Friday, October 28, 2011
Netflix: Flushed Down The Toilet
Most everyone is familiar with the popular company called Netflix. Some of us even use Netflix to get DVD's in the mail, watch movies online, or how most of my friends use it, through XBOX 360 to watch movies and TV shows. Netflix became a booming company with total revenue toping out at $822 million at the end of the second quarter. However, Netflix has entered itself into an enormous collapse, some what like the collapse the Boston Red Socks had at the end of this years MLB regular season. Because of all excess demand, Netflix believed its price was below equilibrium, so they raised the price of streaming movies online and receiving DVDs in the mail in order to maximize profit. Streaming and receiving movies and TV shows by mail were previously offered together for $8.99, but with the current price increase, Netflix split streaming and receiving by mail into two individual services both costing $7.99. This price increases has destroyed Netflix, causing the demand to drop immensely. In the third quarter, Netflix lost 800,000 subscribers!!! As well as stocks plunging 35% (numbers which are predicted to worsen a lot more). Now, their is no excess demand, but now excess supply, showing that Netflix moved its price to far above equilibrium. I am a current Netflix subcriber and when they announced their price change, I cancelled my mail subscription, but not my streaming subscription. However, most Netflix customers do not have any inelastic demand, and left the company all together. If Netflix wants to stay in business, they need to make a change, especially in price.