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Netflix case Analysis Group 4

(kshitij gupta, sunny gupta, shubham sogani, milan ashar,

nischal kant, puspinder singh, akshay tyagi)
In the report for the financial analysis of the 3 option given in the case we have
taken all the costs that were given for the financial year 2010.
As for the revenue we have taken the number of subscribers to be 23.8 million as
mentioned in the case. For the first option the revenue has been calculated by
(23.8*16*12=$4569.6), for the second option (23.8*10.99*12=$3138.744) and
for the third option (23.8*2.99*4*12=$3415.776)

Estimated Net Income for the 3

All figures are in Million dollars
option option
option 1 2 3
3138.7 3415.7
Revenue 4569.6 44 76
cost of revenue 1357 1357 1357
1781.7 2058.7
gross profit 3212.6 44 76
total operating expenses 522 522 522
1259.7 1536.7
operating income 2690.6 44 76
intrest expenses 20 20 20
other income expenses 4 4 4
income before income tax 268 268 268
provison for income tax 107 107 107
860.74 1137.7
net income 2291.6 4 76

As in first option Netflix charges 7.99$ for DVD and 7.99$ for streaming. So if a
subscriber wants to go for only one DVD or Streaming then that subscriber has to
pay on 7.99$, but if a subscriber has to go for both then suddenly he has to pay
15.98$. Though earlier for both the customer was paying only 7.99$. This option
is not suitable as mentioned in the case that many subscribers had discontinued
their subscription and this also led to falling of the share price of the company.
The 2nd option is the most suitable for the company as it will be reducing the
price to 12.99$ who would be welcomed by the customers as they would be
paying less for the bundle. Even if the customers want only streaming or only
DVD that would be possible at $7.99 each and they wont have to pay for the for
the bundle.
Option 3 will also be ruled out as we can see from the attached excel sheet that
this option has the least revenue and also there is no income from the DVD
rental business. The company cannot let go of the DVD rental business as it
accounts for 30% of the revenue and just because it does not show any future
prospects the company cannot abandon it.

Keeping in mind the above details for the 3 options we think that the 2 nd option is
the best, even if the revenue is less the company is keeping its DVD business
and also will be able to increase the revenues by reducing the price of the bundle