In 1997, two software engineers, Reed Hastings and Marc Rudolph, founded Netflix after Hastings was charged a $40 penalty for the delay of "Apollo 13" on Blockbuster. Netflix was originally in the DVD delivery business. Customers would pay to have any of the more than 90,000 DVDs delivered directly to their home. Two years later, in 1999, Netflix adopted a monthly subscription structure that allowed customers to have an unlimited number of movies delivered to their homes for $19.95. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay In 2002, Netflix went public and its IPO doubled revenue, according to Hastings in its annual report. 2007 saw rapid changes in technology and Netflix decided to move into online streaming. Customers were charged a monthly fee for subscriptions that covered unlimited movies and TV shows. Customers could view their movies on numerous devices: smartphone, tablet, laptop or Smart TV. Despite these constant changes, Netflix's subscribers and annual revenue have continually increased. Reed Hastings, co-founder and CEO of Netflix, stated in his annual report “2009 was a banner year for Netflix” (Hastings, 2009). This was due to Netflix making online streaming possible 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 TV series and films such as "House of Cards" and "Narcos". As the style of Netflix products has changed, so has their supply and demand. To understand how these two main factors have changed it is necessary to understand the previously stated history. In economics, demand is defined as the quantity desired by consumers. Supply is the quantity that the overall market can offer to such consumers. These two basic concepts are 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 was available again. Since Netflix started streaming online, the offering is relatively unlimited. If you subscribe to Netflix, you have thousands of shows to choose from, and so does everyone else. How many people could watch the same show at the same time and it wouldn't end. Demand for Netflix can also be represented by subscribers. No matter who requests an account, you can still have one. Since Netflix subscribers can represent their supply and demand, the graph above shows an increase in the number of Netflix subscribers over the last 6 years. The number of subscribers is constantly increasing as Netflix moves into other markets. Netflix's biggest competitor at the time would be Blockbuster. At its peak in 2004, Blockbuster employed 84,300 people worldwide with 9,094 stores in total compared to Netflix's 55 distribution centers across America. While Netflix could guarantee delivery of any of more than 90,000 customer-selected DVDs within one day, its supply of DVDs was limited. The cost of replacing broken or scratched DVDs was one of Netflix's biggest costs. To cope with the growing costs of expansionto compete with Blockbuster, Netflix began offering a subscription service. Their most popular plan was $19.95 for unlimited movie shipping to your home. While Blockbuster had to factor store and employee costs into its pricing, Netflix did not. Thanks to this market advantage, Netflix could provide quality DVDs at much lower costs. This plan dramatically increased Netflix's revenue and demand for it. Below is a chart of Netflix's DVD delivery price scale. Plan Price DVD Price Blu-ray Total discs per monthNumber of discs released at one timeStarter $5 $6 2 OneStandard $8 $10 Unlimited OnePremier $12 $15 Unlimited TwoIn 2007, Netflix moved to online streaming, which changed everything. Customers with Wi-Fi-enabled tablets, smartphones or laptops can watch Netflix anywhere, anytime. Since Netflix offered their own movies and TV shows, you didn't have to wait for reruns, you could watch whatever show they had as often 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 TV, you could watch any show instantly. Everyone was abandoning cable TV and switching to Netflix. Basic (Streaming) $8 1 SStandard (Streaming) $11 2 HDPremium (Streaming) $14 4 HD + Ultra HD The chart above shows Netflix's current monthly online streaming pricing system. This slowly changed over the years as sales 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 states 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 approximately 857,000 total subscribers” (Hastings, 2002). This was an important improvement but not enough. 2003 was Netflix's first profitable year. Hastings in his annual report records the numbers that made this possible: "The Company recorded revenues of 272.2 million dollars, up 78% compared to 152.8 million dollars in 2002" (Hastings, 2003). This was possible because subscribers amounted to “nearly 1.5 million members, up 74% from 2002” (Hastings, 2003). This was in the beginning, before Netflix introduced online streaming. Four years later, in 2007, Netflix's first year of online streaming, the company “added 1.2 million new subscribers and ended the year with 7.5 million” (Hastings, 2007) and “revenues grew by 21% to 1.2 billion” (Hastings, 2007). Since then, Netflix has created an app, moved into the international market, constantly updated and changed its website, and started producing films. Despite all this, Netflix has seen steadily increasing revenue 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 enjoying more than 140 million hours of TV programs and films per day, including original series, documentaries and feature films” (Netflix, 2017). the more responsive a good is to a price change, the less elastic or inelastic it is means that it does not respond to a price change. 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 ever since, but that wasn't the case originally. It has become a normal commodity, many people are moving away from cable solely to get Netflix. It changed the way people watch movies and TV. You can watch an entire series in order and not have to wait for reruns. In May of 2014 you can see where Netflix increased its price by $1 from $7.99 to $8.99. This price increase caused Netflix to go from 1.3 million to 1 million in that quarter. This means a loss of 300,000 subscribers for a $1 increase. 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 represent 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 prices too much because it could really affect their sales. Netflix costs $1 to 300,000 subscribers, imagine if it cost $5. Netflix's initial cost of production was much more expensive than today. With 55 distribution centers for its DVDs and approximately 25,000 employees, Netflix spent a lot of money to get its product out, not to mention the cost of 90,000 DVDs and all the packaging. A year after going public in 2002, Netflix “achieved profitability for the first time in 2003” (Hastings 2003). When Netflix entered the world of streaming, it cost them a lot for the initial algorithm, but they didn't have to continue producing DVDs. , since many subscribers could watch the same thing as much as they wanted before online streaming, if Netflix ran out of copies of the movie you wanted it would be a shame and hopefully you would be the first to get the next available copy. production costs skyrocketed when Netflix decided to make its own series. After taking a whopping $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 was nominated for 13. Those nominations justified everything they had done over the past few years with creating the show. Netflix has continued 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 own original series, so they keep making them, which costs a lot but also pays off from so many shows. In the beginning, when Netflix started, Blockbuster was their main competitor. In addition to getting DVDs from Walmart, if you wanted a larger selection there was Blockbuster and Netflix. However, Netflix had some key advantages. First of all, Netflix could guarantee your movies within a day, their prices for DVDs were cheaper especially when they adopted the monthly fee, and all this could be done from the comfort of your home. Then in 2002 a new company, Redbox, joined. Redbox had a unique design of DVD "kiosks" that could be placed in shopping malls, convenience stores, shopping centers etc. Redbox had the cheapest prices and most of the latest releases, but not quite the selection as Netflix. Amazon Prime videos began streaming online in late 2006, and Netflix quickly followed in early 2007. A few months after Netflix entered the streaming world, Hulu joined the ranks..