Case Study 4
2) What forces are driving changes in the movie rental industry and are the combined impacts of these driving forces likely to be favorable or unfavorable in term of their effects on competitive intensity and future industry profitability?
The forces driving the changes in the movie rental industry can be boiled down to the booms we have seen in technology. The cost of HDTV’s has been dropping and has now become more practical for each person to obtain. This leads to the desire to view movies and shows on the big nice screen as opposed to the smaller devices we used to. The movie rental fee as well as the late charges always gave people pause but were not unsurpassable ...view middle of the document...
Each week they are trying to make deals to expand their content and even the quality of that content to its subscribers. This is evident by the resent deals they made with both Disney and Time Warner. These types of offerings with serve as their competitive advantage for quite some time and allow for a larger increase in subscribers when people looking for that content learn it is available. This is where their aggressive marketing will come in. The bottom line is Netflix is striving to have the largest selection, best price, and simplest process as their strategy.
7) What is your appraisal of Netflix’s operating and financial performance based on the data in case Exhibits 2, 3, and 4? What positives and negatives do you see in Netflix’s performance? Use the financial ratios in the Appendix of the text as a guide in doing the calculations needed to arrive at an analysis-based answer to your assessment of Netflix’s recent financial performance.
Netflix has steadily increased its revenue and subscriptions from 2000-2007. From the initial operating at a loss in 2000 of 58.5 Million, to finally becoming profitable in 2004 Netflix has been on the rise. In 2000, their debt to equity ratio was 1.38 and by 2007 they decreased it to .955. Each and every year from 2004 on Netflix received a net income as opposed to a loss from 2000-2002. The number of subscribers also doubled each year from 2000-2007. Netflix had profit margins as follows (red is negative):
* 2000 – 1.63
* 2002 – .14
* 2004 – .043
* 2005 – .062
* 2006 – .049
* 2007 – .056
The positive performance for Netflix was that they were able to repurchase 3.8 million outstanding shares of common stock. Netflix also cut back on marketing expenses from 223.4 million in 2006 to 216.1 million in 2007 and it didn’t affect their revenue. The word was already out about them and they had formed a reputation.
11) What 2-3 top priority issues does Netflix management need to address? What 2-3 top priority issues does Blockbuster management need to address?
I would say Netflix’s top three priorities would be:
1. Larger movie selection for both the streaming and the DVD service.
2. They need to lower their advertising expenses. The word is out and I think they could be more selective in where they choose to advertise.
3. Their product lines are limited. Currently they offer only movies, TV series, and documentaries. An expansion into the game market may prove profitable if done correctly.
Blockbuster’s top three priorities should be as follows:
1. The delivery times of the mailed DVD’s need to match Netflix’s 1 day guarantee and they need to shorten their turnaround time.
2. Like Netflix the Advertising expenses are too high and I feel like they would be better spent in the online sectors to directly combat their main competitor whose main operation is there.
3. They need to lower costs of selling merchandise and find a way to lower their fees. Possibly...