1.Suppose that 1% of customers will switch from Both to Streaming only in Q4, bu
ID: 383959 • Letter: 1
Question
1.Suppose that 1% of customers will switch from Both to Streaming only in Q4, but Netflix will invest more in acquisition ($18 per new subscriber – add to Cost of Revenues) and will realize a 2% increase in New Streaming Only customers. What is the Q4 Operating Income?
2.Suppose that the price is lowered to $12.99 for Both. Assume that customers no longer switch from Both to Streaming in Q4 and 1 Mil additional customers are acquired for Both in Q4 ($18 per new subscriber – add to Cost of Revenues). Calculate the Q4 Operating Income.
3.Suppose that unlimited streaming is discontinued and movies will rent for $2.99. If 10% of customers leave Streaming and Both while the remaining streaming customers watch 3 movies a month, what would be the operating income for Q4?
NETFLIX Q3 OPERATING INCOME Mail 3Q2011 Model Number of subscribers (mil) Price per month Stream Both 9.03 2.332 11.481 $ 7.99$ 7.99$ 15.98 evenue per plan $ 822.75 otal Domestic Revenue Cost of Revenues All except streaming Streaming royalties Gross Profit $269.00 $268.00 $285.75 $118.90 Other Operating Expenses $ 70.00 $ 96.85 Sales, Gen & Admin Operating IncomeExplanation / Answer
Q1 4Q2011 model Mail Stream Both No of subscribers(mil) 2.332 9.325 11.36619 Price per month 7.99 7.99 15.98 Revenue per plan 55.90 223.53 544.90 Total domestic revenue 824.32 Cost of revenues All except streaming 269 Streaming royalties 271.25 Gross profit 284.07 Sales Gen and admin 118.9 Other operating espenses 70.00 Operating income 95.17 Q2 4Q2011 model Mail Stream Both No of subscribers(mil) 2.332 9.030 12.481 Price per month 7.99 7.99 12.99 Revenue per plan 55.90 216.45 486.38 Total domestic revenue 758.73 Cost of revenues All except streaming 287 Streaming royalties 268.00 Gross profit 203.73 Sales Gen and admin 118.9 Other operating espenses 70.00 Operating income 14.83 Q3 4Q2011 model Mail Stream Both No of subscribers(mil) 2.332 8.127 10.3329 Price per month 7.99 8.97 8.97 Revenue per plan 55.90 218.70 278.06 Total domestic revenue 552.65 Cost of revenues All except streaming 269 Streaming royalties 268.00 Gross profit 15.65 Sales Gen and admin 118.9 Other operating espenses 70.00 Operating income -173.25
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