Cable Television Systems

Welcome to Episode 1, I’m going to take you through 1997 to 2003.
Netflix was founded in 1997 in Scotts Valley, California by Reed Hastings and his co-worker Marc Randolph. The idea of Netflix came to Hastings when he was forced to pay $40 in overdue fines after returning Apollo 13 well past its due date. They launched Netflix website on August 29, with only 30 employees and 925 works available for rent and brought a more traditional, online movie rental. (4$ per rental plus $2 in postage)
In 1999, Netflix introduced the monthly subscription concept, offering unlimited rentals for one low monthly subscription. And then dropped the single-rental model in early 2000. Since that time the company has built its reputation on the business model of flat-fee unlimited rentals without due dates which Hastings hates the most.
In 2002, Netflix made its IPO of 5,500,000 shares at $15 per share on Nasdaq, and ended the year with 1,487,000 members.
Next Episode will be covered by Praveen.
3. What are the implications of Netflix’s new strategy for the cable television systems like Comcast and Time Warner?

According to the case, there were three main strategies that Netflix implement to compete with the cable television systems.
To begin with, “Netflix started bulking up on older TV series that no longer were of interest to cable networks, since these TV series still had a popular following among some key demographics.” (Turban) This strategy allows Netflix being able to meet the various needs or tastes of their subscribers. In contrast, cable television carriers may had already lost this kind of market.
Secondly, as researched most Netflix subscribers were more interested in TV shows than in feature-length movies. Thus, Netflix replace 2,000 movies with full seasons of Mad Men, Breaking Bad, Lost, and other less well known series / reality shows. In other words, Netflix would focus on something their subscribers most interested on. In contrast with Netflix, “Most cable consumers watch fewer than ten channels, but are forced to pay for a bundle of over a hundred channels.” (Turban) This would lead cable users paying more than Netflix users with nothing to attract.
The next strategy that Netflix implemented is they started to produce its own content, e.g. “house of cards”, which helps them saving a lot in licensing. “The every-increasing cost of licensing is huge issue for Netflix, and it’s the reason why its business model is very tough one: any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears. Netflix had to pay $1.355 billion in licensing costs just in the first quarter of this year (2013); that number is only going to increase, unless Netflix can find some other way of finding content. Like producing it in-house. At the margin, the more material that Netflix produces on its own, the less it needs from third parties, and the easier that Netflix finds it to say no to ridiculous demands.” (Salmon) Cable television system has not yet produce content on their own, and one of the biggest problems for the cable industry is its high cost which will be passed on to consumers.
To sum up, Cable TV is really stepping towards the cliff, just as mentioned in the case, “bundled cable TV will go into a decline because people don’t need to buy bundles from cable providers, and because Netflix will have the audience size to provide a new channel for distributing video that is not controlled by cable companies.” (Turban)

Bibliography
Salmon, Felix. "Reuters." Why Netflix is producing original content (2013). Web sidte. .
Turban, E. & King, D. Electronic Commerce 2012: Managerial and Social Networks Perspectives (7th Edition). Upper Saddle River: Pearson Education, 2012. Paperback.

Bibliography: Salmon, Felix. "Reuters." Why Netflix is producing original content (2013). Web sidte. . Turban, E. & King, D. Electronic Commerce 2012: Managerial and Social Networks Perspectives (7th Edition). Upper Saddle River: Pearson Education, 2012. Paperback.