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Case Analysis #3: Netflix Nexus
Netflix Inc. dropped the most in 7 years after the video-rental service said it lost 800,000 U.S.
subscribers in the third quarter, more than expected, and predicted more cancellations over a price
increase. Investors are trying to gauge the extent of the fallout from the price increase and aborted plan
to put DVD customers on a new service called Qwikster.
Netflix plunged 35 percent to $77.37 in October 2011, the biggest decline since October 2004. The stock
reached a record $298.73 on July 13, according to Bloomberg data, and has lost more than $11 billion in
The outlook suggests Netflix has been unable to contain a subscriber revolt over a price increase and
aborted plan to force subscribers into separate streaming and DVD services. The company now forecasts
losses in 2012 because of costs to offer content in the U.K. and Ireland, and will delay further expansion
until profitability is restored.
Netflixs market value has declined from a peak of $15.7 billion in July to $4.06 billion. At least five
analysts today downgraded their ratings on the Los Gatos, California-based company, citing lost
management credibility and a dwindling subscriber base amid strong competition.
The company yesterday projected it would add as many as 52,000 domestic streaming customers over
the holiday period, while losing as many as 3.63 million high-margin DVD subscribers. Netflix added 3.08
million customers globally in the year-earlier period.
Chief Executive Officer Reed Hastings, responding to questions, said he has no plans to step down and
declined to comment on discussions with Netflix directors. He downplayed the likelihood of a big
increase in marketing efforts to win back subscribers.
Excerpted from: Edwards, C. (October 25, 2011). Netflix declines most since 2004 after losing 800,000 subscribers. Bloomberg. Retrieved from
Your Task: Write a one-page case analysis in which you:
Determine the impact of the lost management credibility at Netflix.
Analyze why the issue is significant, what might happen if it is not addressed, and what goals
should be set for any alternatives.
Suggest two alternatives to address the impact you have identified.
Recommend one of these solutions and defend it.
Assessment Measures: Content, Literacy, Audience, Strategy, Style.
While it is necessary to give some details of the case history in your analysis, I am more interested in
your OWN ideas and solutions. The analysis is the point, not repeating data from the case. Be as
specific as possible; a vague, undeveloped analysis will affect your grade significantly.
This assignment is worth 100 points.
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