Sara Fox
Mr. Rueter
Econ
September 14, 2015
Netflix
It’s Sunday night and your homework is finished. You’ve got a few hours to kill before settling into bed and embracing the week ahead. In 2007 you might have driven to your closest Blockbuster, in 2010 maybe you checked if your Hulu subscription had any new movies. Netflix in 2015 plans to end the year with 61.4 million subscribers. Originating in 1997, Netflix is now worth a climbing $28 billion and Wall Street expects an annual profit growth of 40% (the network CBS is only expected 15%), a result of an increase of subscribers and cooperation with filmmaking companies (NFLX Netflix).
Netflix was founded almost 20 years ago when Reed Hastings began the online DVD rental service. Hastings was inspired by his $40 Blockbuster overdue fee and invested his savings into the idea. The business was at first a pay-per-rental service but eventually transitioned to a monthly subscription. Along their timeline, Netflix developed an automatic recommendation system and building distribution centers all over the US. Netflix is currently on the path to a DVD rental monopoly, in 2010 Blockbuster filed for bankruptcy after their DVD distribution plans failed.
But how does netflix make such a profit while only charging subscribers $7.99 per month? Not only does the large amount of subscribers add up nicely, but Netflix offers much more than their competition. Netflix is available to anyone--even those without cable--unlike on demand services. Also, DVD’s are delivered to your door so you don’t need to drive to get them like you would at a Redbox. In addition, Netflix offers online streaming unlike Blockbuster. Lastly, Netflix owns and offers exclusive series such as “Orange is the New Black” and “House of Cards”, which are unavailable anywhere else.
Another way Netflix makes money is by making deals with filmmaking companies. One can’t just buy 1000 copies of Paranormal Activity and sell them for a profit. Filmmakers file for patents so that their work is protected, and they’re the only ones making money. Netflix gets away with streaming and distributing the content by buying royalties directly from the patent owners. For example, Netflix might sign a contract to be able to stream The Hunger Games for 6 months for $5 million. Netflix users may have noticed the deal with Cartoon Network that Netlfix made in 2014, however the deal expired and will not be renewed because of Cartoon Network’s trade off: While their content was made available to more viewers, the networks linear TV deliveries dropped 10%, so new shows and series weren’t as popular (Netflix:). The loss of viewers, the marginal cost, was too much for Cartoon Network, and so the contract will not be renewed. In some instances, however, Netflix may never be in contact with the original filmmakers. Companies like Miramax buy out royalties so that they can earn revenue from DVD sales and sell the rights to Netflix.
Remember next time you turn on your TV on a Sunday night to thank Reed Hastings for allowing you to watch movies without going to the theater.
Works Cited
Jiang, Zhang. "Netflix Earnings Preview: Expect More Pain Ahead." Seeking Alpha. Seeking Alpha, n.d. Web. 14 Sept. 2015.
"Netflix: How Does Streaming Licensing Cost Work?" Quora, 13 Feb. 2014. Web. 14 Sept. 2015.
(NFLX, Netflix. "Netflix: Worth Nearly as Much as CBS." CNNMoney. Cable News Network, n.d. Web. 14 Sept. 2015.
"Watch TV Shows & Movies Anytime, Anywhere." Netflix. Netflix, n.d. Web. 14 Sept. 2015.
Netflix is a never ending cycle of benefit for the user and the provider. As more content becomes available more people are attracted to the service. As more people get attracted and purchase the owner is able to afford more content. Overall The opportunity cost is worth the benefit.
ReplyDeleteIf Netflix continues at this rate, will it run cable companies out of business just like blockbuster? What would the effect on our economy be if we only had netflix and the news?
ReplyDeleteI think that it is interesting that Netflix can charge 8 dollars per person per month and still make a profit from streaming and not having ads in the programs. It is a unique thing to them that is what has people spending the 8 dollars monthly on them, along with the wide variety of tv shows and movies.
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ReplyDeleteI really enjoyed the content of your blog post. Contributing to the massive use of netflix myself, it did not surprise me how much netflix makes as a company. I believe the reason netflix is so popular comes down to opportunity cost, and catering to the lazy american way.
ReplyDeleteThis post is very well written. You had numerous good points about how it is beneficial for the economy. You didn't just have positive subjects to talk about, you also brought up some negatives with the Cartoon Network deal and what not. Good job Sara:)
ReplyDeletePrior to reading your piece, I never thought about how netflix made its money or everything that goes on behind the scenes but it makes sense! Could netflix one day take over instead of tv? Would tv channels try to turn their “tv shows” into “netflix shows” so instead of airing the new series on cable they go straight to the online streaming method?
ReplyDeleteHello Sara, I loved the post! Being a netflix user It was interesting finding more about the company that I spend a large amount of time using. I’ve always wonder how exactly Netflix makes money and you answered that with your comments about royalties. You took a very creative and local spin on relating netflix with economics, thank you for the post.
ReplyDeleteI really loved the information about Netflix. I love Netflix and use it instead of cable, but never had I thought about how they made their money. It is interesting how much of a positive impact on the economy. Good job researching your topic Sara!(:
ReplyDeleteI agree that Netflix is able to offer more to its customers than other providers, and thus the profit outways the opportunity cost. Not only do you not need cable, you don't even need a TV anymore to watch your favorite shows. Netflix allows the opportunity to stream videos on phones, tablets and computers as well. Your post had very nice examples of all the possibilities of Netflix, but try to write a stronger conclusion in the future.
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ReplyDeleteI loved the content in your post, because I am a Netflix user, it really made me think about how I benefit the company and how the company could experience economic growth. If Netflix continues to charge 8 dollars per account per month and still make a profit from millions of individuals, could they raise the price even higher to make a larger profit and even knock other movie businesses out of business?
You tryna economics and chill? Its crazy that Netflix was pretty much unknown and Blockbuster was on top but after Blockbusters bankruptcy now Netflix is the monopoly of movie streaming. It's also crazy to think that Netflix pays millions of dollars for royalties then only charge 8 dollars a month and they still make a profit.
ReplyDeleteReally never thought of Netflix coming that far, I have only had Netflix for about two years but, The new information really made me think about what if Netflix made a new program and charged less money. They are changing their prices now, so why not add something new for people and pay less that was it doesn't seem like it will increase the prices. The company can make more money but decreasing.
ReplyDeleteIt was interesting to read and learn about how Netflix actually makes their money because I always wondered but never looked into it. Since I am a Netflix user I also never thought about how they determine that shows that are available to watch. There were many strong positive things about how it has impacted the economy which is over all worth it.
ReplyDeleteI never knew Netflix was discovered by a $40 overdraft fee from Blockbuster. I feel like that is kind of ironic because the fees from Blockbuster basically caused Netflix to become a legit business. It is also very interesting to actually know how Netflix makes their money. I have thought about that how they make money but never actually known. I wonder if Blockbuster didn't have fees, would Netflix be a company?
ReplyDeleteIt's crazy how much Netflix really makes. Also Blockbuster didn't fully close down there are a couple stores around, but all the video rental places are taken by family video, and mainly Netflix since you can just have the movies sent to your house. You can find TV series and movies that are only on Netflix, on the web. You just need to search the right thing and you will find "Orange is the new Black" online.
ReplyDeleteI think you did a really good job at showing just how much money Netflix makes with how little we pay. If you ask almost anyone, they all have a Netflix, so it makes sense that the money adds up and creates a huge profit. I was wondering if the creators of a show get more money if their show is watched a lot or extremely popular? I think it was good that you compared Netflix and CBS's annual projected growth because it showed just how much more Netflix is projected to make compared to other subscriptions or stations like CBS.
ReplyDeletePaying $7.99 a month doesn't seem like a lot when customers pay it every much but just realizing how many people pay to have this is crazy. It's easier to watch a favorite movie when you can pull it out on your phone or TV, instead of driving to the nearest Walmart where there's a redbox. We don't have commercials while watching the show, it's going to make people want it even more. It offers old shows that aren't on TV anymore. Would netflix put cable companies out of business? Overall, it's interesting to see how they get their money.
ReplyDeleteIt's amazing that Netflix is able to provide a market with almost unlimited choices of movies with a small cost of only eight dollars. I have a feeling that Netflix might do what Walmart did and corner the market perhaps Netflix might even lower the cost to throw Hulu plus or amazon video out of the market and then raise the prices. Netflix will never have a total monopoly though, there will always be at least one video store that gets business from those who can't afford internet connection.
ReplyDeleteIt isn't hard to believe that Netflix is such a successful business since it has such overwhelming popularity, but the numbers really show that it creates such a huge profit. It's astounding to me that it's predicted to experience a 40% annual profit growth...with how common and popular it is now, it's hard to imagine it getting much larger, yet it's expected to grow so much still. I also thought it was cool that you started with how we would be buying movies in 2007 or 2010 versus now.
ReplyDeleteI liked that you did a topic we're all familiar with and then connected to economics and got in detail. It's pretty cool Netflix doesn't have a lot of advertisements like other places and be affordable for everyone still making a profit. I also liked your word choice it was fluent instead of saying, "Trade off....blah blah blah" then connect it too your topic. Nice Job!
ReplyDeleteI did not know that Netflix had that many subscribers-a projected 61.4 million that's amazing! This is a great story of how an investment into a company can really pay off. No doubt about it Netflix is a leading company in the movie-streaming industry. I wonder if someday cable companies will all go out of business because Netflix will have everything they offer but for a cheaper price? In order for that to happen, Netflix would need to broadcast live news, all current sports events, and reality TV which would probably cost more money and take more effort than what they have now. If this happened, Netflix would probably increase their prices but maybe it would still be cheaper than paying for cable every month. It will be interesting to watch Netflix grow in the upcoming years.
ReplyDeleteI was aware that Netflix was a well grown company, but never knew it was worth a whole 28 billion! That's crazy especially considering that we (consumers) pay such a small monthly cost for an extremely expensive service. Being a Netflix user, I wonder about the TV stations, and the worries their most likely going through currently. I know Disney, E and ABC Family are constantly making new series, while also keeping older ones to maintain viewers, but I wonder if that's even enough anymore. Netflix had the good idea to make their own series and that also was another reason viewers would go more towards that route. We pay such a small cost for Netflix, when regular cable adds up to hundreds a month! It is a great service, but they are lacking in the "news" type stations and current events that the public should be aware of. The opportunity cost of buying a netflix subscription would be missing out of world news and maintaining knowledge about your surroundings.
ReplyDeleteInteresting topic, Sara. I wonder how the Netflix revenue compares to those of some bigger TV stations like ABC and such. Netflix I think was brilliant, but also could be too powerful. The demand for such a service has become greater as the years have progressed with technology and places like Blockbuster have closed, but can Netflix continue to keep up with the supply? I think that Netflix needs to add more movies. Maybe it isn't the answer to all of our TV viewing addictions after all.
ReplyDeleteVery unique topic! Isn't it amazing that large businesses (Blockbuster) can "go under" so fast due to a markets new competition! Blockbusters share price was about $23 in October of 2003, and now in September of 2015, it is now $0.01! In addition, I found the $40 overdue charge to be ridiculous just for a overdue movie! I wonder if it wasn't for the fee if Reed Hastings would still have created Netflix? As mentioned above, the demand for streaming movies to your home have skyrocketed, and Netflix has taken advantage of that ($28 billion later)! With the constant changes in demands in markets, this example of Netflix and Blockbuster shows that companies need to be able to adapt to the new markets. If not, companies in general will likely go bankrupt similar to Blockbuster. With out doubt, I'm glad that Netflix was created to provide convenience to me and its millions of customers.
ReplyDeleteYour topic grabbed my attention right away because I think it's something most of us can relate to. I didn't realize that the company began all the way back in 1997. I found the example of Cartoon Network and their decrease in viewers after their deal with Netflix interesting, so I decided to do a little more research on how Netflix has impacted regular Cable TV. According to Bankrate.com, subscriptions from cable companies have steadily decreased about 3% per quarter since 2012. This makes sense because, even though cable offers sports networks and the news that you can't necessarily get over Netflix, it's expensive (the cost to rent a movie over cable streaming is about the cost of a subscription to Netflix) and (the real downer) there are commercials.
ReplyDeleteGrowing up frustrated driving constantly back and fourth to the local blockbuster, I can understand how Netflix became such a success. I thought it was a good idea to make a connection on how we used to buy movies to how we buy movies now. Although, one thing Netflix lacks is recent movies. If they were able to show recent movies like Red-box does or even movies on demand, I think they have the opportunity to be even more successful. I think if Netflix were to add more recent movies there annual rate of 40% will increase even more. Overall I think you picked a great topic that interests a wide span of people
ReplyDeleteThis was such an amazing topic to talk about since almost every high schooler or teen uses. And it really talks about how they are able to get to stream different shows through royalties. And that they can’t fulfill everyone's wants just like the Cartoon Network problem. Once their deal expired with Cartoon Network and that this brought down delivers to 10%. Which is a huge loss for such a big company. I also like how you talked about how Blockbuster went out of business because of how Netflix took control. And you also state on how they make there money even when they have a super low monthly subscription rate of being $7.99 a month.
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ReplyDeleteI agree with Jordan. You could have talked about some things Netflix is missing, and explained how they would have profited by fixing those issues using the econ terminology you had throughout your post. However, this post was still really good! It was interesting to hear about how Netflix makes their money, other than the subscription cost, like through royalties and patents. Great topic!
ReplyDeleteIt had never occurred to me before reading your article how Netflix could be negatively impacting its competition on such a broad scale (to the point they lost a partner ie CN). I also didn't realize how old they were! I remember watching commercials for the DVD delivery service awhile ago, but now look how they've grown. It was a well written and interesting piece to read.
ReplyDeleteThis was a very interesting topic for me to read about because I didn't really know how it Netflix operated with the royalties and everything. I think you connected this topic to class very well by talking about Cartoon Network's trade-offs and marginal costs. I think that Netflix will continue to grow, and I feel like someday all TV will be streamed. I think for that to happen though Netflix would have to add a lot more shows and movies.
ReplyDeleteI think it is crazy how over just a few years, companies like Netflix and Red Box put almost all DVD rental places out of business. Surrounded by all these luxuries today, it is hard to remember back when you had to go to Blockbuster to find a movie. The market is always changing and if companies don’t react to these changes and alter their business they will be negatively impacted. This makes me think about how other aspects of life will change and if other businesses will go out of business just as Blockbuster did.
ReplyDeleteThis topic is certainly interesting since almost everyone can relate to it due to the fact that almost everyone can say they have watched Netflix. It was fascinating to learn about how far Netflix has come and how long ago it started. I thought that the overall discussion about how Netflix is mimicking a monopoly was a great addition and use of terminology. Overall I am impressed about the information provided and the depth about the company and the spectacular history Netflix has.
ReplyDeleteGood topic choice! This is a topic that most high schools can relate to because most of us have or have heard of Netflix. Isn't it amazing how large Netflix has gotten in such a short amount of time? I wonder how they started getting their name out initially to become this huge business that they are. It is crazy that this business that you never have to leave home to use, can make large companies, like Blockbuster, go out of business. The fact that Netflix has around 61.4 million subscribers and is worth a climbing $28 billion. This is such a simple idea that turned into something so big.
ReplyDeleteThe topic was not only attention grabbing, since I am a subscriber to Netflix myself, but was relatable to a large audience of high schoolers and young adults. It is a topic that is very relevant and important to us, and provides us with information greater than just what to watch on Netflix, but rather has us connect and gets us involved with the economics of Netflix. It was great that you provided examples of trade-offs and marginal costs with things that we can understand, like the shows and movies that were involved with those things. I hadn’t even thought about how much money they probably make off of their original series, so that was something interesting that I never really considered.
ReplyDeleteGreat attention grabber! Growing up, almost all of us remember taking trips to blockbuster to see what we can try to persuade our parents into renting for the night, or however long we decide to keep it. Now that almost everyone has smartphones or some sort of internet access we are able to use this site or app to provide us with cheap entertainment. This company is also truly the definition of a modern day monopoly, taking out basically all of its competitors accept for red box. It was also nice to learn some history about the company and their success.
ReplyDeleteThe topic of your essay grabbed my attention right away because I’m on Netflix a lot and it’s something I enjoy. It really explained how Netflix is able to have all of these different shows available through royalties and trade offs. I liked how you talked about Blockbuster because I used to go there all the time and get movies with my dad and younger brother when I was little. I also liked how you explained how Netflix makes a good profit when it only charges its members $7.99 a month.
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ReplyDeleteNetflix has been such a raging part of the world entertainment that this topic really pertains to almost everyone. Some things you could have talked about that were not mentioned is things netflix cannot offer that some movie and show rental places can, you know to show both sides of the topic. Good connections to class and how economics vocab really applies to the real life world. I wish Hollywood Video would come back because the experience of going and trying to find the gooniest movies was very enjoyable, and looking online just doesn’t give the same kicks and giggles, but I suppose it’ll do for now.
ReplyDeleteI found your topic to be very relatable since most students are avid Netflix users themselves. It’s shocking that online companies such as Netflix have the power to shut down stores that have been around for long periods of time like Hollywood Video / Blockbuster. The trade offs were substantial since many jobs were eliminated and need for employees physical presence was not needed. With all of these job losses people needed to find other places to work and another place to receive a steady income.
ReplyDeleteNetflix effectively meets the entertainment demand of people and offer their service at low costs and with high convenience. You did a good job at showing how Netflix takes advantage of their supply to make their service cheaper for a wide group of people. Your explanation also shows how free markets create innovation and how companies can get left behind like Blockbuster.
ReplyDeleteI found this topic to be one of the most interesting topics I've read just because it caught my attention right away. It's interesting to think that a bunch of people actually use Netflix on a day-by-day basis, so if you really think about it, they are actually getting their moneys worth. Like Jordan said, it's very annoying having to drive back and forth to the local Redbox because it's just a waste of gas. Now I can see why Netflix is such a big hit.
ReplyDeleteI still find it a bit shocking that Netflix has run Blockbuster out of business, though your article definitely explains why. Of course consumers will choose the option that benefits them the most, and Netflix definitely used that. Though it's well known Netflix is very popular, the rate at which it's value is growing is surprising. You did good job catching my attention as well.
ReplyDeleteI think that this is an awesome topic to talk about since it is something that most people in our school have. I love netflix and find it interesting that netflix was created so long ago. I didn't even hear about it until a few years ago. Since a lot of people are lazy and don't feel like going out to get their movies doesn't surprise me but now that netflix is an option I am not surprised that Blockbusters aren't popular at all anymore. I think that you did a good job at catching the readers attention and also made it interesting with all the facts and information given in your writing. Great job!
ReplyDeleteI remember going to blockbuster every weekend as kid, and I never understood why they where closed, but now that you put it like that, it totally makes sense, it's much easier to go online and watch any movie you want with out having to pay a single dollar for over dues or gas and then the fact that it is so cheap but that they still win a lot of money is kind of cool.
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