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Netflix Will Lose Money for All of 2012 - Essay Example

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Netflix Will Lose Money for All of 2012 On November 21, 2011, Netflix publicly declared that the company expects to lose a huge portion of its profit during all of 2012. To counter their losses and to prevent themselves from sinking further, the company is considering the possibility of doing a secondary offering of its stock…
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Netflix Will Lose Money for All of 2012

Download file to see previous pages... Fortunately, Netflix was able to determine the main cause for their financial downfall. In a very costly move, the company had decided to expand its video streaming service into Ireland and the United Kingdom. Despite the price of the endeavor, it is expected to be a success; however, a large amount of United States subscribers have cancelled their own services, significantly decreasing the amount of money that Netflix can play with to expand their services. During the regulatory filing on November 21, 2011, Netflix extended their warning of losing money to encompass the entire 2012 fiscal year. As though needing to show proof of their financial difficulties, Netflix shares closed at 5.4% lower on November 22. During the same filing the revealed the devastating announcement, Netflix also announced their plans of raising an additional four hundred million dollars to help the company out of their financial hole. To do this, Netflix is turning to investors. Netflix is currently selling almost three million shares at seventy dollars per share, which is six percent below the closing price on November 21. The offering was scheduled to close approximately on November 28. Furthermore, Netflix is also selling two million dollars worth of convertible bonds to investment funds that are associated with Technology Crossover Ventures, which is a fund that has been investing in Netflix for over ten years. The money raised from all of the aforementioned methods will provide the company with the money needed to invest in more content, though the need for secondary offerings are usually believed to be foreboding signs of further financial devastation. “They can signal that expenditures have outpaced expectations and that a company needs to raise more cash.” To make matters worse for Netflix, which only had roughly four million in cash at the end of the last quarter, is that they are facing threats brought on by rivals with a significantly larger amount of money. Film and television studios are demanding even more money for companies to make use of their valuable content, and rivals are coming out of the woodwork to make their bids. Among these rivals are big names such as Hulu and kiosk service Redbox, but other well-known technology giants that are looking at creating video streaming include Amazon and Google. An analyst stated earlier this year that Netflix’s streaming content licensing will cost a total of two billion dollars in 2012, which is a significant rise from the one hundred and eighty million they were paying in 2010. In its filing on November 21, Netflix stated that it has payments of roughly four billion dollars due over the next few years to pay for content under their current contracts. Unfortunately, Netflix is losing many of these incredibly important licenses. Starz, a particularly large name in entertainment, has opted not to renew their contract with Netflix. By early 2012, they plan to remove all of their movies and television shows from the Netflix service. This loss of content has customers up in arms, demanding why they are being expected to pay more for a service they are getting less of. Customers were already fuming due to Netflix’s announcement in July to charge separate prices for DVDs-by-mail and streaming video, which would increase ...Download file to see next pagesRead More
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Netflix, an online company that rents DVD movies to its customers has various strategies that ensure that its other customers do not take their customers. Some of the strategies include, avoiding overhead costs like utilities and rent to run physical stores instead they use the capital to ensure they have all the DVDS their clients and subscribers need.
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Most of the revenue earned by the company comes from the domestic streaming services offered in its home country, the US, which accounts for around 84% of the total revenue (Gerschmann, 2014). This report highlights
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