Table of ContentsIntroductionConditions of Supply and DemandPrice Elasticity of DemandOverall Market RecommendationWorks Cited:The preparation of the following report is anchored on a detailed analysis and evaluation of several related data sources to the company of interest. Some of the preferable data sources include sales reports, annual reports, supply and demand, production cost data, and most importantly, an analysis of the company's market share. In other words, this report will examine the past, evaluate the present and predict the future of Netflix, Inc. Information on the items listed above is essential to the future success of any business-oriented company. In this analysis, sales trends, profitability, and market share are just some of the topics that will be covered. All of these factors are important for any business considering a reputable company. A company like Netflix must conduct a serious analysis of these factors to ensure continued growth and sustainability of its business operations. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the original essayIntroductionIn recent decades, the emergence of new technologies has significantly changed the world. Modern technology has had a significant impact on the way humans do things, especially in positive ways. The entertainment sector is not left out in this evolution. Before this change, films were made and released in theaters. They were later released on VHS tapes shortly after movie theaters became obsolete. As technology advanced, television and film productions were released on DVD and sold to the public. If this trend continues, the next technological breakthrough in the entertainment industry will be media streaming. With the availability of various electronic devices like mobile phones and computers, companies like Netflix have made it possible for people to stream entertainment material within seconds and from the comfort of their homes. Netflix Inc. is the world's largest Internet television network. The television network has more than 75 million registered streaming members spread across approximately 190 countries around the world. Members stream more than 125 million hours of films and television series per day, including feature films, documentaries and original series (Valentin, EK 2014). This research paper will aim to study the production costs of Netflix Inc. by carrying out an analysis of the costs incurred by the company, its trends and how it affects Netflix as a business enterprise. Additionally, it will critically analyze and explore the company's overall markets, such as market share, entry barriers in this market, and the market structure in which Netflix Inc. operates. Finally, there will be a recommendation and suggestions on how Netflix can manage its future production by combining the data provided in the article. Recommendations will follow and will be informative on how the company can continue to successfully dominate the streaming television services market. History of Netflix, Inc. Netflix, Inc. provides ad-free streaming services for television shows, movies, documentaries, and original series. However, the company didn't start out that way. The company began in 1997 when Reed Hastings created an online movie rental service. The company became a household name two years later when the subscription servicepopular started. Users created an account and selected the movies they wanted delivered to their door, with no limit on the number of DVDs borrowed for the monthly fee. Netflix began crushing its competitors (i.e. Blockbuster) and went public in 2002, at which point it had 600,000 users. Three years later, that number jumped to 4.2 million. And in 2007, Netflix completely changed the rules of the game. The popular streaming service began, offering instant access to titles via a personal computer, from the comfort of one's home, without having to wait for DVDs to arrive. In 2010, the company internationalized, starting with Canada. Currently, Netflix has over 104 million users worldwide. While there are many benefits to using this company's streaming services, many users are fans of the "no obligation" concept, being able to cancel the service at any time, no questions asked. Three different membership levels are offered, and all come with a free month to try the service and ultimately get hooked. Although the company still offers the original DVD subscription, the ability to stream instantly, to virtually any device with an Internet connection, appeals to people used to such an instant world. Netflix also has contractual agreements to have its “app” pre-installed on televisions and smartphones. In November last year, companies once again responded to customer demands by offering downloadable content, eliminating the required Internet connection. This feature can be convenient for travelers, especially in areas where a strong connection is not available, as well as when there is none at all. (Spangler) Supply and Demand Conditions Based on the chart below, the trend over the last year shows that sales have increased, indicating that the demand for the Netflix service is increasing. Oddly enough, the trend shows demand increasing, while Netflix prices continue to improve over time. This defies the law of demand. However, this correlates with the law of supply, considering the costs Netflix incurs for licensing hardware from major networks, as well as the cost of producing their original content. In 2016, Netflix increased monthly subscription fees to $11.99/month for the most expensive service. (Goldman) In the event that prices continue to increase more or more frequently than their competitors, Netflix will begin to see a decline in subscribers. If users can find a similar replacement at a lower cost, it would make sense to turn to competitive services. Careful attention should be paid to retaining users in the inevitable event of a price increase, due to rising production prices, which will be discussed in more detail later in this report. Governments have also not turned a blind eye to the growing demand for streaming services. Many states and cities are considering applying sales tax laws to video streaming, as well as e-books, games and mobile apps. The reasoning behind this tax is that the concept is generally the same as simple cable television. Electricity is still being used and sales are still being made – and states want a share of those sales. Pennsylvania implemented this tax in August 2016, and if more states do the same, Netflix could be forced to raise its prices again. (Povich)Price elasticity of demandSupply and demand for Netflix's streaming services appear to trend towardinelasticity. Considering that total revenues continue to increase. Additionally, the company does not enjoy absolute dominance since there are other companies like Amazon and Hulu that offer the same services. Hulu is the highest priority alternative to Netflix in providing the same services. Both businesses tend to operate on almost the same monthly budget. The compromises that exist between the two companies can only be weighed and become meaningful based on the personal preferences of the customer. For example, customers should recognize that Hulu has originality with some of its content that it has produced independently, broadcasts more first-run TV shows where episodes are available on the site for a duration of 'one week as soon as they are broadcast on television. However, they have to live with the fact that advertisements are omnipresent in their programs (Bond). Netflix enjoys a large market for the services it offers to a diverse type of consumers.subscribe to the service. Being the preferred streaming service provider, its customers visit its site with the aim of exploring contents that will satisfy their entertainment needs. I know a wide range of people who enjoy both the licensed material as well as the original shows/movies offered by the service. At the low price of $11. 99/month, the price doesn't eat up much of most consumers' budgets. If Netflix were to raise the cost of its service again, the price increase could have an immense effect on demand for the service depending on how customers respond. In the past, Netflix increased the subscription price by 60 percent and thus lost around 810,000 customers. However, a few years later, the service had gained more than eleven million subscribers following the price increase. Netflix executives had misjudged and made an unfortunate miscalculation of demand elasticity by failing to recognize the availability of other industry players who would be preferred by customers dissatisfied with their services. According to the concept of price elasticity of demand, the change in price should be correlated with the amount of demand. If competing streaming companies continue to gain subscribers, the elasticity of demand will increase since there are more substitutes available. The company actually has a determining factor on its side, more than others. Streaming TV services are not generally considered a necessity, but since Netflix became known for its addictive “binge-watching,” they have become a necessity for many users. (Quick MBA)If Netflix announced a dramatic price increase, the company could lose subscribers. Based on information from previous trends, it is highly likely that most customers are likely to remain loyal to the service provider. However, competition is tough in the market. Customers always choose a service provider that meets their needs at the best price. And when they subscribe to a particular provider and experience inconvenience, they are always free to switch to other providers based on the type of services they prefer. Therefore, it is important for Netflix to maintain a price range that is affordable for its customers and will not force Netflix users to try other alternative streaming sites. As the trends above show, the costs that Netflix, Inc. must bear have increased. has increased since 2013. Cost of goods sold (COGS) represents services such as exclusively produced content, advertising, employees andlicensing agreements. Given the company's growing popularity, the costs of running the business have also increased. Currently, Netflix has 104 million users, which is a huge increase from the 600,000 subscribers the company had in 2002. Additionally, the cost of licensing has increased over the past decade due to the continued popularity growth of streaming services. In 2018 alone, the company set aside a whopping six billion dollars from its annual budget to be used purposefully for licensing its content, whether non-exclusive or exclusive. As of May 2017, Netflix, Incorporated was worth $61.6 billion and was ranked as the fifth most innovative company in the world according to Forbes. Forbes also points out that Netflix's growth and profitability have steadily increased each year despite the significant costs incurred by the company. As of June 2017, the total revenue for the second quarter was two million eight hundred thousand. dollars, while the total cost incurred was approximately one million nine hundred thousand dollars, which indicated a profitable quarter for the company. The operation of Netflix entails fixed costs which are always present during each financial year. The company has fixed costs due to activities such as marketing and advertising services, paying employee salaries, business licenses, renting warehouses, and paying for office space. In 2017, for example, the company's marketing budget was $274,000, while in the same year $267,000 was spent on technology development. There is constant variation in these costs, for example the cost of commercial licensing agreements. In an annual report released in February 2014, Netflix indicated that operational flexibility was hampered by the nature of its content licenses, which are long-term and fixed cost, which directly affects liquidity and expected operating results. . “It is since believed that Netflix has decided to maintain a broad focus on creating original content, as the cost of licensing deals exceeds the expenses of producing their content. Original content will also help build subscriber loyalty, as it is content that cannot be found with a competitor. Overall Market As shown below, a study compiled by Datasmiths in 2016 indicates that Netflix controls 51.1% of the overall market space in streaming provision. services. Netflix's closest rival is Amazon Prime Video, which enjoys a 24.8% market share. These statistics indicate that Netflix controls a considerable share of the market as other industry competitors struggle to increase their prominence in the market. Additionally, this pie chart shows that other Netflix competitors other than Amazon are fighting for the well-known share of the chart. Such statistics indicate that Netflix is ​​the preferred service provider with most customers relying on their services, thereby creating a high demand for these services. The barriers to entry into the online streaming services market are quite high, given that a company would need an excessive number of services. the amount of capital to get started, as well as connections with networks to be able to negotiate licensing agreements. (Rossolillo) It would take a large IT team, as well as an exceptional marketing team to get the brand off the ground. There are already many competitors in the market, the only one that even remotely threatens Netflix's market share is Amazon. The likelihood of a new entrant into the market is low and the threat would not be imminent for.