Question 1

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 2

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 3

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

When a company goes public, they are required to disclose their financial position to potential investors, which includes information on their profits and losses. Therefore, once Netflix became a public company, they had to reveal their financial position and it was discovered that they were on a profit march.

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

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

Accepted Answer

High churn rates mean that customers are leaving the company frequently, which can increase the costs of acquiring new customers and decrease revenue from existing customers. Therefore, firms with high churn rates are likely to be less profitable.

Question 6

Brand and advertising are synonyms for the same concept.

Accepted Answer

Brand and advertising are related but not synonymous concepts. Brand refers to a company's overall image and reputation, while advertising is a specific marketing tactic used to promote a product or service.

Question 7

Describe Netflix's streaming video business model.

Accepted Answer

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

Question 8

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 9

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

Streaming video requires businesses to pay for the rights to stream content, whereas DVD-by-mail only requires the cost of purchasing and mailing physical copies of movies. Streaming video also offers a larger and more varied selection of content, and provides opportunities for advertising or subscription revenue. Streaming video also faces competition from other streaming services, while DVD-by-mail may have only faced competition from physical video rental stores.

Question 10

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 a limited amount of products on their shelves and can only attract customers within a certain geographic radius.

Question 11

Durable brands are built through customer experience.

Accepted Answer

Durable brands are built through consistently delivering positive and memorable customer experiences over time. This creates customer loyalty, positive word-of-mouth, and an overall strong reputation for the brand.

Question 12

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 vast content library, personalized recommendations, and seamless user experience, have contributed significantly to its high degree of customer satisfaction.

Question 13

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

Accepted Answer

Netflix's model is a monthly subscription-based service that allows users to access their media library, which is a substitute for the conventional use-based media rental model. Therefore, it cannot be considered a traditional rental model.

Question 14

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 15

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

Accepted Answer

According to the statement, the majority of the DVD titles shipped by Netflix are from back-catalog titles, not new releases.

Question 16

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 began as a DVD subscription service and then introduced a video streaming subscription while still keeping the original DVD business. The other options are false.

Question 17

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

Accepted Answer

Cinematch is a recommendation algorithm developed by Netflix that analyzes user ratings and viewing history to suggest titles with similar characteristics to what the user has liked before. It aims to steer the users towards titles preferred by people with tastes most similar to theirs.

Question 18

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

Accepted Answer

This statement is true. Netflix's original business model was centered around a monthly subscription fee, rather than charging customers per rental or per-disc.

Question 19

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

Accepted Answer

According to recent statistics, Netflix remains the leading DVD-by-mail service, followed by Wal-Mart and then Blockbuster.

Question 20

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.

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