Group 9 Consulting Firm

From: Group 9 Consulting Firm

To: Reed Hastings, Chairman & CEO of Netflix.com

Dear Mr. Hastings,

Our firm, Group 9 Consulting, has come to a conclusion pertaining to the future of Netflix.com. In the following analysis we have taken into consideration all current data and as much future analysis that we could accurately forecast. The biggest challenge was to attempt to accurately forecast customer subscriptions, since there are so many variables in the equation; but we felt that we have done a satisfactory job on all probable and possible outcomes. Our models and analysis are forecasted to analyze Netflix.com's potential and probable outcomes over the next five years.

Group 9 Consulting has come to the conclusion that your company will continue to grow and that "unlimited package" customers will be a major source of your future growth and revenues. Expanding on the process of streamlining movies to subscribers is also recommended since it is expected that current technology will allow this and over time, it will become more available to the average potential customer. Also, it is advised to seek revenue sharing deals with movie distributors similar to Blockbuster and other major competitors. If the number of customers increases, demand for new movies will as well, making revenue sharing a good idea once customer numbers have increased as well. Group 9 Consulting would like to thank you for your business and hope to further business with you when you need it.

Sincerely,

Group 9 Consulting Firm

Netflix has come to a crossroad on July, 2000. This crossroad pertains to their IPO on the NASDAQ market. A problem with Netflix is that they need to show positive cash flows, but have failed to do so in 1998 and 1999. Netflix needs to figure out a way to increase revenues to put them in the black on a consistent basis for the first time. With the following data it is feasible to project their potential and see where their problems and limitations will probably be. A decision Netflix must make is whether or not to get into the video on demand market that is starting to emerge. Netflix has potential, but a lot of that potential is based on technology that is not readily available to the average customer. Netflix needs to forecast when and if the required technology will be there in the near future in order to make smart business decisions that could potentially make or break the company.

As previously stated, Netflix has a lot of potential; their options and breadth of customization for customers is second to none. Netflix's sales were $16.4 million and have been heavily marketing their product to try to increase their customer base. One of the current promotions offered is a free month of service with the purchase of a DVD player. This promotion has been proven solid by many companies in other industries and has potential to increase the amount of customers for Netflix as well. It is a smart move to sacrifice smaller short-term gains for larger long-term gains.

Aside from the "one free month" promotion, Netflix offers customizations like movie finder, marquee queue, and video on demand, among others. The Marquee queue allows people to put videos they want to rent next on a list. Once the current movie is returned, Netflix ships out the next movie on that list without waiting formal a formal request for one. It is estimated that the average customer rents 4.3 movies per month.

The concept of the promotional program with major movie distributors is a great concept, but should not be rushed into until the customer base demands it. The promotional program would have Netflix sacrifice some revenues to get discounts on DVDs from distributors to supply a large customer base and lessen or eliminate wait times from new DVDs. Right now Netflix has over 5,000 movie titles and more than 62,000 combined copies of those titles. Another unique tool that benefits customers is the ability to review what the customers have previously rented and see what they rated those movies to recommend new ones that they have yet to rent.

Group 9 Consulting will analyze the available data to help Mr. Hastings make present and future decisions on how to make Netflix profitable and have a successful IPO offering. Since Netflix's founding it has seen an expanding customer base and increasing revenues, giving Netflix the potential to grow to the point of turning a profit and capturing enough of the market for longevity. It is important to turn a profit when viable since "dot.com" companies have a history of volatility and is considered high risk by most potential investors. This will show investors that Netflix can stand on its own and should push their IPO higher than expected and ensure the potential to be a successful company long term.

Like most start up "dot.com" companies, Netflix is heavily involved in aggressive marketing to create awareness and show customers their ability to service them. This is a very costly operation, but a necessary one since most people will not actively seek out what they are lacking, so a "blue ocean" strategy is needed. Show the customers that they are missing something in their lives that they didn't even know they were lacking. This is why a free month subscription with a purchase of a DVD player was a good move to get potential customers to try the service without risk. Technology is another uncertain aspect as to whether or not Netflix

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