Netflix Business Model

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Analyze Netflix business model How does Netflix change the video distribution industry? Netflix, headquartered in Los Gatos California was founded by Reed Hastings and Marc Randolph. The core of Netflix business model is deeply rooted in the reason that inspired its creation. Hastings had to pay $40 as late charges for a rented copy of Apollo 13 movie which was then the popular pay-per-rental system that would charge late fees. However, couple of years after its inception Netflix introduced a monthly subscription model of flat fee where users can go for unlimited DVD rentals without due dates, late fees, shipping or handling fees, or per title rental fees. The nature of subscription will determine simultaneous DVDs that a user can rent at a time. This model allows users to watch movies as per convenience without the pressure of returning movies till they are ready to watch the next one. For Netflix it means a continuous and steady rental and revenues and a great way to decrease idle shelftime for their movies. The subscription system of Netflix is a web-based system that allows customers to order DVD online using a web service that quickly delivers by mail movies they can keep as long as they want. The software system is vast and complex and which helped Netflix changed the video distribution industry. First, the system computes who gets what movie next. This can be very challenging but at the same time is very important to support its subscription based business model and allow even low-frequency watchers to get movies appropriately. Second, the system allows calculating which movies will be in demand. As customers add movies to their queue, Netflix can calculate demand of movies and improve their distribution and allocation of movies. Third and most important that has major impact is Netflix recommendation system called “Cinematch”. It allows

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