Sammy Marz
Mrs. Straub
Economics A1
3 March 2015
Netflix Domination
Netflix is perhaps the most popular form of digitized viewing today. From television shows to movies to documentaries, Netflix provides an endless supply of streaming content for the price of only $7.99 per month (netflix.com). It has truly redefined what it means to watch television, but with this site’s growing popularity comes the question of how it impacts its consumers -- and rival businesses -- on an economic level. There have certainly been negative externalities due to the increasing demand for Netflix’s services, but the overall economic gains that Netflix has produced outweigh any costs because of the amount of profit that it is able to turn while satisfying customers.
The content hidden within that red welcome screen is constantly changing. Because the site boasts new releases each week, the economic efficiency of the website is ever increasing, able to achieve the wants of its consumers using the available streaming resources and enticing more people to jump on the digital bandwagon. Eli Lehrer, in his article, “The Netflix Effect,” that “Today, about 30 million Netflix accounts exist, serving about a quarter of America,” and that Netflix has “become America’s biggest pay-TV service” (Lehrer). The fact that “a quarter of America” possesses accounts for Netflix is a staggering amount, meaning that per month Netflix has a huge amount of income (view the full article here). And this is additionally supported by the graph below, depicting Netflix’s growth on the rise:
http://www.fool.com/investing/general/2011/09/21/dont-tune-out-netflix-yet.aspx
As shown here, both gross profit and revenue have increased tremendously in the past decade, up nearly 2000% since 2003. While the stock gain has dropped slightly in recent years, the growth is still far greater than it was ten years ago, which indicates the overall economic growth that Netflix can bolster.
The popularity of Netflix truly does stem from the shows that it provides, both original and not. With over 100 shows available to stream, the site certainly has the optimal amount of resources compared to competitors like Amazon Prime and Hulu plus, both of which stream less (Ravenscraft). Perhaps the biggest draw comes from the appealing original shows that Netflix produces in addition to the other shows. The opportunity cost of creating original shows would be the production costs of creating a show worth watching. Shows like “Orange is the New Black” and “House of Cards” (the latter of which just released its new season on Netflix) have certainly reaped the benefits.
Both are critically acclaimed, having garnered multiple Emmy and Golden Globe awards and nominations. Based on the article, “Netflix profit doubles on U.S., foreign subscriber growth,” by Lisa Richwine and Lehar Mann, “Netflix has invested in original series such as "House of Cards" and the Emmy-nominated "Orange is the New Black" to square off against competition from online video playersAmazon.com Inc and Hulu. The June release of a second season of "Orange" helped lure customers” and helped profits to rise to $71 million (Richwine and Mann). Additionally, producing original shows in addition to streaming other shows also works to boost employment by creating jobs for stars like Kevin Spacey and Taylor Schilling and the rest of the production crew. Being part of a show and a company so successful and profitable ensures that more money will be in circulation, which also helps the economy as a whole.
The rise of Netflix inevitably means the fall of other rival companies, which is why many question whether the negative externalities of this site hold a substantial amount of weight. After all, what happened to the Hollywood Video that used to be in Pewaukee? There is no doubt that the competition between Netflix and companies like Hollywood Video and Blockbuster has had an effect on the profits of the latter, as depicted below:
The increase in Netflix’s usage correlates with a massive decrease in Blockbuster’s profits. While it may be argued that this depicted bankruptcy indicates an economic blow, the fact is that it is far more efficient to stream a movie rather than to get in the car and drive to the rental store. Why would people pay a few dollars for a movie that they can watch for a week when they could pay a few dollars to the same movie and a multitude of others for much longer? Additionally, the onset of Netflix -- and any streaming site for that matter -- has created more than enough jobs to make up for those lost by Blockbuster. There is also the possible issue of free-riders, where multiple people are able to share one account and not have to pay for it. Rebecca Greenfield makes light of this in the self-explanatory article, “10 Million People Watch Netflix Without Paying,” which is admittedly a lot of people who do not pay considering there are just 30 million users that do (Greenfield). I happen to be one of those 10 million by free-riding on my brother’s account, and I would be willing to bet that many others within our school are, too. However, due to the aforementioned benefits that Netflix’s company continues to reap, this is hardly a problem. The site even sanctions it in their terms of agreement, stating that two devices can be playing at any given time (Greenfield). While some problems may exist as a result of Netflix and its accessibility, no one can argue with the benefits.
Whether it is a classic movie or a new show, a bigger profit or a new job, everyone has something to gain because of Netflix. After all, who hasn’t spent a day curled up in bed binge-watching a tv show, with all of those episodes staring us right in the face? Netflix is easy, efficient, and profitable, which is all that matters in the economy.
Works Cited
Greenfield, Rebecca. "10 Million People Watch Netflix Without Paying." The Wire 22 Apr. 2013. Web. 2 Mar. 2015. <http://www.thewire.com/technology/2013/04/10-million-people-watch-netflix-without-paying/64445/>.
Lehrer, Eli. "The Netflix Effect." The Weekly Standard 3 Mar. 2014. Web. 2 Mar. 2015. <http://www.weeklystandard.com/articles/netflix-effect_782745.html>.
Ravenscraft, Eric. "TV Streaming Head-to-Head: Netflix vs Hulu vs Amazon Prime." Lifehacker. N.p., 14 Mar. 2014. Web. 02 Mar. 2015. <http://lifehacker.com/tv-streaming-head-to-head-netflix-vs-hulu-vs-amazon-pr-1536006625>.
Richwine, Lisa, and Lehar Mann. "Netflix Profit Doubles on US, Foreign Subscriber Growth." Reuters 21 July 2014. Web. 2 Mar. 2015. <http://www.reuters.com/article/2014/07/21/us-netflix-results-idUSKBN0FQ21520140721>.
Images
Fou, Augustine. "Go-Digital Blog on Digital Marketing." RSS. N.p., 22 Feb. 2011. Web. 02 Mar. 2015.
Planes, Alex. "Don't Tune Out Netflix Yet." (NFLX). N.p., 21 Sept. 2011. Web. 02 Mar. 2015. <http://www.fool.com/investing/general/2011/09/21/dont-tune-out-netflix-yet.aspx>.
<http://go-digital.net/blog/2011/02/netflix-vs-blockbuster-perfect-example-of-an-industry-replaced-by-a-more-efficient-version-of-itself/>.
"Orange Is the New Black Season Two Arrives on Netflix." TNW Network All Stories RSS. N.p., 06 June 2014. Web. 02 Mar. 2015. <http://thenextweb.com/media/2014/06/06/orange-new-black-season-two-now-available-netflix/>.
"File:Netflix Logo.svg." - Wikimedia Commons. N.p., n.d. Web. 02 Mar. 2015. <http://commons.wikimedia.org/wiki/File:Netflix_logo.svg>.
Another thing to consider when debating the effect of Netflix and other streaming entertainment on the economy is the effect on movie theaters. I almost always wait for movies to come out on demand so that I can watch them at home. I like that much better because I can lay down and pause the movie whenever I want. If these trends continue the movie theater industry may soon be in economic trouble showing that there are more negative externalities than you may expect. Then again, if people in the movie theater industry lose their jobs they may just transfer to other jobs with these streaming companies.
ReplyDeleteWhile I agree with you Danny that Netflix is stealing competition from movie theaters. I don't that it is a high enough amount to push them out of business, there will always be people like me who want to see the newest movies out with some friends. Also on demand is something through direct TV and is actually a competitor of Netflix. Netflix may provide a lot of TV shows and movies it doesn't provide new movies like theaters, red box, and on demand do. This market may one day be pushed out, but it won't happen anytime soon.
DeleteSammy, I really enjoyed reading your post. It is so relevant and you did a really nice job connecting it to an economic standpoint. I really liked how you discussed the free-rider problem with Netflix, because it is so widespread. Additionally, as Blockbuster and Hollywood Video are complementary goods to Netflix, as the demand for Netflix increases, demand for the former decreases. It will be interesting to see how as we switch from physical copies to more electronic streaming impacts movie theaters and the DVD industry.
ReplyDeleteIf we were to increase the popularity of open source movies, this problem would be nonexistent, as in an open source world, everyone gets to make everything better. As a result of using opensource ideologies, many great revolutions have occurred. An example of this is the internet. Nearly every server that runs the internet runs Linux, which is an open source operating system. As a result the internet has become more efficient, and been kept more inexpensive, as expensive software is not necessary to create a web server. If these same ideals were applied here, there would be no issues with the competition as everyone would simply improve on existing ideas.
ReplyDeleteThis was a very interesting topic and very relatable! I bet a lot of people never thought of how much this business effects the economy. I like how you brought up marginal analysis about Netflix. I feel like since the price is so small for unlimited movies, they have a very high demand. I know they added an extra $8.00 to have DVDS mailed to your house so that is some of the impact of such high demand. But is Netflix a monopoly? They are basically the only company that does what they do. This could be a big part of the reason why Hollywood video went out of business. Good job on this post.
ReplyDeleteI really liked the point that you made about whatever happened to Hollywood Video, it points out how efficient and economical these online TV streaming resources are. The graph that had Blockbuster vs Netflix proves this even further, a six billion dollar company plummeted to bankruptcy while Netflix has been on the up for the past decade or so. With competition comes innovation, and when that innovation far out does the current system of doing things, it will overtake it and become the norm. Netflix truly has figured it out, I'm not even entirely sure how they make money (and obviously it's a lot) off of their service, but the way that they do it makes it feel like you're basically stealing movies and TV shows from them, rather than Blockbuster reaching in your pocket and stealing $20 for two days of movies. It's interesting really to see where this is going to go, will it continue to rise? Or will something even better come along? Right now with the efficiency and low cost of Netflix, it doesn't look like it'll come down any time soon.
ReplyDeleteThis is a database is very widely used by many. It is interesting that you could extract the information from many different sources. Also I like how you had mentioned many different shows that are on Netflix. It is very easily seen that these shows that were never heard of had gained popularity. The graph that is showed towards the end is a really could comparison on the economics stand point. It does really show how Netfilx took over all of the stores that once sold movies that you could rent. It's also amazing that in the last few years that Netflix has gained popularity and how there money keeps on rising. This is also very convenient for many users. We used to drive to the movie rental and get the movie via car. But know you can just stay home and relax with getting up by just turning on the computer. Overall, I thought that you had did a great job with this. It will be very interesting to see how much this site can grow in the near future.
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ReplyDeleteSammy, this was a very interesting and relevant topic! I guess I never really thought of how Netflix is affecting the economy as well as standing as a huge competitor towards other forms of online video streaming like Hulu Plus and Amazon Prime. I also really liked how you included lots of economic and vocabulary especially about the free rider problem with Netflix. Do you think that they will ever be able to decrease the number of free riders on Netflix or is it just a cost that they will be willing to pay considering the number of people that already have accounts and the profit they are making from that? Also what do you think will happen to the cable industry, because paying for internet and the eight dollars for netflix is a lot cheaper than buying cable? Overall I think that you posed some very interesting questions.
Very in depth and exploratory article, I knew Netflix was quite the economic powerhouse and new paradigm in video services, but I didn't know it was as powerful as this! It's a classic example of the better product/service beating out the old competition. I would also like to see how Netflix will be the trend-setter and model for future video-streaming services, how their prices may fluctuate to accommodate all of those free riders, and how their incredibly high usage of Internet traffic may affect legislation and Internet speeds down the road. It could be possible that the ridiculous amount of traffic originating from Netflix could bring legislation down their way to limit things, or perhaps new innovators will develop very fast speeds cheaply to accommodate the high traffic. Either way, Netflix will be a very interesting company to watch in the future as an innovator and leader in the video-streaming industry.
ReplyDeleteIts very surprising to see the over all growth as Netflix as a whole. I think it great for a company to not to squeeze all the money out of the customers as they can, instead they are fine with multiple users watching off of one account. This reason and many others is why Netflix beat out Blockbuster. I would be interested to see how Netflix compares to other services that are not bankrupt like Hulu, and see how there profits compare.
ReplyDeleteThe Netflix vs. Blockbuster competition you mentioned in your article reminded me a lot of the Borders vs. Barnes & Noble competition we talked about in class near the beginning of the semester. In both situations, the rival companies started by providing essentially the same product. Then, in both competitions one company came out ahead by adapting to the growing technology of the world and spread to the internet as well. It's clear to see that by adapting to the ever changing needs of the customers, businesses will become more successful, and in Netflix's case, earning itself the top spot in on demand movies and TV. Other companies have caught on and have attempted to do the same such as Amazon and Hulu, but Amazon's limited selection and Hulu's ads even with the paid service can't compete with Netflix's large selection of uninterrupted playback that lets you binge watch an entire television series without seeing a single ad. As a customer who has used all three services, I can say that I much prefer Netlfix is my streaming site of choice because it meets my needs more. If Amazon gets more of a selection and Hulu Plus removes ads, Netflix will have to come out with something even more convenient to stay on top.
ReplyDeleteI knew netflix was quite a big company but It was interesting to see how great of an impact they actually had. Netflix mainly works towards entertaining their costumers by adding new material frequently and really doesn't care about what their costumers do which is one of the reasons I think they're so successful. Plus being able to access it from any mobile device you have basically everything there for you at your fingertips which is probably why Netflix hit blockbuster so hard.
ReplyDeleteI knew netflix was quite a big company but It was interesting to see how great of an impact they actually had. Netflix mainly works towards entertaining their costumers by adding new material frequently and really doesn't care about what their costumers do which is one of the reasons I think they're so successful. Plus being able to access it from any mobile device you have basically everything there for you at your fingertips which is probably why Netflix hit blockbuster so hard.
ReplyDeleteFrom that point forward, you can download the film of your decision following couple of minutes. By this, you require not move strained by out and viewing a motion picture in the theater. customercaretoll.com/listings/netflix-inc-customer-support-service-toll-free-phone-number
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