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Supply And Demand Paper

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Supply and Demand Conditions The revenue from online video streaming subscriptions is expected to reach $10 billion by 2018, a massive increase from $3.3 billion in 2013 (Battaglia, 2014). This increase in revenue reveals that the demand for services like what Netflix offers has and will continue to increase. Since the demand is increasing, Netflix’s revenue will probably also be increasing over the next several years. This increase can also be viewed in Netflix’s past revenue which has increase to the point where, in 2015, it was more than double what it was 5 years previously. 2011 2012 2013 2014 2015 Revenue 3.2B 3.61B 4.37B 5.5B 6.78B Figure 1. Netflix annual revenue 2011-2015 (Market Watch, n.d.) As shown above, Netflix’s revenue has …show more content…

Since Netflix offers a different kind of good than many other companies, the supply conditions are not determined in the same way. Another aspect of Netflix that is different than most other companies is that the more they supply, in terms of new TV shows and movies, the greater the demand will be, or the more people will want a subscription due to the increased amount of content. So by increasing supply, they could increase demand, and with a higher demand they could increase prices and revenue. So Netflix’s goal would be to increase supply as much as possible. When considering increasing supply, the main concern is cost. In 2016, Netflix may spent as much as $5 billion on content, including licensed and original content (Yarow, 2015). For original shows, the average cost per episode is about $4 million (Wallenstein, 2013). Since the input cost for creating an original show is high, Netflix is only able to supply a few original shows. For content produced by other companies, Netflix negotiates licensing agreements. These agreements usually involve Netflix paying a fixed fee to be able to stream the TV show or movie for a certain period of time. The high costs limits Netflix’s …show more content…

In my considerations, I mostly looked at Netflix’s online streaming service, since it is far more popular and profitable then their DVD rentals. Over the past several years, the number of Netflix subscribers has not declined, despite the price of the most popular subscription plan increasing by $2 since early 2014. In fact the number of subscribers has increased every quarter since the third quarter of 2011, and possibly even earlier (Statista, n.d.). Additionally, Netflix has few close substitutes for its services. Its notable competitors are Amazon Prime and Hulu Plus, along with illegal online streaming or downloads. Netflix also offers very popular original programing that is only available through Netflix, or illegal means. Since many people are fans of at least one of Netflix’s shows (and many people do not consider illegal streaming or downloading to be an option) the only option is a Netflix

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