Daniel, Serena, and Victor


 

 

By Dan Preston, Victor Ngo & Serena Sharma


 

-What Is Netflix?-

 

     Netflix is a company that started out small in Scotts Valley and slowly started to progress as a major name in the video rental industry. With over 20 million subscribers they offered their customers DVD and blu-ray by mail as well as the options to stream movies and TV shows directly into one's home. 


 

-History-

   Netflix was founded in Scotts Valley, California in August of 1997 by Reed Hasting and Marc Randolph. Hasting had reportedly hit upon the idea for rental by mail when he was forced to pay $40 in fines after returning an overdue videotape of the film Apollo 13. In 1998 Netflix started allowing people to rent and buy DVD’s online. They got a remarkable promotional boost in September 1998 when it made 10,000 copies of a DVD of President Bill Clinton's Grand Jury testimony in the Monica Lewinsky affair (Funding Universe, 2004).  In September of 1998 Netflix introduced the subscription plan and they introduced a new service, the Marquee Program, which allowed members who paid $15.95 per month to pre-select four DVDs, with no late fees or no due dates.  In the year 2000, Netflix signed a revenue sharing agreement with Warner Brothers Videos and Columbia Tristar which gave Netflix better prices on large quantities of DVDs. They went public in 2002 and they hit the one million subscribers mark in 2003.

     [Reed Hastings, Netflix founder and CEO]                   [Netflix Headquarters in Los Gatos, Ca]


 

 

-What Can Netflix Offer You?-

 

     A fifth of all Americans are consuming the internet by watching Netflix on demand (Kang 2011). “Netflix is the world’s largest video and television episode rental subscription service, having pioneered the model and charging customers a flat monthly rate fee for unlimited rentals without due dates, late fees, shipping fees or pay per view.” Netflix also allows one to make a list of videos they would like to see so that when one is returned the next in the line up will be shipped out with no cost for postage (Wikinvest 2010) The company has found ways to find affordable and convenient way of delivering video streaming to customers. Consumers are more willing to give a product a chance when it is physically available at ease like on the computer, game consoles, and slowly mobile devices (Fox 2006). 

 

     The cost to use Netflix is $7.99 per month for only online video streaming, $9.99 per month plan allows one video at a time and video streaming via their computer or Netflix ready devise, and the $14.99 per month can allow two videos in possession along with online video streaming, $19.99 per month allows for three videos in possession along with video streaming and an additional $2 towards the package amount for blu-ray disks (Netflix 2011). CEO Reed Hastings  said in late 2010, “In fact by every measure, we are now primarily a streaming company  that also offers DVD-by-mail” (Abell 2010).

 

            [Netflix DVD envelopes ready to be mailed out]                                     [The Netflix "Cycle"]


 

 

-Device Support-

 

     When Netflix started offering their DVD-by-mail subscription service in 1999, they were already looking toward the future and streaming media.  Netflix CEO Reed Hastings predicted in 1997, when the company was just being formed, that in the future he would never have to physically deliver a movie again. He stated that if had been his intention of only delivering movies via the postal service, he would not have named the company “Netflix”, rather “DVDs by Mail” (Roth, 2009).  In 2007, Netflix developed its own set top box with the capability to stream movies directly to your living room.  The box was “killed” by Hastings only weeks before it was to be released.  Hastings decided that it would be easier to integrate streaming services into existing products (Roth, 2009).  In May of 2008, the first set top box allowing “Netflix Instant Streaming” went on the market.  Manufactured by Roku, it was capable of streaming unlimited movies and TV shows for just $7.99 a month (Netflix, 2008).  With the popularity of the Roku box skyrocketing, Netflix quickly began to integrate their technology with game systems, HDTV’s, Blu-Ray players, and even mobile devises.  Below is a list of the devises that support Netflix instant streaming.

 

 

                                        [Some Netflix ready devises]

 

          -List of Netflix Capable Devices-

 

     Apple iPad, iPhone, iPod Touch, Apple TV

     Boxee Box set-top box

     Insignia Blu-ray Disc players and home theater systems

     LG Electronics Blu-ray Disc players, TVs (LH50 series LCD and PS80 plasma), and home theater systems

     Logitech Revue Google TV Buddy Box

     Microsoft Xbox 360

     NintendoWii and Nintendo 3DS

     Panasonic Some Blu-ray Disc players, televisions and home theater systems

     Philips Some Blu-ray Disc players and TVs

     Popbox set-top box (announced)

     Roku set-top box

     Samsung Some Blu-ray Disc players and home theater systems

     Seagate FreeAgent Theater+ HD Media Players

     Sharp Some Blu-ray Disc players

     Sony Blu-ray Disc players, TVs, Google TV devices, and PlayStation 3

     TiVo DVRs (HD, HD XL, Series3™, Premiere and Premiere XL boxes)

     Viewsonic VMP75                                                                                                                  

     Vizio Some Blu-ray Disc players and TVs                                                                                                                                                                   [Courtesy of Dealbook and the NY Times]

     Western Digital WD Live plus Media Player

            ("Netflix", 2011)


 

-Competition-

 

     Since Netflix started offering DVD’s by mail in 1999 there have been a slew of competitors trying to catch up.  Blockbuster Video, the United States largest video rental chain has by far been the main competiton for Netflix.  The main service that Blockbuster offered that Netflix did not was the ability to change your movies at an actual store, as well as online.  The two companies had about an even race until 2008, when Netflix introduced “Instant Streaming” to media devises (Dealbook, 2011).  In 2010 Blockbuster Video declared bankruptcy and in February of 2011 put out a “preliminary bid to sell itself — for $290 million, as part of a plan to more quickly exit bankruptcy” (Dealbook, 2011).  Ironically, back in 2000, Netflix offered to sell itself to Blockbuster for a mere $50 million, Blockbuster refused the offer.

 

 

                                                                                                                          [Consumer Reports takes a look at Netflix and Blockbuster]


 

-Finance & Revenue-

 

     According to Fritz, the owner of Netflix, “Hasting’s 2010 compensation doubled to $5.5 million in 2010.” The company is slowly on the rise to become a well known mogul with stock prices going up 219% to make each share worth $175.70 with new customers constantly flowing the revenue has also increased by 29% and creating a net income of 161 million ( Fritz 2011).

 

During the first quarter of 2011 researchers believe that the stock price of a Netflix share will increase by a $1.07 (Wilkerson 2011). Though the company has been making impressive earning so far during the quarter, investors don’t feel the same way. The company was shy of 4 cents that expected with $1.15 per share earning (Wilkerson 2011).

          Click here to see the current share value of Netflix stock


 

-Going International-

 

     Netflix had operated only within the United States up until 2010, when CEO Reed Hastings announced that Netflix would start offering Instant Streaming to Canadian customers in fall of 2010 (Netflix, 2010).  Reed stated that "For now, we're focused on Canada…if we succeed…in Canada, we will certainly look at other markets” (Reisinger, 2010).  In 2004, Netflix had planed to spread to Europe but the expansion was canceled so they could focus on the needs of U.S. users. The company expects to grow by word of mouth as well because after a certain amount of people start popularity of a product the it is likely to succeed. So as long as the company keeps coming up with different ways to keep their customers happy then most likely success with stick with them (Begurisse et al 2010).

 

     [Netflix expanded into Canada in 2010]


 

-Legal Issues and Controversies-

 

          Frank Chavez Vs Netflix

 

     On September 2004, Netflix was sued by Frank Chavez because Netflix was telling their customers that they have unlimited rentals with one day delivery. The lawsuit became a class-action with many unhappy customers. The lawsuit took place at the San Francisco Superior court. In October 2005 Netflix put out a press-release telling their customers that if they were a Netflix members before January 15, 2005 they would be able to renew their subscriptions with a one-month free membership but there is catch as the article by Candace Heckham stated, “However, if customers receiving the freebies do not cancel the upgrades or services before the end of the month is up, Netflix would begin charging them for the extra services (Heckham, 2006).  In the final settlement, Netflix denied allegations of any wrongdoing and it changed the wording of their “Terms of Use”. Netflix estimated the settlement cost about $4 million, which included up to $2.53 million covering plaintiff lawyer fees as stated by Wikipedia article on Netflix (Netflix, 2011).



 

-References-

 

Abell, J. (2010 October 21). Netflix Instant Accounts For 20 Percent of Peak U.S. Bandwith Use. Wired Magazine. Retrieved from http://www.wired.com/epicenter/2010/10/netflix-instant-accounts-for-20-percent-of-peak-u-s-bandwith-use/

 

*Begurisse, M., Porter, M., & Onnela, J. (2010). Competition for popularity in bipartite networks. Communication Studies 20, 4-12.

 

Dealbook, (2011, Feburary 24). Blockbuster’s fall and netflix’s rise, in pictures. New York Times. Retrieved from http://dealbook.nytimes.com/2011/02/24/blockbusters-fall-and-netflixs-rise-in-pictures/ 

 

*Fox, M. (2006). Introduction to special issue # 6: Commercial application of the internet. First Monday. Retrieved from http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/article/view/1578/1493

 

 

Gustin, S. (2011, April 25). Netflix profit up 88 percent, but shares fall 5 percent. Wired Magazine. Retrieved from http://www.wired.com/epicenter/tag/netflix/

 

*Hilderbrand, L. (2010). The art of distribution: video on demand. Communications Studies, 64, 24-28.

 

*Hua, Z., Lange, K. (2009). Rating movies and rating the raters who rate them. Communication Studies 63, 297-307.

 

Kang, C. (2011, March 6). As telecom industry evolves, success of Netflix is its biggest threat. The Washington Post.Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2011/03/05/AR2011030504225.html?sid=ST2011030600193

 

*Madden, M., Smith, A. (2010). Background information and a note about methodology. Reputation Management and Social Media, Retrieved from http://www.pewinternet.org/Reports/2010/Reputation-Management.aspx

 

*Nan Chao , C.N., Mockler, R.M., & Gartenfeld, M.G. (2010). Movies: download vs. rental. Review of Business Research , 10(1), Retrieved from http://library.calstate.edu/sanjose/articles/record/bth-52424035

 

Roth, D. (2009, September 21). Netflix everywhere: [S]sorry cable, you're history. Wired Magazine, 17(10), Retrieved from http://www.wired.com/techbiz/it/magazine/17-10/ff_netflix

 

*Sullivan , R.S. (2010). The rental epidemic of the twenty-first century: a look at how netflix and redbox are damaging the health of the hollywood film industry and how to stop it. Loyola of Los Angeles Entertainment Law Review, 20(2), Retrieved from http://web.ebscohost.com.libaccess.sjlibrary.org/ehost/detail?sid=5e59ea6b-8896-49ae-a9dc-f8e7aa918ef7%40sessionmgr114&vid=1&hid=122&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=f3h&AN=59831533

 


 

-Other Sources-

 

Fritz, B. (2011, April 20). Netflix chief executive Reed Hastings' compensation doubled to $5.5 million. The Los Angeles Times. Retrieved from http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/04/netflix-chief-executive-reed-hastings-compensation-doubled-to-55-million.html?cid=6a00d8341c630a53ef01538e040b7097

 

Funding universe. (n.d.). Retrieved from http://www.fundinguniverse.com/company-histories/Netflix-Inc-Company-History.html

 

Heckman, C.H. (2006, January 9). Seattle pi. Retrieved from http://www.seattlepi.com/default/article/FTC-objects-toNetflix-settlement-1192221.php

 

Netflix. (2008) Netflix teams with streaming media innovator roku on player that instantly streams movies from netflix directly to the tv. [Press Release] Retrieved from http://netflix.mediaroom.com/index.php?s=43&item=272

 

Netflix. (2010) Netflix to launch canadian service for streaming movies and tv episodes later this year.  [Press Release]  Retrieved from http://netflix.mediaroom.com/index.php?s=43&item=363

 

Netflix. (2011, April 27). Retrieved from http://en.wikipedia.org/wiki/Netflix

Reisinger, D. (2010). Netflix service might expand beyond canada. The Digital Home, Retrieved from http://news.cnet.com/8301-13506_3-20017485-17.html?tag=mncol;title

 

Tim, A. (2010, November 24).Netflix’s move onto the web stirs rivalries. Retrieved from http://www.nytimes.com/2010/11/25/business/25netflix.html

 

Wilkerson, D. ( 2011, April 21). Netflix expected to post strong earnings. Market Watch. Retrieved from http://www.marketwatch.com/story/netflix-expected-to-post-strong-earnings-2011-04-21?link=MW_latest_news