product designer | 5 years of experience
Netflix 1999 Business Valuation
Long term objective
Netflix has long-run objectives that they want to meet, such as growth and increase in market share in a billion dollar market. They would want to diversify their product offering: games, streaming, etc. and go public with an IPO. To reach this goal, Netflix plans to achieve its long-run objectives by building and enhancing customers’ brand loyalty in Netflix.
Netflix’s Current Business Model
In 1999, Netflix was a movie rental company that allowed its customers to rent DVDs for a monthly fee with the first month's service free. Their primary objectives were to acquire as many subscribers as possible and to retain both the free users and their existing paying subscribers as long as possible. Their performance has been good with respect to continued revenue growth and increased market share. Even though Netflix has incurred net losses in their first couple years, their outlook is positive for future growth into profits.
Even though Netflix provided their subscribers with various features to encourage them to stay with the service, that just wasn't enough. What can we do to help them survive? With some interesting financial evaluations we conducted as a team, here are some of the suggestions we came up with:
1
Snack Pack Add-on
Optional Snack Pack that consists of 1 unit Act II and Doritos each, that the user can check out for the full movie experience at home.
Netflix will Co-brand Act II and Doritos on their site and allow for adding a Snack Pack to the subscriber's cart when checking out. Similarly, Act II and Doritos will co-brand Netflix's logo on all their product packaging.
Step 1: Our strategy is to buy products from our suppliers (Act II and Doritos) at a discount rate of 25% and sell it to our customers with an additional 15% rate above the retail price.

Step 2: This lands us with a Gross Margin of 4.6 million if we were to sell at least 10 packets per customer per annum.

Step 3: We assume the additional customer satisfaction created by the Snack Pack will increase the probability of retention by 10% to 38%, and reduce the first month drop rate by 10% to 20%. This brings us to an NPV of $52.5 for a new subscriber.

Step 4: We suspect that this marketing strategy would grow the number of new subscribers by 5% that rounds up to 42k new subscribers next year.

Step 5: The product development and G&A expenses would also grow by another 0.5% given the additional website development work we would incur.
2
Netflix ‘n’ Chill (18+)
Netflix 'n' chill and sex are synonymous today. "Netflix and chill" is the new version of the "booty call" made famous in the 90s. In light of this, we believe Netflix could have embraced adult video rentals.
3
Revenue Sharing with Studios
A revenue-sharing opportunity where Netflix partners with well known movie studios as official distribution and customer acquisition partners.
4
Netflix for Education
Building a significant additional customer base of educators through the development of online resources for teachers, universities and students by repurposing content from existing partnerships such as National Geographic or the BBC.
If you're interested in the financials for 2, 3 and 4, you can view them here.
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