making it to 9.00 billion or a little bit higher and finally by mid-December

dropped to under 4.50 billion. This up and down spiral indicates that operating cash flow to its

total debt maybe a result of borrowing, short term, and current long term debt. Implementing

ratios of company and industry analysis gives an idea of how companies will pay debt with

yearly cash flow from yearly earnings. A higher percentage ration indicates the company is in

good physical condition to maintain obligated debt (Investopedia)

Focus low cost

Focus low cost strategy is directed toward groups of individuals who acquire services in large

quantities. Consumers usually obtain a variety of sevices because school, work and children

demand these entities. Netflix Inc. revenue grew 30.26% in FY 2016 as compared to FY 2015 to
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8.83 billion. Net income grew 52.22 % to 186.68 million (Money) This operating cycle may

have been generated from accounts receivables, inventory and accounts payable. Understanding

the cycle of operation will supply information on operational capital assets which in turn will

differentiate cash from operating cycle and give specific ratios on operating performance

(Investopedia)

Focus Best Value

Proving consumers with the best price lower than competitors can gain potential consumers and

eventually cause rivals to implement the same criteria. The entertainment industry can become

very competitive and cause some retailers to make drastic changes that could affect the future of

the company. Income statement for Netflix, shows rapid growth in sales revenue in 2013. The

company went from 4.50 billion to 9.00 billion, however, the profit margin percentage has been

up and down indicating sales from revenue has be fluctuating, and a main reason would be the

consumption of consumer use.

SWOT Matrix

Evaluation of the matrix attached, provides eight significant strategies. Two strategies are

performed for the categories, SO, WO, ST and WT. Each category will be summarized and

analyzed separately after the determination of the matrix.

Strengths Weaknesses

1. Legal ownership of 1. Rely on others for

products and services content delivery

2. 5-year license 2. No vision/mission

agreement statement

3. Multiple accounts per 3. No profit for Canadian

house sales
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4. Over 20 million 4. Competitor provides

subscribers cloud computing
services
5. Revenue equals 2.4
billion 5. Annual fee is 20%
higher than competitor
Opportunities SO Strategies WO Strategies

1. Aggressive pursuit of 1. Continue focus on 1. Implement

content deals content deals that will
increase revenue and
2. Billion dollar deals account users. S3, S5,
with investors O1
2. Provide services that
adhere to the needs of 2. Take advantage of
3. Single user accounts consumers and
entertainment
4. Original series, production. S1, S2, S4,
standup comedy O2
specials and
documentaries
independent delivery
while strengthening
series, specials and
documentaries. W1,
W2, O4
billion dollar deals
with investors to
eliminate cloud
computing services by
competitors. W4, O2

5. Streaming without
interruption
Threats ST Strategies WT Strategies

1. Restrictions of new 1. Develop a legal entity 1. Discontinue

released content due to independent of the business with any
competitors business to conduct company or
research; develop service, which
2. International market strategies and impedes on the
agreements lead to address tariff and progression of the
unwanted exposure taxation heeds. S1, T2, business. W1, W4,
T5
W5, T1, T2, T4
2. Continue and create
3. Numerous competitors business ventures that 2. Redo Canadian
will minimize market study to
4. Imitation of services competition. S3, T3 assess value or
by channel providers virtuous of
withdrawal from
market. W3, T2
5. New and existing
technologies
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The ability to match techniques gives individuals an opportunity to analyze and implement a

solid strategic plan for different companies, which include environmental factors. The SWOT

Matrix will be utilized to assess the strengths, opportunities, threats and weaknesses. By

analyzing the information between each factor, identification of the most favorable strategic plan

can be established. Matching strengths and opportunities, weaknesses and threats, strengths and

threats, and finally weaknesses alongside opportunities; strategies acknowledges strengths of a

company and whereby eliminate and decrease the weakness and threats.

The SWOT matrix for Netflix, elaborates on the strengths, weaknesses, opportunities and

threats of the company. Probing the information given can apply an effective, strong and unique

strategic plan that will ensure productivity and profitability.

SO Strategies

The entertainment industry is constantly evolving and expanding into new content and

ideas, new forms of technology has been created for individuals to utilize services any time of

day or night. According to The Times, members of Netflix streamed 42.5 billion hours of worth

of programming in 2015, up from 29 billion hours in 2014 (Luckerson) Netflix has also

implemented a free app that can be downloaded to a phone giving individuals the option to watch

movies during lunch, on the bus, airplane or train. Technology plays a very important role in the

success of Netflix services. If it were not for the creating of smart phones, android phones and

computer tablets; services that Netflix provides would be limited.

By the looks of the steady climb in profitability according to MSN money, profitability

has increased 10% since 2015 and as of 2016 has kept a consistent percentage average. Netflix

has a great chance of exceeding its competitors with the implementation of video streaming,

various Netflix accounts and DVD rentals for the individuals who are not so computer savvy.
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In 2010, Netflix acquired a billion dollar deal with Epix, this deal allowed the company

access to a large library of titles that delivered new content to its consumers. This would

encourage individuals to utilize the services

Netflix already has patents, trademarks and copyrights, if they are able to obtain iCloud

technology they would be a solely independent company. This would allow for the company to

sustain and maintain most of its profits. Netflix would then be able to negotiate instead of

aggressively seek opportunities. Competitors such as HBO would not be so reluctant to partner

with Netflix.

In todays society, many organizations are willing to add discounts, and price reductions

to lure individuals to continue business with them. All consumers want and appreciate discounts

as well as rewards, this is the number one marketing strategy that ensures business is retaining

and also receiving new consumers. The main idea of this concept is to attract with discounts

whereby they will continually shop with the company, searching for more deals that were better

than the rest. Netflix could use this business strategy as an advantage over its competitors,

whereby offering deals that would allow them to share Netflix usage and not miss or be

penalized for anything.

WO Strategies

There are three main weaknesses that if combined with several opportunities could

incorporate strength. Relying on channel providers to distribute content, drop in stock prices and

annual fees can become strength if the company would aggressively pursue independence,

increase stock and competitive fees, they would be ranked among the top 10. However if more

episodes of its original series, comedy specials and documentaries were created, Netflix would

have a better opportunity to increase.

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Netflix should investigate the opportunity to partner with one of its rivals such as HBO;

there could be a great collaboration, which would positively affect both companies. For example,

Dell and Microsoft have collaborated to be the largest cloud contenders. This collaboration has

given consumer, more storage and networking which have made them extremely satisfies.

Service providers are able to implement different services, acquire new consumers and increase

profits (Verge) Netflix could acquire additional profits for the organization, while helping HBO

with on the go features. On the go features would include being able to watch shows utilizing

Netflix anywhere. Movies could be accessed via car, leisure time and breaks. Netflix could

alleviate the need to record certain movies or shows via DVR player; this would help the

entertainment industry as a whole and better distribute services around the economy. This would

help both organizations become dominate in the entertainment industry.

ST Strategies

Netflix could expand and increase in the entertainment industry if they continue to be

loyal to customers, attain longer contracts agreements with partners such as paramount and keep

up with the latest technologies. Technology is forever changing and if Netflix were to go out on a

limb and implement a feature that allows consumers the option of bill paying online they would

be extraordinary. Although there are many options for bill paying, Netflix would be stepping out

of the box with this service. Continuing international agreements even though they can lead to

unwanted exposure is a business venture they must continue to pursue. Individuals of all

nationalities and ethnicities would be up to date with movies just as the individuals of the United

States.

WT Strategies
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Netflix relies on a lot of individuals to distribute its content and competitors who could

imitate Netflix services. In order to eliminate have of the weakness and threats that consume

them; the company needs to discontinue business with any company or service which impedes

on the progression of the business. Annual fees are 20% higher than its competitor, Amazon,

which means that Netflix needs to readjust Netflix fees to a lower percentage. Netflix

understands that lowering the annual fee could cause the companys profits to decrease

drastically, but other offers such as family plans, free subscriptions and DVD by mail are still in

place to generate profits.

In expanding its international footprint in the home and digital media market Netflix

began to recognize an obvious lack of profit for Netflix Canadian market. With a lack of profit at

hand Netflix would be best suited to regenerate the Canadian market study to assess what market

or generational group would be best suited as its target demographic or locale. In doing this study

the option also become available for Netflix to realize the shortcomings of the Canadian market

and to possibly withdraw from the market as a whole, eventually seeking a product relaunch in

the years ahead.

Financial Analysis

Growth Rates

The growth rate of a company is the most important factor when determining the status of

any company. Sales revenue and net income are the first components to analyze when finding the

growth rate. According to MSN, Netflix current sales revenue for the company 35.90 billion,

which means that the company is performing fairly well, while industry as a whole is currently at

0.03; which means that Netflix is generating a greater profit than its competitors. (Money)
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Net income is very important to determine whether a company is profitable and will

continue to be successful throughout the duration of its history. Net income represents the profits

after expenses and other expenditures are deducted and is a resprensation of the income

statement. The quarterly net income for the company is 54.60 billion, which is outstanding

compared to the industry net income of -17.05 billion. The negative affects of the industry

express some concern, which should advise Netflix to continue its aggressive persuit to maintain

and even increase production (Money).

Price Ratios

The price ratios has a lot to do with the stock market. Individuals who invest into public

companies by buying public shares or stocks, have valuable information when price ratios are

researched. The following price ratios helps investors decide whether an investment into any

company is secure, profitable and valuable within the stock market.

Price/Earnings ratio advises the investor of the dollar amount needed to invest into shares

from a particular company. According to Investopedia, a high P/E represents a higher earnings

growth for companies in the future compared to a low P/E. If a company has N/A for its current

P/E ratio, more than likely the company is in a negative status (Investopedia.com). Netflic

current P/E ratio is 11.40, meanwhile the industry is at 9.79. This indicates an outstanding

growth for the company and investors, which builds the confidence of more and more investing.

Furthermore, information obtained from MSN money, elaborates on the fact that investors spent

on average 3 times more (Money).

Price Sales Ratio or PSR is similar to P/E whereby instead of finding the annual

earnnings PSR find the annual sales. Netflix current Price Sales Ratio is 7.05 billion, which is
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higher than the industries 2.65 (Money). This information gives sufficient evidence about the

investors who were willing to pay more stocks for Netflix than any other entertiainment

organization.

Profitability Ratios/Profit Margins

Profitability ratios are a group of financial tools used to evaluate a companys profit

margin, assests and ROE (Return on Equity) (Investopedia.com). It is always important to be

aware of the earnings and expenses of an organization for which investments are implementated.

Profitability is a very important component as it relates to investments. Pretax profit matgin and

net profit margin will be the main ratios discussed during this analysis of profitability.

Pretax margin is represented as a percentage of total revenue calculated from the earnings

before taxes. The pretax margin gives the company an overview as to which way they are

heading (Investopedia.com). This also informs investors of the future finances for the company.

Netflix current pretax margin is 2.95 million, which is much lower than the industry 22.28

million. This suggests that the company is not as profitable as other companies throughout the

industry, when we analyze the earnings before taxes (Money).

Net profit margin is the ratio used to calculate net profits and revenues for a organization.

Also expressed as a percentage, net profit margin is the dollar amount collected to caluculate

profit (Investopedia.com). Netflix current net profit margin is 2.11%, which is remarkably lower

than the industry which stands at 14.48% (Money) This information can conclude that Netflix is

below average in profits after expenses.

.Financial Condition
Case Studies 24

A companys financial condition has a variety of ratio to which it can be computed.

Current ratio, debt/equity ratio, leverage ratio, interest ratio and book value per share. Book

value per share and debt/equity ratio will be used to analyze the financial condition of Netflix

Book value per share is formla used to determine if an investors will be safe after

investments into a particular company. This ratio identifies the dollar amount shareholders are

liable to once outstanding shares are computed annually. As of 2017 Netflix book value per share

is 6.23 and the industry is 14.78, shares outstanding is 430.41 million meaning investors that

have stock within Netflix are not generating profit because the company shares have been short

since December 2016 and payout ratio is 0.00 (Money).

Debt/Equity ratio measures the financial leverage of company by dividing the liabilities

with equity which indicates the amount of debt that a company is using secure its assets

(Investopedia.com). Theses calculation are very important to stockholders because this

calculation gives detailed insight to the value of the company. When the value of a company

increase, the stock price increases as well. Netflix current debt/equity ratio is 1.26, which is

much higher than the industrys 0.58. This informs the invesors and the public that Netflix is

doing a great job at managing liabilities and equity to secure financial assests.

Investment Returns

There are several investment return ratios that can be utilized to monitor the investments

of shareholders, and give them a detailed description of how and why an organization is or is not

performing according to Netflix standards. The following ratios will be discussed:

Return on Equity

Return on Capital
Case Studies 25

Return on Assets

Return on equity also know as return on investment, is net income returned to shareholders,

and is computed by dividing net income with average equity. This investment retun ratio helps

the company determine profit after shareholder equity. This return is similar to return on assets

whereby it generates a greater return for equity and provides a proficient use of investments. This

information can provide individuals with stastics on how companys can turn debt into profits, if

need be (Investopedia.com).

Return on assets is a return that is calculated by dividing annual income with average

total assets. This return elaborate on how efficent management is with utilizing assets to obtain

earnings. The company is at a good position if ratios are high, because this implicates that the

company is sufficient in using assets (Investopedia.com). Netflix is return on assets is 1.57%,

which much higher than the industry .46% (Investopedia.com). Netflix has improved asset

utilization and increased ratios favorably, continuing to be in a better status than the industry will

have great results.

Return on capital is the percentage of long term debt, equity and common stock, and

relies on the ability of a company to generate adequate profit, according to its resources

(Investopedia.com). Netflix return on capital in a 5 year average is 7.40%, which is much lower

than the industry which stands at a 11.56 percentage. Netflix is currently expressing a lower than

usual return on capital in the entertainment industry.

Management Efficiency

The income per employee for Netflix is displayed as 39.75k, and the industry average is

55.35k (Money) This express deep concern that Netflix is not generating the necessary profits to

pay its employess during this competitive time. This will affect the company drastically, whereby
Case Studies 26

they may not obtain the best individuals to perform a position were curtousey, customer service

and timing is pivotal. This is a disadvantage for Netflix and its employees. The company will

somehow have to compensate for the low salaries given to Netflix employess, or many of them

may find themselves working for the competitors. Low income for employess will not stimulate

them to provide excellent service to consumers and eventually lead to a low employee rate.

Ratio Netflix Industry

Current Sales Ratio 35.9 0.03

Net Income Ratio 54.6 -17.05
Current P/E Ratio 11.4 9.79
Current Price Sales Ratio 7.05 2.65
Current pre-tax margin 2.95 22.28
Net profit margin 2.11 14.48
Book value per share 6.23 14.78
Debt/Equity Ratio 1.26 0.58
Return on capital 5 year 7.4 11.56

The above graph is an illustration of the financial analysis

Five Year Summary

Total revenue for Netflix over the past 5 years has been consistant with a dollar value of

150 billion. Revenue decreased slightly in 2014, to 147 billion, but continued to climb back to

150 billion in 2015and 2016 (Money

In 2013, operating income, which is the Earnings before interest and taxes (EBIT), began

at a negative 5 billion, increased in 2014, to 6 billion and has been consistent in 2015 and 2016

(Money)

Netflix goodwill and other intangible assets such as investments and advances are in

good standard. 2013, began at 24 billion and steadily increased throughout the years. 2014, assets

rose to 26 billion, 2015, rose to 30 billion and 2016 was 32 billion. If Netflix continues to rise in

investment and advances, future endeavors will generate prosperous market value (Money).
 Case Studies 27

Information obtained from MSN money in regards to total revenue states that Netflix is in

good operating condition, but if the company pursued more aggressive deals allowing them to

secure new content, net income would improve which would lead to an increase in the profit

margin. If Netflix was able to increase revenue, the company could see be in a better position in

future years (Money).

QSPM Matrix

Strategic Alternatives
Membership Expansion Expand

Level into Asian DVD

Pricing Market content

Scale and Blue

Ray

Key Factors Weight AS TAS AS TAS AS TAS

Opportunities

1. Most important factor is aggressively 0.07 4 0.28 3 0.21 2 0.14

pursuing up-to-date content deals
2. Low employment rates caused more
0.07 4 0.28 2 0.14 3 0.21
leisure time for individuals to utilize netflix
3. The increase of internet features has 0.06 3 0.18 2 0.12 4 0.24
increased the popularity of live streaming
4. Single user account that allow movie 4 0.21
0.07 3 0.21 2 0.14
streaming
3 0.21 2 0.14 4 0.28
5. Growth opportunity to streaming services 0.07
for online gaming live sports
0.04 4 0.16
6. Multiple marketing channels 2 0.08 3 0.12

7. Streaming available without comercial

 Case Studies 28

interruption. 0.10 3 0.3 2 0.2 4 0.4

Threats
1. Restrictions from new released content 2 0.12 3 0.18 4 0.24
0.06
due to locked in deals by HBO
2. Deal between Disney and Sony expires in
2011
0.05 4 0.2 3 0.15 2 0.10
3. International agreements lead to exposure
0.08 2 0.16 3 0.24 4 0.24
of political, economic and regulalatory
risks
4. Intense competition in the industry among 3 0.18 2 0.12 4 0.24
0.06
major companies
5. An increase in movie tickets and video _______ _______ ________
sales 0.07
6. May endure nonrenewal of renegotiation 1 0.1 3 0.3 4 0.4
0.10
of contract
7. Immitation of Netflix services by its
1 0.07 2 0.14 3 0.21
channel providers 0.07
2 0.06 3 0.09 4 0.12
8. New and existing technologies
0.03
Strengths
1. Ownership of patents, trademarks,
copyrights and confidential agreements 0.07 3 0.21 2 0.14 4 0.21

2. Expanded internationally in 2010 3 0.21 4 0.28 2 0.14

0.07
3. Multiple accounts in one home 4 0.20 3 0.15 2 0.10
0.05
4. Paramount pictures agreement to 5-year 4 0.24 3 0.18 2 0.12
license in Canada 0.06
5. High rating online for customer 4 0.16 3 0.16 2 0.08
0.04
satisfaction
6. Advertising is regional and nationally,
4 0.21 3 0.21 2 0.14
through TV, radio and direct mail 0.07
4 0.32 3 0.24 2 0.16
7. Over 20 million subscribers
0.08
4 0.24 3 0.18 2 0.12
8. Revenues equal 2.4 billion
 Case Studies 29

0.06
Weaknessess
1. Lack of preferred content and sufficient 2 0.12 3 0.18
0.06
DVDs
4 0.24
2. Rely on channel providers for content
________
delivery
0.05 ________ _________ ________
3. No mission or vision statement
0.06 1 0.07 2 0.14
4. Wait period of 90 days to utilize new
_______ _______ 4 0.28
releases via Pay TV 0.07
5. Canadian sales has not generated profit _______ _______ ________
0.06
6. Cloud computing services is provided by ________
0.08
number one competitors (Amazon)
7. Annual fee is 20% higher than number on 1 0.07 2 0.14
competitor
0.07 3 0.21
8. Netflix was not included in the top ten ______ _______
online video ranking
________
0.05

Total 4.48 4.29 4.99

Strategic Alternatives

The above Qualitative Strategic Planning Matrix (QSPM) is one of many analytical techniques

used to regulate relative attractiveness. The QSPM collaborates the strengths, weaknessess,

opportunities and threats together, and evaluates the weights of the IFE and EFE, the

attractiveness scores are then assigned, which are numerical values that distinguish whether one

strategy is as affective as the other; the QSPM is completed by calculating all totals to specify

which strategy is the most effective and the implementation process begins.

Three alternative strategies are generated, which are as follows:

Case Studies 30

Membership level pricing scale

Expansion into the Asian Market

Expand DVD content and Bly Ray

Each alternative strategy that was derived has the potential to create new account, expand into

other countries and develop new technologies.

The first strategic alternative derived for completing the QSPM presents the opportunity

for Netflix to introduce a price scaling program. Price scaling introduces an option for consumers

to have multiple users in house, dual subscriptions (dvd and digital), or upgraded content for

varied or higher price points. Through offering this concept, Netflic enables consumers who may

not be willing to transition to digital services as an option to operate in between fully digital or

fully home dvd. Multiple users in hous can be scaled by the number of accounts desired for each

subscriber or can be tailored to cut down each subscriptions cost as friends and family subscribe

together. The final option would be to introduce services exclusively through a higher paying

option, films such as Netflix originals, Disney, HBO, or Showtime could be available through

this service at a higher cost to each consumer. By offering these changes and creating a price

stratification. Netflix opens its services to multiple demographics and economic classes while

maintaining and improving its available quality of services and its multiple offerings.

Attractiveness Score for this strategy is 4.48, Porters Type 3 generic strategy pertaining to

differentaion would be the best strategy to describe this strategic alternative, as it relates to

consumers perceiving its value as being a good investment.

The second strategic alternative utilized in the QPSM which also includes the elements of

Porter differentation strategy, is a concept of expansion into the Asian Markets, the focus

specifically on the Southeast Asia region. The reason for this expansion into the Asian market is
Case Studies 31

to tap into the potential of the emerging middle class of China, the technical industry of Japan

and South Korea, and the changing dynamics surrounding Malaysia, Indonesia, Vietnam and

Thailand. Each market in Southeast Asia offers a very specific and tailored taste while also

opening the digital subscription service presented by Netflix to both the Chnese and Indian film

industries increasing the available film library. The subscription potential in the Asian market is

driven by the over four billion people occupying the continent and the over two billion licing in

India and China combined. With this potential for increase Netflix can easily recoup the cost of

contract negotiations, increased dvd orders, and increased postage cost that the service regularly

pays in carrying out transitions into new markets. The Total Attractivesnes score for this strategy

is only 4.29, meaning that it is not as affective as the other two strategies derived.

The third and final strategy utilized in the QPSM is a strategy focused on technological

expansion through increasing the available dvd content and introducing a BluRay subscription

service. Introducing BluRay players are available in both Playstation 4 and Xbos One and are

now commonplace in most homes as available home theater systems offer a form of backwards

compatibility to the original dvd. If Netflix searches to expand further beyond the dvd and

BluRay market the next step would be video game subscription services. Services for video

games are often available through video rental stores and service like GameFly have begun to

appear on the market to great review and applause. While the cost of video games is much

greater than that of simple BluRay or DVD the overhead can easily be covered by the following

that video games receive.

Recommendation

The strategic alternative with the higest value in number is to expand DVD content and

BluRay. This strategy will give Netflix the opportunity to implement something different into
Case Studies 32

Netflix plethora of services already utilized. This alternative maximizes the the ability to for

families to have an all-in-one service. Movies , gaming and live streaming satifies everyone

within a houshold. This alternative has a Total Attractiveness Score of 4.99, which covers

majority of the IFE, EFE and SWOT matrices.

Applying additional services such as DVD content and BluRay servies, will enable

Netflix to obtain more investors, consumers and profitability, while reducing the need to acquire

other organizations for additional needs. Netflix will perform excellent advertising and

marketing to proceed with this new found strategy.

A company such as Netflix has to continue to enlarge Netflix territory and developing

additional services such as BluRay services will allow them to do just that. The implementation

of this new service will help the company regain loss and defeat its competitors as stated in the

Case Statement. The Development of this new strategy will guarantee Netflix growht and

creativity in the entertainment industry.

Ethical and Social Responsibility

The Ethical and Social Responsibility of Netflix first begins with provisions to

consumers, Netflix must choose to ethically source its featured content through proper

contracting and funding. Socially Netflix can offer services such as parental controls and

developmentally appropriate educational programs to families who seek to allow children to

transtion into technology while still maintaining proper boundaries. In the realm of employees

Netflix as a production company can pay its workers at the expected or above rate, not seeking to

cut costs but operating at an ethical level in line with the industry and state expectations. In

regards to social responsibility, Netflix can source its products to cut down on consumer and
Case Studies 33

company waste utilizing its videos and envelopes on numerous occasions before sourcing new

products.

Implementation Plan

Netflix has several tasks in which they face, inorder to implement such strategies

effectively. These include marketing, research and development, human resources and financing.

Each task must be completed on time and focus on the objectives expected by mangers and

directors of the organization. To be productive and advantageous, Netflix must ensure the

following tasks are completed:

Marketing

Research will be analyzed to figure out who the target market will concentrate

on.

Social media websites, discounted subscriptions, and referral programs will be

used for advertising and marketing development

Additional advertising will be utilized via email to distribute information about

promotions, special offers and new features.

Research and Development

Analyze and compose ideas and concerns that fit the needs of consumers, this

information will be gathered using demographics, income and competitors pricing

Look into current subscriptions to analyze what is being utilized the most and duplicate

new criteria that will attract the targeted market.

Targeted releases to particular demographics and cities

App Improvements, Improved User Interface

VR Apps, Virtual Reality generates an immersive experience for users

Case Studies 34

Human Resources

Implement incentives that will encuorage employees to be proactive

Employ dedicated, knowledgeable and experienced staff

Develop ethical programs that will maintain a safe and discrimination free environment

Finance

Initial stock offering, which will generate revenue

Secure licensing and new contracts

Stratification of membership payscale

Restructure warehouse shipping in order to lower costs

Clear understanding and leadership is mandatory in oder for the plan to be successful.

Netflix estimates that 1 million in revenue will be used to ensure employees are up-to-date with

trainings, licensings and memberships. Weekly meetings for staff members will be conducted on

a weekly basis to ensure employees are informed of any changes or concerns.

Netflix plans on incurring a generous amount of funding to support the implementation

of the plan. Research and development, employability, trainig and distribution will utilize most

of the revenue, in order for the organization to model an exceptional future; the right employees,

consumer satisfaction, and training has to be obtained and secured with the right materials.

Netflix does not plan to exceed 125 million, whereas a 150 million dollar budget is the goal. The

cost include updated apps, contracts with potential partners, additional licensings, and storage

fees that are associated with the plan.

Case Studies 35

The targeted market will be pursued using extensive analytical research that will provide

the organization with reliable demographics and information as it pertains to the needs of

consumers. The organization plans to seek an outside source such as social media, different

networks and flyers as a means to advertise. Virtual reality is another option that Netflix would

like to implement and research. This particular three dimenssional computer generated

environment would most likely target the individuals who utilize the gaming systems. According

to researchers, Virtual reality takes individuals away from reality of the world and submerges

them into an experience like no other (Kumar). Netflix has to continue to be ahead of

competitors, and Virtual Reality will accomplish that task.

The remaining obligations that are mentioned in the implementation plan will be directed

to the Human Resource Department. HR will develop and implement strategies that will monitor,

alert and assist trained employees, as well as keep up-to-date notices, meetings and concerns

available to everyone in each department. Additional servces that will be provided by HR would

be employee training in new technology, employee incentive programs and employee health.

These requirements are expected to utilize a substantial amount of funding, which the

organization estimates to be around 100 million annually. Depending on the tasks and

availablility of other individuals the implementation of this plan should not take no more than 36

months, from start to finish.

Financing

There are three methods of which Netflix could utilize to obtain capital; equity, debt or

debt and equity combined. Several Financial options have been considered for the EPS/EBIT

analysis, which are as follows:

 Case Studies 36

Amount needed = 1 billion

Tax Rate = 38%

Interest Rate = 5%

Stock Price = 7.20 per share

EBIT Range is between 300 billion and 800 billion

Common Stock Shares Outstanding = 770 million

EPS/EBIT Analysis

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom

EBIT 300,000,000 500,000,000 800,000,000 EBIT 300,000,000 500,000,000 800,000,000
Interest 50,000,000 50,000,000 500,000,000 Interest 50,000,000 50,000,000 50,000,000
EBT 300,000,000 450,000,000 750,000,000 EBT 250,000,000 450,000,000 750,000,000
Taxes 114,000,000 171,000,000 285,000,000 Taxes 95,000,000 171,000,000 285,000,000
EAT 186,000,000 279,000,000 465,000,000 EAT 155,000,000 279,000,000 465,000,000
# Shares 908,888,889 908,888,889 908,888,889 # Shares 770,000,000 770,000,000 770,000,000

EPS $ 204.65 $ $ EPS $ 241.52 402.56 644.12

341.08 545.72 On Average

On average 429.40

363.81

70% Stock 30% Debt 70% Debt 30% Stock

Recession Normal Boom Recession Normal Boom

EBIT 300,000,000 500,000,000 800,000,000 EBIT 300,000,000 500,000,000 800,000,000
Interest 35,000,000 35,000,000 35,000,000 Interest 15,000,000 15,000,000 15,000,000
EBT 265,000,000 465,000,000 765,000,000 EBT 285,000,000 485,000,000 785,000,000
 Case Studies 37

Taxes 100,700,000 176,700,000 290,700,000 Taxes 108,300,000 184,300,000 293,300,000

EAT 164,300,000 288,300,000 474,300,000 EAT 176,700,000 300,700,000 486,700,000
# Shares 811,666,667 811,666,667 811,666,667 # Shares 867,222,222 867,222,222 867,222,222
EPS $ 214.47 $ 357.45 $ 517.93 EPS $ 229.13 $ 381.90 $ 611.06

On Average On Average

381.28 407.37

The EPS/EBIT analysis illustrates that debt financing has the best EPS, which is 0.2013 during recession,

0.3623 at normal level and 0.6039 at boom. The order in which the best financing should be used is as

follows; 70% debt 30% stock, stock 70% - debt 30%, and last but not least common stock.

Projected Financial Statement

Netflix Pro Forma Income statement, balance sheet and cash flow

Income statement (pro forma)

Revenue
12/31/2016 12/31/2015 12/13/2014
Total Revenue 8,830,669 6,779,511 5,504,656
Cost of Revenue 6,029,091 4,591,476 3,752,760
Gross Profit 2,800,768 2,188,035 1,751,896

Operating expenses

Research Development 852,098 650,788 472,321

Selling General and Administrative 1,568,877 1,231,421 876,927
-------------
Non-Recurring -------- - ------------

Others ----------- ------------ ------------

Total Operating Expenses ---------- ----------- -----------

Operating Income or Loss 379,793 305,826 402,648
Case Studies 38

Income from Continuing Operations

Total other Income/Expenses Net 30,828 -31,255 -3,060

Earnings Before Interest and Taxes 410,621 274,601 399,588
Interest Expense 150,114 132,716 50,219
Income Before Tax 260,507 141,885 349,369
Income Tax Expense 73,829 19,244 82,570
Minority Interest ----------- ------------ -----------
Net Income From Continuing Ops 186,678 122,641 266,799

Non-recurring Events
Discontinued Operations ---------- ----------- ------------
Extraordinary Items ---------- ------------ ------------
Effect of Accounting Changes ---------- ---------- -----------
Other Items ---------- ----------- -----------

Net Income
Net Income 186,678 122,641 266,799

Preferred Stock and Other Adjustments ------------ ------------ -------------

Net Income applied to Common 186,678 122,641 266,799

As of
Balance Sheet 31-Dec-16 31-Dec-15

Assets
Current Assets
Cash and cash equivalents 1,467,576 1,809,330
Short-term investments 266,206 501,385
Current content assets, net 3,726,307 2,905,998
Other current assets 260,202 215,127
Total current assets 260,202 215,127

Non-current content assets, net 7,274,501 4,312,817

Property and equipment 250,395 173,412
Other non-current assets 341,423 284,802
Total assets 13,586,610 10,202,871

Liabilities and Stockholder's Equity

Current liabilities
Current content liabilities 3,632,711 2,789,023
Case Studies 39

Accounts payable 312,842 253,491

Accrued expenses 197,632 140,389
Deferred revenue 443,472 346,721
Total current liabilities 4,586,657 3,529,624
Non-current content liabilities 2,894,654 2,026,360
Long-term debt 3,364,311 22,371,362
Other non-current liabilities 61,188 52,099
Total liabilities 10,906,810 7,979,445

Stockholder's equity
common stock 1,599,762
Accumulated other comprehensive loss -48,565 -43,308
Retained Earnings 1,128,603 941,925
Total stockholder's equity 2,679,800 2,223,426
Total liabilities and
stockholders 13,586,610 10,202,871

Year-Ended
31-Dec-
16 31-Dec-15
Cash flows from operating activities
Net income 186,678 122,641
Adjustments to reconcile net income to net cash used in operating activities
-
Additions to streaming content assets 8,653,286 -5,771,652
Change in streaming content liabilities 1,772,650 1,162,413
Amortization of streaming content assets 4,788,498 3,405,382
Amortization of DVD content assets 78,952 79,380
Depreciation and amortization of property
equipment and intangibles 57,528 62,283
Stock-based compensation expense 173,675 124,725
Excess tax benefits from stock-bases
compensation -65,121 -80,471
Other non-cash items 40,909 31,628
Deferred taxes -46,847 -58,655
Changes in operating assets and liabilities
Other currents assets 46,970 18,693
Accounts payable 32,247 51,615
Accrued expenses 68,706 48,810
Deferred revenue 96,751 72,135
Other non-current assets and
liabilitie
s -52,294 -18,366
Case Studies 40

-
Net cash used in operating activities 1,473,984 -749,439

Cash flows from investing activities

Acquisition of DVD content assets -77,177 -77,958
Purchases of property and equipment -107,653 -91,248
Changes in other assets -941 -1,912
Purchases of short-term investments -187,193 (371, 915)
Proceeds from sale of short-term
investments 282,484 259,079
Proceeds from maturities of short-term
investments 140,245 104,762
Net cash provided by investing activities 49,765 -179,192

Cash flows from financing activities

Proceeds from issuance of debt 1,000,000 1,500,000
Issuance costs -10,700 -17,629
Proceeds from issuance of common
stock 36,979 77,980
Excess tax benefits from stock-based
compensation 65,121 80,471
Other financing activities 230 -545
Net cash provided by financing 1,091,630 1,640,277
Effects of exchange rate changes on cash
and cash
equivalents -9,165 -15,924
Net increase (decrease) in cash and cash
equivalents -341,754 695,722
Cash and cash equivalents, beginning of
period 1,809,330 1,113,608
cash and cash equivalents, end of period 1,467,576 1,809,330

Non-GAAP free cash flow

reconciliation
-
Net cash used in operating activities 1,473,984 -749,439
Acquisition of DVD content assets -77,177 -77,958
Purchases of property and equipment -107,653 -91,248
Change in other assets -941 -1,912

Non-GAAP free cash flow 1,659,755 -920,557

Case Studies 41

The projected income statement illustrates revenues over the past 3 years, and will be expected to

rise and additional 20% depending on the strategy of implementing or expanding DVD content

and BluRay. Expenses will increase as well along with taxes and operating expenses.

Conclusion
In conclusion, Netflix recommended strategy, expanded DVD content and BluRay can be

attained utilizing good efforts and team oriented agenda. Marketing and advertising as well as

acknowledgement of demographics, resources and targeted consumers will enhance the

implementation of the proposed strategic plan. Exceptional customer service, high quality

products and vigorous advertising and marketing will lead Netflix to the top ten in the

entertainment industry, and with continuous hard work, the company will continue to prosper.

Expanding into DVD content and BluRay allows Netflix the opportunity to be one step ahead of

its competitors and will definitely generate growth and profit for the organization. Employed

dedication, expanded partnerships and new and improved innovations will guarantee the success

of the implementation strategy.

Case Studies 42

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Case Studies 43

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