The Economics of Netflix: A Solid Foundation or a House of Cards?

Open Access
Author:
Busalacchi, Alexandra F
Area of Honors:
Telecommunications
Degree:
Bachelor of Arts
Document Type:
Thesis
Thesis Supervisors:
  • Matthew Jackson, Thesis Supervisor
  • Matthew Jackson, Honors Advisor
  • Krishna Prasad Jayakar, Faculty Reader
Keywords:
  • Netflix
  • Telecommunications
  • Economics
  • Over-the-top
Abstract:
The purpose of this research is to analyze the online television provider Netflix and to determine whether its business plan is viable and sustainable. Netflix is a pioneer and leader in the online television subscription service model, and as a result, its success or failure can have a large impact on its competitors and on the media landscape as a whole. After considering existing research into subscription service models such as the one used by Netflix in slightly different industries, as well as research on effective means of determining prices for subscription services, similar methodology was applied to Netflix. By analyzing financial data from Netflix, including its technology and development costs, subscriber numbers and revenue over time, a thorough examination of Netflix’s successes and failures over the course of its existence were noted and analyzed. The data shows that Netflix’s costs are scalable, meaning marginal costs are decreasing and the company can continue to expand. While the profitability of the DVD subscription service is waning, international expansion continues to drive overall growth and profit increases. While Netflix appears to be in good financial standing presently, the emergence of serious competitors will pose a threat in the future, and Netflix must continue to monitor its expenditures and returns on original programming to remain profitable.