Netflix

Since the publishing of this case, Netflix has entered the video on demand (VOD) market. What is your analysis of how Netflix has attempted to update their business model with VOD?

Throughout the company’s history, Netflix CEO Reed Hastings has repeatedly assured critics that the purpose of Netflix was not to provide DVD rentals through the internet but instead to provide the best home video viewing experience for its customers. Video on demand (VOD) at Netflix was first launched as a free streaming feature at no additional cost to existing online DVD subscribers. Hastings was correct to leverage Netflix’s existing brand and market share as a way to differentiate his company from other VOD competitors because Netflix announced yesterday that their subscription had reached a symbolic milestone obtaining 10 million subscribers. This number was achieved after adding about 600,000 new users in the month and a half since the start of 2009 and is growing faster than the 26% increase in users this past fall when, according to www.electronista.com, the movie rental firm added about 718,000 new regular users. Netflix expects to add between 100,000 and 300,000 more by the end of March. The company attributes this jump to the company’s online efforts which allow most existing subscribers to monthly physical DVD rentals as well as a subset of the Netflix catalog either on the web or on a supporting media hub. Netflix has been working tirelessly to obtain and maintain strategic partnerships with companies that will increase their power as a VOD distributor and as a brand.

The company again leveraged its brand when it significantly added to its video on demand options in late 2008. In November 2008, Microsoft and Netflix announced a milestone in their efforts to bring home movies to users of the Xbox 360. Since November over 1 million Xbox live users have downloaded and activated software that lets them access Netflix' library of movies and TV shows. Netflix for TiVo allows owners of Series 3, TiVo HD and TiVo HD XL DVRs that also maintain active Netflix subscriptions stream movies and TV shows from their Instant Queues. Titles can play in HD whenever the content is available, and the TiVo's own remote can be used both for navigating the movie as well as rating movies or checking descriptions before starting. The feature is free to customers of both Netflix and TiVo.

Netflix has also worked to gain support and exposure on newer LG and Samsung Blu-ray players who will allow for the streaming of videos on their players, as well as web support for Macs in addition to previous Windows-only support. Netflix is smart to realize that demand is increasing. The economy is struggling, people are staying in more than going out, and they want immediate access to movies and television.