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“The Best Way to Rent Movies”

Netflix is undeniably one of the most popular entertainment sources of all time. In the beginning Blockbuster was the go to store for movie rentals, eventually they suffocated their customers with late fees. Suddenly, during customer dissatisfaction a new service called Netflix came out and offered a convenient and sensible way to rent movies. The rapid growth from just mailing movies to streaming and viewing documentaries, a TV shows, and movies through almost all internet connected devices was unbelievable. Netflix is also inexpensive. Instead of having to pay for individual movies, which could be anywhere from 5-10 dollars a movie, customer’s pay a monthly fee for unlimited movies and TV shows. Considering the extreme change in price of viewing movies, Netflix was immediately a preferred substitute to the regular movie rental store. Netflix grew to be a good used in place of another.

In economic terms Netflix is used as a substitute for regular movie rentals. Originally the best feature of Netflix was that the movies were sent to you. Customers preferred having a movie sent to them rather than a car trip to the movie rental store so they substituted the store with Netflix. Netflix also has a large selection, around 100,000 movies while a competitor, Blockbuster Online, has just 80,000. Some of the factors that attracted customers to substitute their normal movie rental companies was the low price, fast delivery, and no late fees.

The Wall Street Journal says that Netflix claims it has added a net 2.03 million domestic streaming subscribers in the first quarter of 2013. This compares with the 1.74 million in the first quarter of 2012. The growth is obvious and as their subscribers increase Netflix will need to raise their prices in order to boost revenue. Netflix is currently working out a four-stream plan that is priced higher than the regular subscription.

Although it may seem like Netflix still has not reached it’s full potential, it seems as though 2013 will be a tough year for the company. Netflix directs its business plan in investing in content for its customers within its profitability goals. But, by looking at the cost Netflix has coming in the next year for new content and technology, they may need to reevaluate their financial plan. A graph from Seeking Alpha shows the relationship of revenues, streaming library amortization costs, technology cost, and earning in Billions from the past three years.

Recently, Netflix has had to deal with password sharing accounts and not gaining profit because of sharing. They have made a plan where customers can buy a four streaming plan at $11.99, this plan is for families. Netflix will need to find ways to raise costs so that they can pay for their additions in programs to their selection. Netflix has stated that they are improving their profits and reducing losses in all markets.

They have currently added the popular TV series called “House of Cards.” Their profit is up now as more subscribers are wanting to view the series. Their current total number of subscribers is up to 29.2 million which has beaten out other streaming companies such as HBOgo. According to The Celebrity Cafe, “prices will not have to go up. But that means that Netflix will have to continue to bring in more subscribers, since it is not supported by advertisers.”

Netflix’s original substitute of mailing movies to driving to a local blockbuster was the reason they became such a popular service. Netflix is in current competition with other streaming companies such as Apple’s iTunes and Amazon. Netflix’s streaming revenue is around four times larger than their older DVD mailing service. Because Netflix came in at the right time they were immediately used as a substitute good. Although it may seem that they are a stable and profitable company they have to deal with the debt they accumulated by adding content to their media library.

Netflix is a substitute good because it is a good in which, as a result of a change in conditions replaced another good in use. Because of its growth Netflix is now the number two video subscription service behind Comcast. The idea of driving to stores to rent movies is now almost completely forgotten and Netflix has defined current standards of viewing movies and TV series. Netflix is an example of an influential substitute good and has become a dominant entertainment provider.

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