BUSI 690 Group_Case_Study_2_Nguyet_8_11_12 ASSIGNMENTS 2016.pdf

Current and historical financial statements

According to Exhibit 2 on financial data of Netflix during 2013-2015, although its gross

profit increases gradually every year, there is a decrease in net income in 2015. Operating

expense is the main reason for this decrease. Netflix spent more money on technology and

development such as streaming delivery technology and telecommunication systems, which

account for 9 percentage of total revenue (Netflix Annual Report, 2015). In balance sheet, cash

and cash equivalents increase sharply for three years, which shows that Netflix has high liquidity

to expand and develop the business. In addition, cash flow from operating and investing

activities falls significantly at a negative number in 2015 because of investments in licensed

results in comparison with the current strategy. The exhibit 3 shows estimated financial

statements with and without alternative strategies

Net Present Value and EPS/EBIT

Net present value is an important factor to consider if a strategy is good or not. According

to exhibit 4, NPV of alternative strategy is superior to it is in current strategy. In addition,

estimated earnings before tax and expense of Netflix in current strategy is much lower than it in

in alternative strategy. In this case, both strategies provide profit to Netflix but the profit from

alternative strategy is higher. Therefore, Netflix should implement the alternative strategy to

achieve success in business.

Specific Recommended Strategy and Long Term Objectives

Global market of film and television industry is promising but competitive. Netflix has

focused on the U.S market and missed other potential ones. Recently, it pays more attention to

out-of-border markets such as China, Russia and some European countries. Its long-term

objectives is to provide every person in any countries access to Netflix. It is an appropriate

objective when the U.S market will become saturated in the next few years. Despite Netflix’s

service expansion in 50 countries, the fact that there is only the U.S base of Netflix makes it

established in Asia and Europe so that they can assist expansion strategy.

programs is also a good choice. In-house production strategy puts Netflix in a positive position to

provide and control content of program without depending on partners.

Proposed New Business Model

Analysis of SWOT and competitive forces show that expansion in international area is a

good strategy for Netflix now. According to the alternative strategy, there are not so many

differences in Netflix’s business models between current time and when expansion strategy is

applied. Its value proposition is to distribute streaming video content to satisfy customers’

customers through online streaming distribution channel. In order to expand its business into

international areas, it is necessary to improve key resources such as customer preference

algorithms, customer reviews and streaming content. The main revenue stream is from movie

rental. The cost structure includes content storage, advertising, movies license fee, software

development and administrative works.