{"id":5031,"date":"2012-08-08T09:44:16","date_gmt":"2012-08-07T23:44:16","guid":{"rendered":"http:\/\/blogs.unsw.edu.au\/knowledgetoday\/?p=5031"},"modified":"2012-08-08T09:44:16","modified_gmt":"2012-08-07T23:44:16","slug":"netflix","status":"publish","type":"post","link":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/blog\/2012\/08\/netflix\/","title":{"rendered":"What Can We Learn from Netflix?"},"content":{"rendered":"

From the Knowledge@Wharton today\u00a0blog<\/a>.<\/strong><\/p>\n

There was a time when Netflix could seemingly do no wrong: Movie lovers would wait anxiously for their next iconic red envelope containing yet another DVD to enjoy. But times have certainly changed. Today, the reviews of Netflix\u2019s services \u2014 both its DVD-by-mail and online streaming video \u2014 are mixed at best. The company became the subject of consumer ire after separating both services last year and raising subscription prices<\/a> \u2014 and it has yet to recover from that. \u201cNetflix lost a lot of momentum when it went to two-tiered pricing,\u00a0and it did little to regain that momentum,\u201d notes Wharton marketing professor Eric Bradlow<\/a>.<\/p>\n

Meanwhile, competition is intensifying as Hulu, DirecTV, Amazon and others are racing to offer exclusive content that Netflix subscribers don\u2019t have access to. \u201cThere is tremendous competition out there for \u2018digital eyes,\u2019 and it really is about who has the best content,\u201d Bradlow says.\u00a0<\/p>\n

According to an article in The Wall Street Journal<\/em><\/a>, the company\u2019s DVD service \u2014 which is three times more profitable than its online subscriptions \u2014 has been losing close to one million subscribers per quarter. In the most recent quarter, the company lost 850,000 DVD subscribers, while only adding 530,000 to its online streaming service. Factor in the cost of acquiring new subscribers overseas (the company is focusing on expanding globally) and the need to source expensive new content to keep its online subscribers engaged, then it\u2019s no surprise that the firm reported a 91% decline in net income in late July.<\/p>\n

Many observers agree with Bradlow that if Netflix is to survive, content will be key. Wharton marketing professor Jehoshua (Josh) Eliashberg<\/a>, for example, suggests that the firm could begin developing original content \u2014 similar to HBO \u2014 \u201cbased on its subscribers\u2019 demonstrated preferences, which is a treasure.\u201d (In fact, Netflix has already begun exploring this path: Its first original series, \u201cLilyhammer\u201d \u2014 about a New York mob boss beginning a new life in Lillehammer, Norway \u2014 debuted in early 2012.)\u00a0<\/p>\n

Wharton management professor David Hsu<\/a> says that although bolstering its media offerings will be critical for Netflix, this will be difficult to do. While the cost of acquiring or developing new content is not fixed and will most likely increase, \u201cconsumers have become accustomed to the \u2018all you can eat\u2019 streaming video revenue model for a low fixed price each month.\u201d One solution, he suggests, could be found in Netflix\u2019s DVD-by-mail service, for which subscriptions are priced based on the number of DVDs out at a time. \u201cI think the company should try to develop an analogous tiered pricing scheme on the streaming side of their business. This could involve rights to certain premium titles, or perhaps [be] segmented by \u2026 the number of watching hours, etc. This will not be easy, however, as we witnessed when Netflix moved to reform its pricing structure in the past.\u201d<\/p>\n

There is a critical lesson here for anyone looking to launch a new business, Hsu adds. \u201cEntrepreneurs, particularly in new industries, should think carefully about the importance of getting the initial revenue model \u2018right\u2019 \u2014 versus to what extent the market will be more forgiving if the company pivots from its initial revenue model.\u201d<\/p>\n

This blog was previously posted in Knowledge@Wharton today blog: What Can We Learn from Netflix?<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

From the Knowledge@Wharton today\u00a0blog. There was a time when Netflix could seemingly do no wrong: Movie lovers would wait anxiously for their next iconic red envelope containing yet another DVD to enjoy. But times have certainly changed. Today, the reviews of Netflix\u2019s services \u2014 both its DVD-by-mail and online streaming video \u2014 are mixed at […]<\/p>\n","protected":false},"author":336,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-5031","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/5031","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/users\/336"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/comments?post=5031"}],"version-history":[{"count":2,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/5031\/revisions"}],"predecessor-version":[{"id":5033,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/5031\/revisions\/5033"}],"wp:attachment":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/media?parent=5031"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/categories?post=5031"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/tags?post=5031"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}