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‘Individual Assignment: NetFlix.com, Inc.’
Estimating the number of Subscribers Assumptions Made
The number of new subscribers who signed up for the free service e ach month in a particular year remains the same.
The ratio of number of subscribers who signed up for a month of free service to the total number of offers made each month remains the same.
After a month of free service only 70% of the customers continue to subscribe.
Thereafter they continue for 6 months.
After 6 months only 40% of customers who subscribed remain.
I have assumed that each month the number of customers who discontinue is 14% of those who were subscribed last month. Using compounding, I calculated a per month reduction in customer base instead of reducing them at the end of 6 months. R=1(28/70)^1/6
Calculations Year 2000
Total Dealer sale
2630000
Consumer sales
1578000
Free Subscription Per month %acceptance free per month
1420200 118350 0.295732995
Assumed that last three years that are forecasted in Exhibit 4 of case are for years 2000,2001,2002
Assumed total dealer sales are 2.63 mn.
Calculated free subscription offers made per month.
Consumer Sales= 0.6 x dealer sales
Offers made by Netflix = 0.9 x consumer sales
Per month offers made= offers made by Netflix/12
Year 2001
Total Dealer sale
3370000
Consumer sales
2022000
Free Subscription
1819800
Per month per month accepted
151650 44847.90875
Assumed total dealer sales are 3.37 mn.
Calculated free subscription offers made per month.
Consumer Sales= 0.6 x dealer sales
Offers made by Netflix = 0.9 x consumer sales
Per month offers made= offers made by Netflix/12
Per month accepted = 0.29 x offers made
Year 2002
Total Dealer sale
4750000
Consumer sales
2850000
Free Subscription
2565000
Per month per month accepted
213750 63212.92776
Assumed total dealer sales are 4.75 mn.
Calculated free subscription offers made per month.
Consumer Sales= 0.6 x dealer sales
Offers made by Netflix = 0.9 x consumer sales
Per month offers made= offers made by Netflix/12
Per month accepted = 0.29 x offers made
Revenue per customer Customer who subscribes for 1 free month and 6 months paid
0
1-6 months
Total
Subscription
0
120
120
Shipping
4
25.8
29.8
98.9
59.4
158.3
-102.9
34.8
-68.1
DVD's purchased Operating profit
Customer who subscribes for 1 free month and 6 months paid
Breakeven period for one customer =18 months if he continues to subscribe each month
