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Finance the Netflix Case Focuses Essay
This indicates that the company's business model is starting to resonate with consumers. It is too early, however, to determine if Netflix is going to achieve its objectives. Achieving its goals will probably take a decade or more, and there will be many critical strategic decisions between here and there. Thus, while Netflix has had success to date, it is difficult to assess at the time of the IPO whether or not Netflix will be successful.
Question 2.
The objective of the subscriber model is to bring in new customers with a month of free service, and then convert the free customer into a paying customer after that one month. The subscription model makes it easier for McCarthy to estimate revenues. With customers generally all paying the same price, the number of customers and the amount of revenue are tied to each other -- one only needs to estimate the number of new customers in order to estimate the revenue, less lost customers. With the free month, new customers are known before they become paying customers.
Forecasting long-range is easy once the company has a handle on its attrition rates. The existing customer base, the existing growth rate and the attrition rate are the three key variables that McCarthy is using for forecast revenue. Once revenue is estimated, cash flow can be easily estimated based on the average video rentals per customer per month, and the company's fixed costs. The subscriber model is simple. Customers pay between $15.95 per month and $19.95 per month and receive unlimited DVDs. This simple model makes…
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