Netflix is a well known,easy way to stream media quickly and at any time of the day. In fact, 29.2 million of us are subscribed to Netflix. Three years ago, profits were up 88%, and in 2010, Netflix reported $320 million profit on $2.1 billion in revenue. It had market capitalization of $13.3 billion, and was considered “one of the most successful startup companies of all time by market capitalization, revenue, growth, and cultural impact” (Bachman). However, although its startup was significantly successful, how does its future look? Netflix reached its peak in July with $15.7 billion in market value but has declined since then to $4.06 billion. Earlier this year, the number of subscribers fell from 24.6 million to 23.8 million in just three months.
What is the cause of this decline? A raise in price, a lack of choice, and competition are all responsible for preventing its growth. Netflix is a shared consumption, meaning an unlimited amount of customers can subscribe as long as they are willing to pay. However, Netflix continues to struggle with how many viewers are actually paying. Because a single login allows an individual to stream movies on any device, logins are shared, resulting in an abundant amount of free riders. In order to prevent the sharing of accounts, Netflix is creating a policy to limit the amount of devices subscribers can stream movies from.
Along with restrictions on which devices subscribers will be able to stream from, there is also a decrease in choice when it comes to options of movies. Starz programming provides movies from Disney and Sony. However, because Netflix failed to negotiate with Starz, a large amount of movie content was removed from Netflix. This resulted in the removal of more than 1,000 movies from subscribers’ options.
As for price shifts, in Ireland earlier this month, the streaming price for Netflix was raised by one euro ($10.94) per month, giving a 24 month period to existing customers before they will be charged with the higher price. When will the price in the US increase? If subscribers have the expectation that prices will rise, they will flee to competitors, and ultimately lower the demand curve for Netflix. Therefore, it is Netflix’s competition that determines price. Its competition includes Comcast, Time Warner Cable, and satellite providers, such as DirectTV and Dish Network. Also, Hulu Plus and Amazon Prime pose a threat to Netflix. However, competition among companies always benefits customers in that it forces companies to accommodate to the wants of the consumer.
Because teenagers and even adults believe streaming TV shows and movies is worth the opportunity cost of finishing homework, working out, or even sleeping, Netflix has prospered. For college students, it is a cheap and easy way to access movies and TV shows. With a decrease in options and increase in price though, viewers will seek other ways of satisfying their movie desires. However, taking the perspective of Netflix, it’s important to consider that too low of prices could result in limited profit potential. Therefore, while Netflix flourished the past decade, the recent moves made by Netflix could hurt the company in the future.
Links for pictures:
www.videonuze.com
www.biztechday.com
Work Cited:
Bachman, Justin. "Netflix Customers Get Ready, Higher Prices Are Coming."Bloomberg Business
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"Netflix Controversy a Sign of the Future; Is Netflix Getting Too Greedy?."About.com Broadband.
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It's cool that you researched a topic many high schoolers can relate to. My family recently switched from cable to Netflix, since the cost of Netflix was less. The various reasons you mention for this service's decline prove that it must be a rather elastic good, otherwise consumers would be willing to pay nearly any price. You also bring up a good point with the free rider problem, and it is nice to see that the company is attempting to combat it. However, what if a person just happens to be part of a very large family or owns an excessive amount of devices that can stream Netflix?
ReplyDeleteThis is a great topic Kel. Netflix doesn't have the selection it used to, I can see how that has an effect on subscribers. Like Lian said, the free rider problem is relevant too. It seems like they are trapped, if they limit a login to one device they will lose subscribers, but if they continue to allow multiple devices to use the same login they are forgoing the subscription of many consumers who choose to share logins. This puts Netflix in an interesting situation. I didn't know that, because of conflict with Disney and Sony, many movies were removed from Netflix's library. It makes sense now, there definitely aren't many disney movies. Great topic!
ReplyDeleteThis is a very interesting topic in the sense that most kids in our school use some form of a streaming service to watch certain TV shows. There are many downfalls to making it only one device per subscriber; however think of all your friends who use your account to stream video rather than purchase Netflix's service. In hindsight, it would cause slight increase in users due to an already created addiction to Netflix in some people. Another question raises in the case of what other video provided service like Redbox and the already depleted Blockbuster prices and stock rose and fall with the latest crazes created by social media and the norms in society.
ReplyDeleteThis is very interesting because so many people rely on the use of Netflix instead of paying for larger companies like time Warner and Comcast but at the same time Hulu plus does much the same thing that Netflix does for a cheaper price but they make you watch commercials so right now the opportunity cost is higher still for the consumer. because one of the huge benefits of Netflix is to watch your favorite shows and movies but without the cost of commercials. so many people will still way Netflix's cost and benefit and still find it worth it.
ReplyDeleteIt is very interesting to see the decrease of subscribers to Netflix over the years. They had innovated the field of media, but now other companies have started to catch up and now there are many other alternatives to Netflix, like red box. It will be interesting to see what happens if the raise the price in America. I believe that they will continue to survive in the market; however, if they wish to return to their past state, then they will need to make another innovation for many Americans to justify the rising price of a subscription to Netflix. But it will also be interesting to see if rising cable prices lead to a decrease in a cable subscriptions and an increase in Netflix subscriptions
ReplyDeleteThis was a great article to do as I connect with it. I love watching netflix and it seems as if that's all I do in my free time. Being able to watch a whole series of shows at one time is great. I never knew netflix made such a profit because so many people are free riders. I am guilty myself, I share an account with some of my friends and it works out perfect. I get to watch all the shows and movies I want for free. That's a downfall netflix didn't catch right away because if they didn't allow people to share accounts they would be making a lot more than they had to begin with. 7 dollars isn't a lot for a month plan but then again their are a lot of cheap people in this world and if they don't have to pay for something they won't. Another downfall about netflix is it seems that they never are updating their shows and movies, every time I search for a show or movie it seems as if they don't have it and that makes me uninterested, so like you said in the article they need to improve their selection and that would help them a lot in the long run. Overall a very good article and something I connected with greatly!
ReplyDeleteKelly, I am really surprised. As a paying customer for netflix, I never thought of all the competitors and details about it. How are programs like the starz program able to show movies without commercials and no payment but netlix is charging $8/month and possibly increasing? Is it really worth raising the price to gain more profit if they are going to lose more customers? Supply and demand for netflix would drastically decrease. Though, some people find netflix inelastic, netflix needs to consider the people that think netflix is easily elastic.
ReplyDeleteAfter reading your blog post it brought new insight to me. I always thought that there were tons of people on Netflix and that it was growing but it's crazy to think that they're actually losing money. Although throughout the past couple years I did recognize that Netflix started having more dumb shows and more commercials for it. I could understand that they are losing profit and that the number of subscribers based on the number that they used to have. Going from profits rising a total of 88% to them dropping a total of 8.9% and at a dangerously fast pace at that. I feel as though the next couple years Netflix will lose more money and possibly just become a shadow of the past because of the amount that people have to pay and the fact that there aren't new shows on it right away.
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ReplyDeleteNetflix is very popular among our generation and it was very interesting to see the data you provided. Now there are finally companies that can challenge Netflix, like Hulu and Redbox. I believe that due to these companies and the poor choices the Netflix has made, they will unfortunately continue to decline in their market. Increasing price while taking away movies is a very poor choice and will result in a decrease in subscribers. Netflix subscribers are already declining, but hopefully this company can remain successful and popular!
ReplyDeleteThis was a great topic to research because it's so relate-able to lots of people. Netflix's movies and TV shows are definitely lacking in variety, which I think is causing people to start unsubscribing. Netflix makes so much money as it is because it's advertised so well and is accessible at any time, but with the new limits, restrictions, prices, and lack of variety I can see why the demand is decreasing. The opportunity cost of Netflix is endless, including free internet streaming, cable, purchased movies, Hulu and so many more. I'm one of those people who share an account with my friends and if they're going to start limiting the number of devices, then I'm going to have to switch to something else or pay for my own, giving them more business. To some people, the benefits of Netflix aren't worth it, but I know for me and my family/friends, it is. I learned a lot from your article and it's very well written, good job!
ReplyDeleteNetflix is most likely losing the users because like you said there isn't as good as a selection as there used to be and there isn't always the most up-to-date movies/t.v. shows on there. People aren't going to be as willing to pay the $10 a month if there isn't anything of interest to them on this app. Also, like you said there are a lot of free riders with this because you are able to have a certain amount of people logged into each account, which results in people not paying for the service. Having this service is very convenient because it saves a trip to the Redbox or a local video store because it's already at the tips of everyones fingers and its the cheapest way to watch movies. Redbox is a $1 per night when you can pay $10 per month for unlimited.
ReplyDeleteThis is a pretty cool topic. I think Netflix is such a cool idea but it is kind of annoying how they do not update there movies often. I think it's cool how so many people pay for Netflix every month instead of going to the library and getting a movie, or renting a movie from Time Warner cable or ATT U-verse. I feel like people do not use Netflix that much and they would save money by renting a movie once in a while rather than having movies all the time when you do not need them.
ReplyDeleteNetflix, like Kelly said, "has prospered", however it does have struggles with competitors. Streaming TV shows and movies has become so important to people that it almost has become inelastic to some. I can say this because my father uses Hulu and Netflix every night like a routine. If prices were to double I know my family would not drop the bill because shows like, "Dexter", "Sons of Anarchy", and "Breaking Bad" is just to important for my dad and I. The post above went on to say that, "Netflix continues to struggle with how many viewers are actually paying." Of course, being a result of "free riders". I will admit, I am guilty, for letting my friends borrow my Netflix account. However, now I understand that if I continue to do so, the price will rise. Overall, Netflix has become a daily routine for most of us and we all know that if price rises, this will then affect the elasticity of demand, consumer expectations, and the substitution effect may take place.
ReplyDeleteI think your topic was really interesting and I know a ton of people can relate to watching Netflix since 23 million people use it! I think it's so insane how the peak of Netflix was 15.7 billion last year and dropped so much in the past year to 4 billion. That's so crazy to think that it's because so many of us are free riders with Netflix. I know myself that I share my Netflix account with my sister, my mom, and my boyfriend's family. I have to say though that the selection of Netflix has really decreased in the past year and I wish there were more new movies and tv shows myself. Overall awesome topic and great visuals!
ReplyDeleteThis is a really interesting topic, and I think the biggest reason why Netflix is losing to competitors like Amazon or Redbox is because Netflix doesn't have as much choice when it comes to movies. Netflix has a lot of tv shows that you can stream, but the movies you can stream are pretty bad; it takes a long time to find a movie that doesn't look terrible. With many other substitutions that offer better selections, it is not surprising that they are losing customers.
ReplyDeleteI believe that the disappearances of several shows on Netflix are probably the reason for the decline in viewers. I think the free rider issue hit its apex already and because of this the lower amount of subscribers must be coming from a different source. I personally have come to question whether the price is still worth it. South Park for example was one of the main reasons I would sign on every day, and without that my use of the program has declined severely. People may just be seeing the marginal benefit of the Netflix as not exceeding the cost anymore.
ReplyDeleteNetflix is a great thing to use, you can see movies you haven't seen and watch old t.v shows that you miss. I believe that the people are not buy Netflix is because they have found out that they can share it with other people. So they stop buying it there self's and just use other people and they become free rides. Part of the reason could be that everyone is buying it and then they just say that they don't need it anymore.
ReplyDeleteI really like how you chose Netflix as your topic, it's very relatable and definitely kept my attention! Although I'm a huge Netflix fan myself I can't really say I'm too surprised at the decrease in customers. Although I don't believe that this is the end for Netflix, I do think that the company is going to need to make some large changes to get the customers and profit back that they lost. I'm wondering if this decline in Netflix users will result in a spike of Redbox and Movies on Demand purchases. I definitely wouldn't be surprised to a change in the demand curve of Redbox.
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ReplyDeleteNetflix is an amazing idea but the selection of movies and tv shows are really lacking. This is the number one reason why other systems like Redbox and Amazon are doing better. Subscribers are not willing to pay such a high cost for terrible variety. The free ride option makes it so easy for everyone to have Netflix which hurts Netflix even more. Giving out passwords for other people to use your account will only rise the cost of a membership in the end. Then, increasing price while taking away movies is a very poor choice and will result in a decrease in subscribers. Lots of other companies are providing the same show for less money which is making Netflix lose money. If they don’t want to lose members they are going to have to update their movies and shows. Overall, this was such an easy subject to connect with, thanks Kel!
I believe that the decline in Netflix users has a lot to do with the fact that it is a shared consumption. Anyone can get it but that also means that you can share it with many different people. If other people have your log-in than they are able to share it with you without them having to pay. So I think that people lately have been just sharing with other people. Also that it the price is continuing to increase, more people would just rather go to redbox for a movie for only $1. The people that created Netflix should make it so that each user needs their own log-in if they want to increase their number of users or else people will just keep sharing. I do not think that raising the price would help their cost, it would only lower their customer amount. Yes, the benefits are clearly for the customers but some might think that they don't outweigh the cost because it's getting so expensive. And that they keep taking random shoes and movies off of Netflix. If they want to keep their company going they should really look at lower the prices. They would have more customers and less people sharing the benefits.
ReplyDeleteThis is rather ironic, to be completely honest, I had just read a blog post noting Netflix's hegemonic status in the movie market! However, this news does not surprise me in the slightest. A lacking variation in movies/televisions shows with an increasing cost? That sounds like a negative externality to me, only because the providers are making a profit while the viewers are stuck with a very limited amount of shows and flicks to enjoy. If they truly want to increase membership, I think allowing us more movies and shows sooner than their competitors will allow them to reassert their dominance.
ReplyDeleteThis was a cool article. As a user of Netflix the decrease in customers is no surprise to me. Their lack of new products and increasing prices is causing them to rapidly lose their popularity. More and more people are switching to competitor sites and streaming shows and movies through there. If Netflix wants to keep their business alive I would highly recommend adding things sooner, especially if they want to increase prices. Although many people will continue to use Netflix, myself included, these customers won't pay the high prices forever.
ReplyDeleteI can totally see why there is a lot of people out their sharing accounts with others to save money, but honestly if I was paying 10 dollars a month I wouldn't share with anyone because i feel that when just my sister in the other room is watching Netflix it takes longer for me to load the shows that i want to watch. I would hate to see them limit the amount of devices you can watch it from considering how nice it is that you can watch it from your phone, TV, laptop from anywhere you want and I like that even though I don't take advantage of it.
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