InitializeThe subscription business model is a business model that was pioneered by magazines and newspapers, but is now used by a myriad of businesses. Rather than selling products individually, a subscription sells periodic (monthly or yearly) use or access of a product or service (Bremner, 1999). Thus, a one-time sale of a product becomes a recurring sale and builds consumer and brand loyalty. Netflix is an example of this model.
Netflix was the first company to create an online DVD movie rental service. The service has created a new movie market niche which has secured them a competitive first-mover advantage in this new high-tech venture. The popularity of the service has sparked the interest of market competitor Blockbuster who may become a growing threat to Netflix should they enter the online movie rental market. Our group will discuss Netflix, do an analysis and answer questions that one would like to know.
Set-up A History of NetflixFounded by Reed Hastings, Netflix was incorporated on August 29, 1997 and began operations on April 14, 1998. Netflix began operations with an online version of a more traditional pay-per-rental model which included financial penalties for late returns (US$4 per rental plus US$2 in postage). It did not introduce the monthly subscription concept until late 1999 (Rosenberg, 2000). Since then it has built its reputation on its policies of having no due dates, late fees, or per-title rental fees.
After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US$6.5 million profit on revenues of US$272 million. Netflix has been one of the most successful dot-com ventures. A New York Times article from September 2002, said that Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers. The company's published subscriber counts have increased substantially since then from one million by the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006(Rosenberg, 2000). Netflix's growth has also been fueled by the fast spread of DVD players in households; as of 2004, nearly two-thirds of U.S. homes have a DVD player. Netflix also operates an affiliate program, which has helped it to build online sales for DVD rentals.
Play Key CapabilitiesNetflix was born as a result of a spontaneous reaction to the traditional movie rental model which included costly and annoying late fees. Hastings tapped into a new, emerging market venture which enabled customers to rent DVDs online for a monthly fee. By subsequently copying a very simple subscription based model, Netflix would grow into an entirely new market concept with unrivalled success. Having a first-mover advantage, Netflix has identified a niche based on customer needs and responded by utilizing the internet to focus on customer convenience and timely delivery of DVDs across the US. They have since expanded their facilities throughout the...