NetFlix.com, the world’s largest online DVD rental company, was founded by Reed Hastings and Marc Randolph in 1997, and is headquartered in Los Gatos, California. The company started its online DVD rental business by launching Netflix.com, offering pay-per-DVD rental services by delivering DVDs via mail. As the company prospered during late 1999, Netflix replaced its pay-per-DVD revenue model with a fixed monthly fee system that allowed customers to rent up to 4 DVDs per month with no due dates or late fees. In February 2000, it launched a new plan, where, with a monthly fee of $19.95 instead of its previous $15.95, subscribers were able to have up to 4 DVDs in their possession at one time. The website allowed subscribers to make their own lists or “queues” of movies that they browsed and selected to watch. Then, it shipped movies that were at the top of the queues of subscribers via mail. It also provided subscribers with individualized ratings on all movies that customers had previously rated after viewing.
As the company enjoyed tremendous success, it decided to submit its S-1 filing for an initial public offering. However, soon after it was submitted, the NASDAQ stock market fell 25% to 3,794, making it more difficult for a company’s IPO to succeed with uncertainty in the financial markets. In July 2000, Reed Hastings, CEO of Netflix, needed to decide whether the company should proceed with the IPO or withdraw it. Investment banks predicted that the IPO of Netflix would succeed if it showed positive cash flows within a twelve-month horizon, but the executives at Netflix were unsure whether they could achieve that goal.
Identification of Problems:
Netflix is losing market share and profitability to competitors and technological advances. Monthly fee discourages membership from less frequent movie watchers. Lack of control over DVD return time.
Comparatively small movie library available to stream.
DVDs can arrive scratched or broken due to mailing process.
DVD competition from red box and blockbuster.
Netflix losing market share and profitability as compare to its competitors. The dilemma on Reed Hastings, chairman and CEO of Netflix.com, Inc, On how to go about for NASDAQ listing of its IPO and what should be the appropriate time?
1) Bundle services with pay TV packages.
2) Partner with gaming companies to offer on demand video game services.
3) Develop quality original content that can Lure and retain customers with content that’s untouchable by competitors.
4) Expand downloadable movie offerings.
5) Affordable pricing.
6) The pricing structure should also allow for those individuals interested in renting movies occasionally vs. monthly 7) Faster service in distribution channels so that products can reach all of its customers within one business day.
Choosing the best Solution:
As per our group members the timing of Netflix’s IPO is unfavorable for the company. We believe Netflix should delay its IPO until the financial markets begin to recover. We believe that before taking any consideration of its IPO listing it should be put forth with a proper mindset and with a planned IPO strategy. IF it is not planned well it will back fire and it will be unfavorable for Netflix, especially due to the fact that the company has not yet earned a profit on its operations and the fact that it is an Internet company. Thus, in order to reach profitability, expand its customer base, and ensure a dominant market share already being realized by its early-mover advantage, NetFlix should proceed with its IPO once the technology sector begins to show signs of a turn around. Convincing investors that an Internet company will be able to succeed after so many have failed, even with strong cash flow, a solid business model, and real assets will be no easy task during the near future.