In July 2011, Netflix decided to separate its DYD-by-mail service from its strea

Question

In July 2011, Netflix decided to separate its DYD-by-mail service from its streaming video seivice. In addition to the hassle of receiving two bills instead of one: Netflix subscribers now had to pay about $16 for both services, when they previously only paid about S10. Many Netflix customers were outraged by this decision, and the company reportedly lost about 1 million of its 25 million subscribers due to this decision. In response to the uproar from customers and investors, Netflix co-founder and CEO, Reed Hastings, posted a letter of explanation on the company website. He did not apologize for the decision to split the services and raise prices, which he maintained was the right strategic decision given the importance of streaming video to Netflix's future. However, he acknowledged that he should have done a better job of communicating the rationale for the change to customers in advance of making the change. Consider the following additional information and estimates: Prior to the split, Netflix had about 25 million subscribers who were paying an average subscription fee of S10 per month. After the split, Netflix estimated the following: 21 million subscribers would continue with the streaming video service. 12 million of those subscribers would also continue with the DVD-by-mail service. 3 million users would subscribe to DVD-by-mail only. The new subscription fee for each service is $8 per month. Assume that variable costs of the DVD-by-mail service (for shipping, handling, and DVD replacement) are $0.40 per movie exchange and that the average user exchanges 5 movies per month. The variable costs of the streaming video service are negligible. Determine how much Netflix's monthly profit would increase or decrease with the new pricing and subscription structure. If you were a Netflix shareholder, how would you react to this change Optional: This is an opportunity for you to research what actually happened to Netflix's stock price in the days and months after the price change. Do you think Netflix made the change to boost short-term or long-term profit? In your opinion, was Netflix's decision to separate the streaming video from DVD-by-mail a good one?

Explanation / Answer

2. if i were a shareholder of Netflix then obviously this will be a good news for me as the company is earning 15.2% extra profit per month compare to earlier policy. As the profit has increased,the Share price will also be increased. Being a share holder i will earn more dividend as well as the benefit of increased share price of my shares in the stock market.
3. in first glance it seems like short term benefit due to change in the policy. But if the policy sustain in the future also then obviously the Profit will also be same subject to change in the subscriber.
4. In my Opinion it's a good decision as the rate of subscription has also decreased for such customer who wanted only single service. As per estimated figures of subscriber it is quite clear that single service subscriber are more than the strength of both service subscriber. Finally this decision has increased the profit by $38Million Per month which is not only a good signal but also will help company to grow more in new or existing area,

Striming Vedio Service DVD By mail Service Both Service Total ( PM)$ Million Previous Subscriber ( In Millions) 25 million Previous Rate ($) 10 previous Revenue ( PM)$ Million 250 250 Estimated Subscriber ( In Millions) 9 3 12 Parsent Rate ($) 8 8 16 Total Revenue( PM)$ Million 72 24 192 288 Excess Revenue ( increased Profit) 38

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