I selected Netflix Inc. (NASDAQ:NFLX) in the entertainment industry
for my company evaluation project. Netflix provides entertainment
content through their video streaming platform via the internet for a
paid subscription, allowing subscribers to stream unlimited content,
anytime, anywhere. They were the first of their nature and remain at
the top of their industry sector. Unlike their competitors, they are
one of the only without commercials or paid advertising, though this
could increase their revenue substantially. (Mergent, 2022)
Netflix structures their operating cash starting from the top and
working their way down. They estimate revenue and evaluate where
to spend to maintain their desired margins. With the competition for
streaming content driven prices upward, Netflix has focused on
spending more toward producing original content and providing less
third party content instead of overspending. This allows them to
operate with higher profitability and nearly term free cashflow.
(Netflix, 2022) You can see the proof of this concept on their balance
sheet looking at their current content assets and current content
liabilities. (Mergent, 2022)
In my opinion this structure seems to be working, the company is
profitable and continues to lead their competition. I would however
agree with the plan for Netflix to follow the competition's lead in
offering a lower cost subscription with ads, as more and more
subscribers are overloaded with the cost of having multiple
subscriptions, and ultimately canceling the less affordable
subscriptions, or new subscribers opting for the competition's
streaming services. Offering a more affordable option should
increase interest in new subscribers and increase operating cash to
invest in more third party content or to add to the budget for
producing original content. (Mccluskey, 2022)
References:
Mccluskey, M. (2022. June 23). Netflix is Adding Ads. Time.
https://time.com/6175837/netflix-ads-coming/
Mergent Online. (2022, July 7). Mergent Online. Netflix.
https://www-mergentonline-
com.ezproxy.snhu.edu/companydetail.php?compnumber=129614
