Question 1

Which of the following is true of Netflix?
A) It started as two separate services but is now viewed as a single subscription.
B) It began as a DVD subscription model and then simultaneously introduced a video streaming subscription while maintaining the legacy business.
C) It isn't a substitute good for conventional use-based media rental.
D) It got its start offering a DVD-by-mail service for an annual, per-disc rate subscription fee.
E) It started out as an IPO.

Accepted Answer

Netflix initially offered a DVD subscription model and later introduced a video streaming subscription while still maintaining the DVD rental business. The other options are incorrect: A is partially true but not the whole story, C is false as Netflix is commonly seen as an alternative to traditional media rental, D is true but not the initial offering, and E is false as Netflix went public in 2002 after being in business for several years.

Question 2

Within the DVD-by-mail segment, Netflix remained bigger than both Wal-Mart and Blockbuster.

Accepted Answer

This statement is true according to the article. Netflix is currently the largest company within the DVD-by-mail segment, with Wal-Mart and Blockbuster following behind.

Question 3

Provide a brief description of the basics of the Netflix DVD-by-mail business model.

Accepted Answer

Netflix was started as a DVD-by-mail service that charged a flat-rate monthly subscription rather than a per-disc rental fee. Customers do not pay a cent in mailing expenses, and there are no late fees.
Videos arrive in red Mylar envelopes which contain the requested DVD, prepaid postage, and return address. When done watching videos, consumers just slip the DVD back into the envelope, and drop the disc in the mail. Users make their video choices in their "request queue" at Netflix.com. If a title is not available, Netflix simply moves to the next title in the queue. Consumers use the Web site to rate videos they've seen, specify their movie preferences, get video recommendations, check out DVD details, and even share their viewing habits and reviews. This model helped Netflix grow into a giant, but Hastings knew that if his firm was to remain successful, it would have to transition from mailed DVDs to streaming video.

Question 4

In addition to serving as CEO of Netflix, Reed Hastings has also served as _______________ for two other leading tech companies, Facebook and Microsoft.

Accepted Answer

The answer of In addition to serving as CEO of...

Question 5

At Netflix, the majority of the DVD titles shipped are from back-catalog titles, not new releases.

Accepted Answer

This statement is true. According to a Netflix report, in 2019, 59% of the DVD titles shipped were back-catalog titles, while 41% were new releases.

Question 6

One challenge that Netflix faced was that Blockbuster and Walmart were able to quickly extend their strong brands to also become synonymous with a DVD-by-mail subscription service.

Accepted Answer

Netflix faced challenges from Blockbuster and Walmart, but these companies struggled to become as synonymous with DVD-by-mail subscription services as Netflix, which pioneered and dominated this market.

Question 7

The business of streaming video is radically different from DVD-by-mail in several key ways, including content costs, content availability, revenue opportunities, rivals and their motivation.

Accepted Answer

The statement accurately identifies differences between streaming video and DVD-by-mail.

Question 8

Cinematch develops a map of user ratings and steers users toward titles preferred by people with tastes that are most like theirs.

Accepted Answer

This is the main function of Cinematch, which uses machine learning algorithms to create a map of user preferences and recommend titles accordingly.

Question 9

The Netflix customer experience was always weaker than the in-store experience of DVD rental firms, which had human staff. However, consumers were willing to overlook their dissatisfaction given Netflix's other benefits.

Accepted Answer

Netflix's customer experience was considered superior by many because of its convenience, personalized recommendations, and lack of late fees, which outweighed the benefits of in-store interactions at DVD rental firms.

Question 10

Netflix gets to retain the entire subscription revenue for every disc sent out to a customer.

Accepted Answer

Netflix has to pay postage for each disc sent out to customers, which reduces the amount of subscription revenue they retain. Additionally, they may have to pay licensing fees for the content on the discs.

Question 11

The high degree of customer satisfaction that Netflix enjoyed is tightly linked with the firm's sized-based advantages.

Accepted Answer

Netflix's size-based advantages, such as its large library of content and ability to invest in original programming, contributed to high customer satisfaction.

Question 12

Even though Netflix is now mainly focused on digital distribution, it continues to offer the DVD-by-mail service in its base-price product.

Accepted Answer

Netflix's DVD-by-mail service still exists but it operates under a separate subscription from its streaming service, not included in the base-price product for digital distribution.

Question 13

Once Netflix became a public company, the firm was required to disclose its financial position and reveal it was on a profit march.

Accepted Answer

Once a company goes public, it is required to disclose its financial position and performance to the public, including its profitability. Therefore, Netflix would have been required to disclose its profit march once it became a public company.

Question 14

Netflix's initial revenue model was based on a flat-rate monthly subscription fee rather than a per-disc rental fee.

Accepted Answer

Netflix launched in 1997 with a monthly subscription model that allowed customers to rent an unlimited number of movies without worrying about late fees. They didn't charge per-disc rental fees.

Question 15

Physical retailers are limited by shelf space and geography (meaning the density of customers around a particular location).

Accepted Answer

Physical retailers can only stock and display a certain amount of inventory on their shelves, which limits their offerings to customers. Additionally, their ability to attract customers is dependent on their location and the number of people in the surrounding area who are interested in shopping at their store.

Question 16

Durable brands are built through customer experience.

Accepted Answer

Durable brands are built over time by offering positive experiences to customers. Consistently exceeding customer expectations and providing exceptional service are key components of building a strong brand. Happy customers are more likely to become repeat customers and recommend the brand to others, which helps to solidify its reputation and make it more durable.

Question 17

Brand and advertising are synonyms for the same concept.

Accepted Answer

While brand and advertising are related concepts, they are not synonyms. Branding is the process of creating a unique identity and position for a product or company, while advertising is a specific form of communication used to promote that brand or product. Advertising is just one element of the overall branding strategy.

Question 18

Describe Netflix's streaming video business model.

Accepted Answer

The answer of Describe Netflix's streaming video business model....

Question 19

Firms with high churn rates are likely to be more profitable.

Accepted Answer

Firms with high churn rates are likely to have lower customer loyalty and may struggle to retain customers, leading to increased costs associated with customer acquisition and reduced revenue from repeat business. Therefore, firms with low churn rates are typically more profitable.

Question 20

Although sometimes referred to as "rental," Netflix's model is really a substitute good for conventional use-based media rental.

Accepted Answer

Netflix's subscription-based model is different from traditional use-based rental services, as users have unlimited access to movies and TV shows for a fixed monthly fee, rather than paying per rental or per use. This makes it a substitute good for rental services.

Quiz 4: Netflix in Two Acts: the Making of an E-Commerce Giant and the Uncertain Future of Atoms to Bits

Which of the following is true of Netflix?