NETFLIX CASE STUDY- FINANCE AND COMPANY ANALYSIS Essay

NETFLIX CASE STUDY- FINANCE AND COMPANY ANALYSIS - Essay Example Netflix was actually formed with the idea to provide Rental DVDs to customers without taking any charges from the customer for returning the DVDs late. Initially the company was taking late charges from their customers but after two years, Netflix changed their strategy and no late payment was charged for returning the DVDs late. The company also introduced the subscription services in which customers could select 4 movies rentals per month for a fee i.e. $15.95 per month. After few months, company offered unlimited plan for rental DVDs in which subscriber can have as many DVDs as they like for only a flat fee $19.95 per month. This scheme led to the success of company and its website volume grew by more than 300 percent. Company also made IPO of 5.5 million shares to raise capital of $82.5 in 2002 in order to expand its business. In the mid of 2011, Netflix changed its pricing and service structure. The company separated the two businesses i.e. DVD rental business and online video streaming with new enhanced price. Formally, company used to charge flat rate $10 per month for both the services. However the new pricing structure brought $8 for each service which collectively costs $16 for subscribers who were using both services. The situation had become worse when almost 1 million subscribers left Netflix’s services and its stock price fell down from $298 to $63 within few months (Netflix b). The CEO of the company, Reed Hastings, found that the root cause of the problem was ineffective communication with customers. He admitted that the company did not clearly mention the reasons of new policy to its subscribers (Netflix c). However, the increasing competition has been a real concern for the company and with the growing market and increasing marketing budgets and campaigns of competing firms, Netflix h as been facing threats from the competitors. In addition to this, competitors have been able to attract customers of Netflix by offering