The Future of Netflix
By Kelly Landry
Netflix is a well known,easy way to stream media quickly and at any time of the day. In fact, 29.2 million of us are subscribed to Netflix. Three years ago, profits were up 88%, and in 2010, Netflix reported $320 million profit on $2.1 billion in revenue. It had market capitalization of $13.3 billion, and was considered “one of the most successful startup companies of all time by market capitalization, revenue, growth, and cultural impact” (Bachman). However, although its startup was significantly successful, how does its future look? Netflix reached its peak in July with $15.7 billion in market value but has declined since then to $4.06 billion. Earlier this year, the number of subscribers fell from 24.6 million to 23.8 million in just three months.
Netflix is a well known,easy way to stream media quickly and at any time of the day. In fact, 29.2 million of us are subscribed to Netflix. Three years ago, profits were up 88%, and in 2010, Netflix reported $320 million profit on $2.1 billion in revenue. It had market capitalization of $13.3 billion, and was considered “one of the most successful startup companies of all time by market capitalization, revenue, growth, and cultural impact” (Bachman). However, although its startup was significantly successful, how does its future look? Netflix reached its peak in July with $15.7 billion in market value but has declined since then to $4.06 billion. Earlier this year, the number of subscribers fell from 24.6 million to 23.8 million in just three months.
What is the cause of this decline? A raise in price, a lack of choice, and competition are all responsible for preventing its growth. Netflix is a shared consumption, meaning an unlimited amount of customers can subscribe as long as they are willing to pay. However, Netflix continues to struggle with how many viewers are actually paying. Because a single login allows an individual to stream movies on any device, logins are shared, resulting in an abundant amount of free riders. In order to prevent the sharing of accounts, Netflix is creating a policy to limit the amount of devices subscribers can stream movies from.
Along with restrictions on which devices subscribers will be able to stream from, there is also a decrease in choice when it comes to options of movies. Starz programming provides movies from Disney and Sony. However, because Netflix failed to negotiate with Starz, a large amount of movie content was removed from Netflix. This resulted in the removal of more than 1,000 movies from subscribers’ options.
As for price shifts, in Ireland earlier this month, the streaming price for Netflix was raised by one euro ($10.94) per month, giving a 24 month period to existing customers before they will be charged with the higher price. When will the price in the US increase? If subscribers have the expectation that prices will rise, they will flee to competitors, and ultimately lower the demand curve for Netflix. Therefore, it is Netflix’s competition that determines price. Its competition includes Comcast, Time Warner Cable, and satellite providers, such as DirectTV and Dish Network. Also, Hulu Plus and Amazon Prime pose a threat to Netflix. However, competition among companies always benefits customers in that it forces companies to accommodate to the wants of the consumer.
Because teenagers and even adults believe streaming TV shows and movies is worth the opportunity cost of finishing homework, working out, or even sleeping, Netflix has prospered. For college students, it is a cheap and easy way to access movies and TV shows. With a decrease in options and increase in price though, viewers will seek other ways of satisfying their movie desires. However, taking the perspective of Netflix, it’s important to consider that too low of prices could result in limited profit potential. Therefore, while Netflix flourished the past decade, the recent moves made by Netflix could hurt the company in the future.
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Work Cited:
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