The Netflix Case of 2011: Mistakes and Solutions

Subject: Case Studies
Pages: 2
Words: 584
Reading time:
3 min
Study level: College

Introduction

The Netflix case of 2011 was related to losing 800,000 of the company’s U. S. subscribers because they attempted to split the DVD delivery service and online streaming platform. These decisions have caused customers’ dissatisfaction and confusion, primarily due to the consequent price hike, and the CEO of Netflix, Reed Hastings, had to revoke the upcoming changes announced earlier. However, he still could not prevent the catastrophe as Netflix lost almost a million subscribers, and the prognosis was that the company could lose many more.

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The Company’s Mistakes

One of the most significant mistakes Netflix made was the company’s delusion regarding its future. According to Hoffman (2013), even after the setback described earlier, Netflix believed it would become the world’s best entertainment distribution platform by providing the cheapest subscription-paid streaming services. The company should have probably reconsidered its attitude in accordance with the audience loss foreseen by their forecasters. Hoffman (2013) reports that Netflix had almost 25 million subscribers in 2011, meaning that 800,000 was a significant decrease, which severely impacted the company’s profits as its revenues significantly depended on subscription (see Table). In consideration of potential losses predicted, it would seem unreasonable that the company’s confidence in becoming the world’s best streaming platform was not shaken.

Possible Solutions

It was probably not easy to find an appropriate solution to the problem as Netflix continued to lose subscribers despite the fact that Hastings rescinded the split of DVD delivery and online streaming services. However, this case could exemplify what the company should have done to attract existing and potential customers. It would seem that the most crucial issue for the subscribers of Netflix was the price hike due to the initial split. Therefore, the company needed a way to keep their profits stable or even increase them without making their customers pay much more. According to Hoffman (2013), Netflix rebranded their “DVD delivery service Qwikster as a way to differentiate it from its online streaming service” (para. 5). There is a strong possibility that, in order to revert the splits’ losses and save profits, Netflix should have focused on one form of their services, namely online streaming, instead of splitting them.

There was a strong background in 2011 for Netflix to choose a focused development path towards online streaming services. Hoffman (2013) reports that the Great Recession that occurred in 2008-2010 was “a boon for Netflix as people cut down on high-value discretionary spending, choosing “value for money” Internet offerings instead” (para. 10). Although the potential costs for network data usage could be extended to Netflix subscribers, online streaming would still seem much more profitable for both the company and its customers. Therefore, the resources designed for splitting DVD delivery service could be used to establish a system that would allow the subscribers of Netflix to enjoy streaming movies and TV shows online while paying affordable prices.

Conclusion

Overall, the main problem of Netflix after the initial split was practically the company’s ignorance of the fact that some significant alterations were required to proceed following their ultimate goal. Although Netflix took measures and united their services back together, the continuing loss of subscribers did not stop. The company’s customers were sensitive to the product’s cost, and Netflix needed a way to extend profits without increasing prices. It would seem that the best available option was to focus on the development of online streaming services as they looked much more promising in terms of commercial performance and customers satisfaction.

The revenues of Netflix.
Table. The revenues of Netflix.

Reference

Hoffman, A. N. (2013). Netflix: Rebranding and price increase debacle. RSM Case Development Centre.