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Netflix, Inc.

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About Netflix, Inc.

Netflix and chill? More like Netflix and bill the increasing numbers of viewers who subscribe to the video streaming service and watch for more than 140 million hours a day. The company streams movies, TV shows, documentaries, and original productions such as Stranger Things to some 140 million monthly (and growing) subscribers in more than 190 countries. Netflix produces more programming on its own and continues to strike deals with movie and TV production studios, independent producers, and others for the rights to distribute their content. To keep viewers binging, it deploys increasingly sophisticated algorithms to predict viewer preferences and make recommendations on what to watch next. Netflix still sends DVDs to US customers through the mail though that business gets smaller every year.

Operations

Netflix allows members to view as much as they want with its streaming service and allows simultaneous streaming on multiple devices with higher-cost subscriptions.

The company has organized its business into three operating segments: domestic streaming (about 55% of revenue) international streaming (about 45% of revenue), and domestic DVD (about 5% of revenue).

Geographic Reach

Netflix's business has moved beyond the borders of the US to around the world. The company declares that it does business in more than 190 countries. Netflix is not available in the People’s Republic of China and countries in which US companies aren't allowed to operate.

Sales and Marketing

Netflix has spent increasing amounts of money on advertising, surpassing $1 billion in 2017, up from $842 million in 2016, and some $714 million in 2015.

Financial Performance

Netflix has surfed video streaming to revenue increases for the past decade, as well as profit levels that have fluctuated but trended higher.

An increase of nearly 60% in international subscription sales drove Netflix to a 32% rise in revenue in 2017 to about $11.7 billion from 2016. Average paid international streaming memberships accounted for almost 50% of average paid streaming memberships in 2017, up from about 43% in 2016. Domestic streaming revenue increased 21% year-to-year. Changes in pricing and subscription plans also contributed to the higher revenue. Revenue from the DVD business slipped to about $450 million in 2017 from more than $540 million in 2016.

Netflix reported a leap in profit to $559 million in 2017 from $186 million in 2016. The higher revenue in 2017 enabled the company to absorb higher expenses for technology and development (24% higher in 2017 from 2016) and general and administrative (about 50% higher in 2017 from 2016).

Netflix uses cash in operations to pay for streaming content that it produces itself and licenses from other producers. The company used about $1.8 billion in 2017, some $300 million more than in 2016. Payments for content increased to $8.9 billion in 2017 from $6.8 billion in 2016.

Strategy

To grow overseas, Netflix must contend with rivals that offer DVD rentals in Europe and online downloads of movies. Through strategic agreements, Netflix has expanded its library of available selections to satisfy the growing appetites of its customers. During the past few years it has added content from CBS, MTV Networks, and Sony and continues to explore agreements with pay TV channels and networks, such as HBO, as it invests in streaming content.

Netflix has shifted to offering more original content that's developed in-house or licensed from production companies and producers. Film and TV stars have developed Netflix-only productions. They include Will Smith, Brad Pitt, Jane Fonda, and Robert Redford, as well as younger, less well-known actors and directors. Netflix has signed TV producers like Shonda Rhimes, Ryan Murphy, and Jenji Kohan to exclusive development deals.

In the past two or so years the company aggressively expanded internationally, launching streaming in countries from Cuba to Japan to Australia and New Zealand to Europe and more. It is available in all but four or so countries. Netflix has created and licensed content for local markets. Those moves have paid off with international subscriptions accounting for about 45% of revenue in 2017 compared to less than 40% in 2016.

The company has plenty of competition, much of it coming from producers of content that it licenses. Broadcast networks such as CBS, ABC, and NBC stream their content. Pay TV companies such as HBO and Showtime also offer streaming services apart from their subscriber businesses. Hulu offers subscription-based TV and movie content as well. Netflix will lose Disney and Pixar movies from its streaming service by the end of 2018 as Disney intends to launch its own streaming service in 2019. Apple Inc. also has initiated its own streaming service. Competition remains in DVD rental, too. Redbox offers DVD rentals of new releases and popular movies from locations such as grocery stores.

Netflix has a cooperative-competitive relationship with Amazon.com. It has moved all of its content to services run by Amazon Web Services even while it competes with Amazon's streaming business.

Mergers and Acquisitions

In 2017 Netflix acquired Millarworld, a comic book publisher whose characters include Kick-Ass and Kingsman. With the deal, Millarworld's characters will move from the page to the screen via Netflix production and streaming and theatrical release. Mark Millar formerly worked at Marvel and started Millarworld to develop his own comic book franchises. The Kick-Ass and Kingsman comics are not part of the deal, but Netflix gets access to other comics in superhero, science fiction, and other genres. Terms of the deal were not disclosed. The acquisition was Netflix's first.

Netflix, Inc.

100 WINCHESTER CIR
Los Gatos, CA 95032-1815
Phone: 1 (408) 540-3700

Stats

Employer Type: Publicly Owned
Stock Symbol: NFLX
Stock Exchange: , NASDAQ
Chairman, President, and CEO: Reed Hastings
Chief Product Officer: Neil Hunt
CFO: David Wells
Employees (This Location): 166
Employees (All Locations): 7,100