Think back over the Netflix case study Define the following terms and explain each relates to the development and operations of Netflix supply and demand risk and venture capital technology and you?
# NetFlix was able to offer a lot of obscure DVDs to many states and regions at a time when most video rental stores carried a limited selection of DVDs. # NetFlix enables customers to store lists of movies that they want to see so that they can easily remember and order movies from their list. # NetFlix has a software program, CineMatch, which recommends DVDs to customers, based upon the database of films that they have rented and liked.
In the 1940s, films were only available in movie theaters. In the 1950s, television became popular. At that time there was concern that people would stop paying to see movies in the theater. Instead, film studios released films on TV and got money to produce new films made exclusively for TV. In the 1980s, video cassette recorders (VCRs) became popular and entrepreneurs founded movie rental stores, where consumers could rent movies of their choosing on video. Again, there was a fear that new technology would lower the profits of Hollywood movie studios. To avoid this, intellectual property laws were devised to protect the profits of movie studios and actors. Despite initial fears that new technology would put them out of business, each innovation has made traditional Hollywood studios more profitable by providing new opportunities to promote films and movies. When digital video disks (DVDs) and the Internet arrived on the market, another opportunity was created. Reed Hastings was tired of the late fees charged at video rental stores. He created a new business model for renting movies using the Internet. Customers could order films online. DVDs would be mailed directly to their homes, and customers could keep the DVDs as long as they liked. When they returned a DVD by business-reply mail, another DVD was automatically mailed to them. Hastings founded a business called NetFlix in 1997 and started offering DVD subscriptions through the mail in 1999. The business has three key components that helped differentiate it from other similar services and contribute to its success: It took a couple years before NetFlix earned a profit. In the beginning, the cost of buying DVDs, paying employees, advertising, and negotiating deals was more expensive than the subscription fees customers were paying. To cover these start-up costs in the first few years, Hastings negotiated for venture capital from private investors. The term venture capital refers to money used to fund a high-risk business opportunity. High-risk business opportunities may result in large profits or they may result in lost money. The investors in NetFlix either loaned money outright to the company or they bought shares of the company. If a business takes off and becomes a success, these initial investors can make many times more money than their initial investment. The NetFlix investors included corporations and groups of wealthy people who pooled their money together. By 2005 NetFlix had more than 3 million customers and had earned over $660 million. The company appears to be a success. However, the idea of renting DVDs by mail is not proprietary to NetFlix, meaning that they do not own the idea in the form of a patent. Now other competitors such as Blockbuster Video, Amazon.com, and Wal-Mart are offering DVD mail-delivery programs. NetFlix succeeded by making millions of dollars for its entrepreneur founder Reed Hastings. Now the question is whether NetFlix can continue to expand and generate profits. It has several advantages because it was the first business to offer DVD rental by mail. It has a large customer base and a large database of movies, as well as proprietary software to recommend new films to customers that reflects their movie preferences.