Netflix supply and demand

Consumers continue to demand streaming availability. With that demand and the increased use of streaming services, Netflix must look at current trends and decide how the company can put its product to use best. Netflix must also take a look at its own growth and marketability in the everchanging economy. As Netflix mentioned (Netflix: Annual Reports & Proxies. (n.d.), rural customers may not be able to obtain good internet reliability, or they may not be able to afford it, so Netflix has the DVD spectrum working on their behalf as those who cannot stream can still rely on companies such as Netflix to deliver entertainment to them. In addition, we should look at current subscription costs and their impact on revenue growth, so Netflix can get a better understanding of how any changes in cost will impact its consumer base. Depending on which approach we take in regard to cost increases, we can get an idea of how it will impact consumer responsiveness to those changes. For example, in 2014 Netflix increased its membership fees one to two dollars a month to keep up with the demands of its competitors (Caporaso, 2014). This impacted new subscribers as current subscribers were promised they would not see an increase for another year or two. This did not fare well for Netflix initially as the increase for current subscribers sent many scrambling and resulted in several cancellations (Owens, 2016). Although there was a slight decline in subscribers, Netflix took the opportunity to state that although people aren’t fond of price increases, it is a necessity especially since Netflix had not seen a price increase since 2011 and the company must spend money in order to keep current customers happy and to attract new customers (Owens, 2016). As I mentioned in my introduction, streaming is “expected to grow to $6.7 billion, up $1.6 billion from 2015” (McAlone, 2016).

As seen in the graph below, Netflix has seen continuous growth in their revenues over the last five years.

Figure 1. Netflix’s Revenue and Cost of Goods Sold (COGS incl. D & A) data for the past 5 years. Adapted from Netflix: Annual Reports & Proxies. (n.d.). Retrieved from https://ir.netflix.com/annuals.cfm

References

Caporaso, T. (2014, May 5). The Effects of Supply and Demand on Netflix Pricing Strategies. Retrieved from http://www.sdcexec.com/article/11442396/netflixs-pricing-strategies-are-bound-by-the-same-laws-of-supply-and-demand-that-affect-every-other-commercial-entitys-rates

McAlone, N. (2016, April 11). Services like Netflix and Hulu are growing much faster than cable. Retrieved from http://www.businessinsider.com/growth-of-streaming-services-outpacing-traditional-cable-2016-4

Netflix: Annual Reports & Proxies. (n.d.). Retrieved from https://ir.netflix.com/annuals.cfm