In 1997, two software engineers, Reed Hastings and Marc Rudolph, founded Netflix after Hastings was charged a $40 late fee for " Apollo 13" at Blockbuster. Netflix originally focused on DVD delivery. Customers would pay to have one of more than 90,000 DVDs delivered directly to their home. Two years later, in 1999, Netflix adopted a monthly subscription structure allowing customers to receive unlimited movies at home for $19.95. Say no to plagiarism. Get a custom essay on “Why Violent Video Games Should Not Be Banned”?Get the original essayIn 2002, Netflix went public and its IPO doubled its revenue according to Hastings in its annual report. The year 2007 saw rapid technological change and Netflix decided to get into online streaming. Customers were charged a monthly rate for subscriptions covering an unlimited number of movies and TV shows. Customers could view their films on numerous devices: smartphone, tablet, laptop or Smart TV. Throughout these constant changes, Netflix's subscriber count and annual revenue have continued to increase. Reed Hastings, co-founder and CEO of Netflix said in his annual report “2009 was an incredible year for Netflix” (Hastings, 2009). This was because Netflix allowed online streaming via Xbox and Play Station. This new addition added 2.8 million new subscribers in 2009, increasing revenue 22% to $1.7 billion. Netflix increased its market share with its first international move to Canada in 2010. In 2012, Netflix took advantage of its connections in the film industry and began creating its own television series and films like "House of Cards." and “Narcos.” As the style of Netflix products has changed, so have their supply and demand. To understand how these two major factors have changed, you need to understand the history discussed above. In economics, demand is called the quantity desired by consumers. Supply is the quantity that the overall market can provide to these consumers. These two basic concepts form the backbone of the economy and a growing business will do what is necessary to increase supply and demand as efficiently as possible. This is exactly what Netflix did. At first, Netflix had a limited supply of 90,000 DVDs. If the DVD you wanted was already taken, you had to wait until it became available again. Since Netflix launched online streaming, the supply has been relatively unlimited. If you're a Netflix subscriber, you have thousands of shows to choose from, just like everyone else. Like a lot of people could watch the same show at the same time and it wouldn't burn out. The demand for Netflix can also be represented by subscribers. No matter who requests an account, it is always possible to get one. Since Netflix subscribers can represent their supply and demand, the graph above shows an increase in Netflix subscribers over the last 6 years. The number of subscribers continues to increase as Netflix expands into other markets. Netflix's biggest competitor would then be Blockbuster. At its peak in 2004, Blockbuster employed 84,300 people worldwide with 9,094 total stores, compared to Netflix's 55 distribution centers across America. Although Netflix could guarantee delivery of a choice of over 90,000 DVDs to a customer in a day, its supply of DVDs was limited. The cost of replacing broken or scratched DVDs was one of the major costs forNetflix. To cope with the increasing costs of expanding to compete with Blockbuster, Netflix began offering a subscription service. Their most popular plan was $19.95 for unlimited movies to ship to your home. While Blockbuster had to factor store and employee costs into its pricing, Netflix did not. With this market advantage, Netflix could provide quality DVDs at a much lower cost. This plan has significantly increased Netflix's revenue as well as their demand. Below is a table of Netflix's DVD delivery pricing scale. Plan DVD Price Blu-ray Price Total number of discs per monthNumber of discs released at a timeStarter $5 $6 2 OneStandard $8 $10 Unlimited OneFirst $12 $15 Unlimited TwoIn 2007, Netflix moved into online streaming, which changed everything. Customers with Wi-Fi-enabled tablets, smartphones, or laptops could watch Netflix anywhere, anytime. Since Netflix offered its own movies and TV shows, you didn't need to wait for reruns, you could watch any show as many times as you wanted. Supply was no longer a factor for Netflix. Demand has exploded! For a monthly payment of $7.99, which was cheaper than cable, you could watch any show instantly. Everyone was leaving cable TV and moving to Netflix.Basic (streaming) $8 1 SDStandard (streaming) $11 2 HDPremium (streaming) $14 4 HD + Ultra HDThe table above represents the monthly streaming pricing system current online Netflix. This slowly changed over the years as sales also increased to cover the production costs of Netflix originals. In the beginning, Netflix did everything it could to break even. In 2002, when Netflix first went public, Reed Hasting said in his first annual report to investors "we doubled our revenues to $152.8 million, up from $75.9 million in 2001. We ended the year with about 857,000 total subscribers” (Hastings, 2002). It was a major improvement but not enough. 2003 was Netflix's first profitable year. Hastings, in its annual report, records the numbers that made this possible: "The company reported revenues of $272.2 million, up 78 percent from $152.8 million in 2002" ( Hastings, 2003). This was made possible by the number of subscribers "nearly 1.5 million members, up 74 percent from 2002" (Hastings, 2003). This was in the early days, before Netflix offered online streaming. Four years later, in 2007, Netflix's first year of online streaming, the company "added 1.2 million new subscribers, ending the year with 7.5 million" (Hastings, 2007) and "its revenues increased increased by 21%, to reach 1.2 billion” (Hastings, 2007). Since then, Netflix has created an app, launched into the international market, constantly updated and changed its website, and started producing movies. Despite all this, Netflix has seen its revenues steadily increase over the years due to the growing number of subscribers. Fast forward to 2017, Netflix's latest annual report states that "Netflix, Inc. is the world's leading Internet television network with more than 117 million streaming subscriptions in more than 190 countries and enjoying over 140 million hours of TV shows and movies per day, including original series. , documentaries and feature films” (Netflix, 2017). Elasticity is defined as the measure of how well demand respondsto a change in price: the more elastic a good is, the more responsive it is to a change in price, the less elastic or inelastic it is. a good means that it does not respond to a change in price. The main types of elasticity are perfectly elastic, elastic, unit elastic, inelastic and perfectly inelastic. Netflix streaming services are considered inelastic. Netflix has had a loyal "cult following" for some time, but originally it wasn't. It's become a common occurrence, with many people ditching cable just to access Netflix. It has changed the way people watch movies and television. You can watch an entire series in order without having to wait for reruns. In May 2014, you can see where Netflix increased its price by $1, from $7.99 to $8.99. This price increase took Netflix from 1.3 million that quarter to 1 million. That's a loss of 300,000 subscribers for an increase of $1. To calculate the percentage change in demand, the equation would be (1.3 Mil-300,000/1.3 MilX100), which equates to a 23% decrease. Then you would take the percentage change in price from $7.99 to $8.99, which would be a 12.5% ​​increase. Finally, the percentage change in quantity demanded/percentage change in price, 23%/12.5%, which would equal 1.84. Since the elasticity is greater than one, Netflix's elasticity of demand is considered relatively elastic. This means that Netflix shouldn't raise their prices too much because it could really affect their sales. $1 costs Netflix 300,000 subscribers, imagine if it was $5. The initial cost of producing Netflix was much more expensive than it is today. With 55 distribution centers for its DVDs and around 25,000 employees, Netflix spent a lot of money to release its product, not to mention the cost of the 90,000 DVDs and all the packaging. A year after its IPO in 2002, Netflix “achieved profitability for the first time in 2003” (Hastings 2003). When Netflix got into streaming, the initial algorithm cost it a lot, but there was no need to continue producing DVDs. , as many subscribers could watch the same thing as much as they wanted before streaming online, if Netflix ran out of copies of the movie you wanted, that was a shame, and you would hopefully be the first to get the next available copy. the cost of production skyrocketed when Netflix decided to create its own series. After taking a huge $100 million risk to make two 13-episode seasons of House of Cards, Netflix was tired. Although it paid off when the first season was nominated for 8 Emmys and the second season for 13. These nominations vindicated everything they had done over the past few years with the creation of the series. Netflix has gone on to produce many other originals such as Orange is the New Black, House of Cards, Stranger Things, and Narcos, to name a few. Now all of Netflix's most popular shows are their original series, so they continue to produce them, which is expensive but also profitable because many series have started. Initially, when Netflix started, Blockbuster was their main competitor. Besides buying DVDs at Walmart, if you wanted a bigger selection it was Blockbuster and Netflix. However, Netflix had a few key advantages. First, Netflix could guarantee your movies within a day, their per-DVD prices were cheaper, especially when they moved to the monthly rate, and all of this could be done from the comfort of your home. Then in 2002, a new company joined us, Redbox. Redbox.