Index IntroductionSupply and Demand ConditionsPrice Elasticity of DemandOverall MarketRecommendationWorks Cited:The preparation of the following report is anchored on a detailed analysis and evaluation of multiple data sources related to the company of interest. Some of the preferable data sources include sales reports, annual reports, supply and demand, production cost data, and most importantly, an analysis of the company's market share. In other words, this report will consider the past, evaluate the present and predict the future of Netflix, Inc. Information on the above listed elements is crucial to the future success of any business-oriented company. In this analysis, sales trends, profitability and market share are just some of the topics that will be discussed. All these factors are important for any company aiming for a respectable business. A company like Netflix must conduct a serious analysis of these factors to ensure the continued growth and sustainability of its business operations. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Introduction In recent decades, the emergence of new technologies has brought significant changes to the world. Modern technology has significantly influenced the way humans do things, mostly in a positive way. The entertainment industry has not been left behind by this change. Before this change, movies were made and released in theaters. They were then released on VHS cassettes shortly after theaters became obsolete. As technology continued to advance, television and film productions were released using DVDs and sold to the public. If this trend continues, the next technological advancement in the entertainment industry will be media streaming. With the availability of various electronic devices such as mobile phones and computers, companies such as Netflix have made it possible to stream entertainment material within seconds and in the comfort of one's homes. Netflix Inc. is the world's largest Internet television network. The television network has more than 75 million registered streaming members located in approximately 190 countries around the world. Members stream over 125 million hours of movies and TV shows per day, including feature films, documentaries, and original series (Valentin, EK 2014). This research paper will aim to study the production costs for Netflix Inc. by conducting an analysis of the expenses incurred by the company, its trends, and how this affects Netflix as a business company. Furthermore, it will critically analyze and explore the company's overall markets such as market share, barriers to entry into this market, and the market structure within which Netflix Inc. operates. Finally, there will be recommendations and suggestions on how Netflix can manage its future production by combining the data provided in the article. Recommendations will follow that will provide insight into how the company can continue to successfully lead the streaming television services market. History of Netflix, Inc. Netflix, Inc. provides ad-free streaming services for TV shows, films, documentaries, and original series. However, the company didn't start out that way. The company began in 1997 when Reed Hastings created an online movie rental service. The company became a household name two years later when the popular subscription service began. Users created an account and selected which movies they wanted delivered to their homes, with no limit on the number of DVDs they borrowed for the monthly fee.Netflix began to crush its competitors (e.g. Blockbuster) and went public in 2002, when it had 600,000 users. Three years later, that number skyrocketed to 4.2 million. And in 2007, Netflix completely changed the playing field. The infamous streaming service began, providing instant access to titles via a personal computer, from the comfort of home, without having to wait for DVDs to arrive. In 2010, the company went international, starting in Canada. Currently, Netflix has over 104 million users worldwide. While there are numerous benefits to using this company's streaming services, many users are supporters of the "no commitment" concept, being able to cancel the service at any time, no questions asked. Three different subscription levels are offered and all include a free month to try the service and finally be won over. While the company still offers the original DVD subscription, the ability to stream instantly, on virtually any device with an Internet connection, appeals to people who have grown accustomed to such an instant world. Netflix has also made contractual agreements to have its “app” pre-installed on televisions and smartphones. In November last year, the company once again responded to its customers' requests with downloadable content, which makes the necessary Internet connection unnecessary. This feature can be useful for travelers, especially in areas where a strong connection is not available or when it is not available at all. (Spangler) Supply and Demand Conditions According to the graph below, the trend over the past year shows that sales have increased, indicating that the demand for the Netflix service is increasing. Oddly enough, the trend depicts growing demand, while Netflix prices continue to improve over time. This defies the law of demand. However, this is related to the Law of Supply, considering the costs incurred by Netflix for licensing to use material from major networks, as well as the cost to produce the original content. In 2016, Netflix increased the monthly fee to 11.99/month for the most expensive service. (Goldman) In the event that prices continue to rise higher or more often than the competition, Netflix will begin to see a decline in subscribers. If users can find a similar replacement at a lower price, it would make sense to switch to competitor services. Careful considerations must be made to retain users in the inevitable event of a price increase, due to increased production prices, which will be discussed later in this report. Even governments have not turned a blind eye to the growing demand for streaming services. Many states and cities are planning to apply sales tax laws to video streaming, as well as e-books, games and mobile apps. The reasoning behind this tax is that the concept is generally the same as simple cable television. Electricity is still being used and sales are still being made and states want a reduction in those sales. Pennsylvania implemented this tax in August 2016, and if more states do the same, Netflix may be forced to raise prices again. (Povich) Price Elasticity of DemandThe supply and demand for Netflix's streaming services appear to tend towards inelasticity. Whereas the total revenue continues to increase. Furthermore, the company does not enjoy an absolute dominant position as there are other companies such as Amazon and Hulu that offer the same services. Hulu is the priority alternative to Netflix in providing the same services. The two companies tend to run almost the same monthly budget. THEExisting compromises between the two companies can only be weighed and become significant depending on the customer's personal preferences. For example, customers should recognize that Hulu has originality with some of its independently produced content, airs more first-run television programs where episodes are made available on the site for viewing for a week's duration as soon as are broadcast on television. However, they have to live with the fact that advertising is rampant in their programs (Bond). Netflix enjoys a large market for the services it offers with a different type of consumers subscribing to the service. Being the preferred streaming service provider, its customers visit its site looking to explore content that meets their entertainment needs. I know a wide range of people who enjoy both the licensed material and the original shows/movies the service offers. At the small price of 11 dollars. 99/month, the price doesn't eat up much of most consumers' budgets. If Netflix were to increase its service costs again, the price increase could have an immense effect on demand for the service depending on how customers respond. In the past, Netflix increased its subscription price by 60% and lost around 810,000 customers as a result. However, a couple of years later, the service had gained over eleven million subscribers following the price increase. Netflix executives had misjudged and made a regrettable miscalculation on the elasticity of demand by failing to recognize the availability of other industry players who would be preferred by customers who felt dissatisfied with their services. According to the concept of price elasticity of demand, the change in price must be related to the amount of demand. If competing streaming companies continue to acquire subscribers, the elasticity of demand will increase as there are more substitutes available. The company has one determining factor on its side, more than others. Streaming television services are not generally considered a necessity, but since Netflix has become known for "binge-watching" and is quite addictive, it has become a necessity for many users. (Fast MBA) If Netflix announced a dramatic price increase, the company could lose subscribers. Based on the information from previous trends, there is a high certainty that the majority of customers will likely remain loyal to the service provider. However, competition in the market is fierce. Customers always choose a service provider that suits their needs at the best price. And whenever they subscribe to a particular provider and experience inconvenience, they are still free to switch to other providers depending on the type of services they prefer. Therefore, it is important that Netflix maintains a price range that is accessible to its customers and does not force Netflix users to try other alternative streaming sites. As the above trends represent, the costs that Netflix, Inc. must bear are high. increased since 2013. Costs of goods sold (COGS) represent services such as exclusively produced content, advertising, employees and licensing agreements. Given the growing popularity of the company, the costs of running the business have also increased. Currently, Netflix has 104 million users, a huge increase from the 600,000 subscribers the company had in 2002. Additionally, licensing costs have increased over the past decade due to the growing popularity of streaming services. In 2018 alone, the company set aside a sum of six billion dollars from its annual budget that will be used intentionally in the licensing of its content bothexclusive than exclusive. As of May 2017, Netflix, Incorporated is worth $61.6 billion and, according to Forbes, is ranked fifth among the most innovative companies in the world. Forbes also points out that Netflix's growth and profitability have continuously grown every year despite the large costs incurred by the company. In June 2017, the total revenue in the second quarter amounted to a total of two million eight hundred thousand dollars, while the total cost incurred was approximately one million nine hundred thousand dollars, which indicated a profitable quarter for the company. The operation of Netflix involves fixed costs that are always present in every working year. The company has fixed costs due to activities such as marketing and advertising services, payments for employee salaries, business licenses, warehouse rental and payment for office space. In 2017, for example, the company's marketing budget amounted to $274,000, while in the same year $267,000 was used for technology development. There is a constant variation in these costs, for example, the variable cost of commercial licensing agreements. Through an annual report published in February 2014, Netflix indicated that operational flexibility was hindered by the nature of content licensing, being long-term and with fixed costs that directly impact liquidity and expected results of operations. It has since been believed that Netflix has decided to keep a broad scope of its focus on creating original content as the cost of licensing deals exceeds the expenses of producing its own content. Original content will also help build subscriber loyalty since this is content that can't be found at a competitor. Overall Market As illustrated below, a study compiled by Datasmiths in 2016 outlines that Netflix controls 51.1% of the overall market space in streaming provision. services. Netflix's closest rival is Amazon Prime Video which enjoys a 24.8% market share. These statistics indicate that Netflix controls a considerable portion of the market while other competitors in the industry struggle to increase their importance in the market. Furthermore, this pie chart shows that other Netflix competitors other than Amazon are fighting for the famous slice of the graph. Such statistics indicate that Netflix is ​​the preferred service provider and most of the customers rely on its services, thus creating a high demand for the services. The barriers to entry into the online streaming services market are quite high, considering that a company would need excessive startup capital, along with connections to networks to be able to negotiate licensing deals. (Rossolillo) Getting the brand off the ground would require a great IT team, as well as an exceptional marketing team. There are already numerous competitors on the market, the only one even remotely threatening Netflix's market share is Amazon. The likelihood of a new competitor entering the market is low and the threat would not be imminent for Netflix as it is an established company with a high market value. Getting into the streaming business is never easy. Founding companies that provide Netflix-like services and successfully penetrating the market is never a piece of cake. Therefore, limited competition in the industry makes Netflix oligopolistic. There are a limited number of competitors and therefore Netflix can influence potential subscribers quite easily. By focusing on original content, Netflix creates a unique element that can't be found on Hulu, Amazon Prime, or any of its other competitors' services. For example, Orange is the New Black earned nineteen nominations.