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UNIVERSIDAD AUTÓNOMA DE NUEVO LEÓN FACULTAD DE CONTADURÍA PUBLICA Y

ADMINISTRACION

Curso: Administración de riesgos

Nombres y matrículas :

Zapata Puente Gabriel Fernando #1737525

Fermín Carreón Debanie Montserrat #1925927

Frausto Gaona Andrey #1898778

Rivas Guajardo María Fernanda #1920404

del Bosque Loredo José Emilio #1919849

PIA

Netflix

Professor: Saul Adolfo Noriega Valencia

Group:7Hi

Aula:1121

Ciudad Universitaria, San Nicolás de la garza, Noviembre 16, 2022

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Index

History of Netflix and Netflix Financially ……………………………………………………….3

Risk análisis………………………………………………………………………………………….5

First risk: Competition……………………………………………………………………………..6

Second risk: Increase in prices.……………………………………………………………….7

Thirth risk: Less payment accounts………………………………………………………….8

Solution……………………………………………………………………………………………….9

Conclusion …………………………………………………………………………………………10

References…………………………………………………………………………………………. 11

Annex………………………………………………………………………………………………...12
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History of Netflix and Netflix Financially

Netflix was founded in California in 1997 by Reed Hastings and Mark Randolph. They came

up with the idea to start a DVD-by-mail rental service. Netflix.com started in 1998 as the first

DVD rental site. A year later, Netflix launched a subscription service that offered subscribers

unlimited DVD rentals each month. In 2002, Netflix went public with a selling price of $1 per

share under the ticker NASDAQ NFLX. By 2003, the milestone of one million accounts was

reached, and the number of subscribers doubled in the following years. In 2007, Netflix

launched its streaming service. The introduction of their streaming service was a turning

point for Netflix. A few years later, Netflix entered the international market by offering its

services in Canada. In 2013, Netflix expanded its business to produce original content. That

same year, Netflix was nominated for 31 Emmy Awards. They were the first Internet TV

network to be nominated for a Primetime Emmy Award . It Received 26 Emmy Wins in 2022

and received 105 nominations.It Received 27 Oscar Nominations in 2022

Financially, over the 2016 through 2020, Netflix's revenue has grown by an average of

22.86% annually. Netflix's revenue at the end of 2020 was 2.83 times what it was in 2016. In

general, Netflix's revenue is growing every year. The average return on Netflix was 20.72%.

The cost of revenue in 2020 was 2.53 times higher than the cost of revenue in 2016. Netflix's

net income also rose by an average of 47.05%. From 2016 to 2017, its net income increased

significantly by 54.66%. Then, from 2017 to 2018, Netflix recorded a record net profit growth

of 66.01%. Overall, Netflix's net income in 2020 was 14.79 times its net income in 2016.

Such a sharp increase in net income can be attributed to the growth and popularity of Netflix.

(Appendix 1)

The COVID-19 lockdowns around the world have led to greater than pre-crisis expected

subscriber growth rates during the pandemic and pricing power to raise rates due to
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significantly reduced out of home entertainment options and very strong viewer engagement

in 2020 and 2021. Netflix annual net income for 2021 was $5.116B, a 85.28% increase from

2020.Its total annual revenue for 2021, it was about $26.7 billion. It's the highest to date and

is 10+ times more than the annual revenue it generated in 2007.(Appendix 2)

Content spending of Netflix worldwide amounted to around 11.8 billion U.S. dollars in 2020.

Estimates suggest that Netflix would spend over 17 billion dollars in 2021 and another 18

billion dollars in 2022. Netflix reported in April a loss of Netflix lost 200,000 subscribers in

the first quarter, and nearly one million in the second. Its stock plummeted, the company lost

billions in market cap. As of Q2 2022, Netflix had about 220.67 million paid subscribers

across the globe. While this number is pretty impressive, it dropped by almost 1 million

subscribers from the previous quarterThe streaming giant said it now has 223 million

subscribers worldwide, after beating its earlier forecast of about one million additions for the

quarter. Moody’s Forecast the subscriber base to grow at a materially slower rate than what

the company experienced in recent years, but still to exceed 250 million globally by the end

of 2025. Its net income in 2022 is $4,436,640 nine months ended. Netflix net income for the

quarter ending September 30, 2022 was $1.398B, a 3.51% decline year-over-year.
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Risk análisis

1. Competition.

2. Problems with users' servers (Technical problems).

3. Content censored by the country's politics or religion.

4. Excessive spending of cash.

5. Increase in prices.

6. Environmental problems that cause long-term power outages.

7. Low quality internet servers.

8. Less payment accounts.

9. Cybersecurity.

10. Little variety of original content.

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First risk: Competition (Appendix 4)

In the first quarterly results of 2022, Netflix announced that it lost subscribers for the
first time in 10 years. The world's most popular streaming platform had a loss of
200,000 subscribers in the first quarter of the year, contrary to its projection of adding
2.5 million new subscribers to the platform.

Still, Netflix remains the streaming platform with the most subscribers, but in second
place is Amazon Prime Video with a total of 200 million users, Disney+ is third on the
list in this sector, with 129.8 million active customers.
According to the report from AT&T, former parent company of HBO, the HBO and
HBO Max services had 76.8 million subscribers around the world. The other
platforms with a large number of subscribers are Paramount+ (56 million), Hulu (45.3
million), Apple Tv+ (20 million) and Peacock (9 million). The drop in the number of
paying users for Netflix's service revived a service that seemed to be in decline,
which is advertising on streaming videos.

Netflix said it is considering adding an ad-based option to its service at a lower price.
This encouraged several Wall Street investors to maintain an illusion in the platform's
future, as is the case of JP Morgan's Douglas Anmuth, who said he was encouraged
by the company's intentions to create this business, a model that has worked for
Comcast and Disney-owned Hulu, which is the founding father of ad-supported
streaming, although he noted that it was still in its nascent stages.
Netflix also said that another cause that would have led to the unfavorable quarterly
result was the increasing sharing of passwords.

The platform in its results, added that they estimate around 100 million households
are watching the platform without paying. That is why it is expected to announce
measures to charge for sharing accounts in the near future.
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Second risk: Increase in prices.(Appendix 4)

An issue of Netflix is the price increase, which has been presented in such a way
that new subscribers will enter the platform paying the new price, while existing
subscribers will see the change implemented "in the following months". Similar to
what has happened with changes in previous years, an email will be sent to users
notifying them of the price increase and a notification will appear on the platform
before the new price is implemented.
In the midst of an increasing offer of streaming services (which cost more than 10
dollars, or more than $200 Mexican pesos) this is undoubtedly an annoying change
for users.

Considering that Netflix is canceling a large number of series, it seems that it is not
really worth staying on a platform that abandons its projects and only focuses on
massive hits. And, also taking into account that its library has seen some series and
movies go to other platforms, it seems less and less convenient to hire the platform.

Today there are platforms like Star+, Disney+, and Hulu is working on coming to
Mexico, Prime is having success, HBO is there too, and for other users there is
Apple TV. If a person wants to watch all the shows people are talking about they
would have to have all the platforms, which would mean a huge expense, however,
usually only two streaming services are chosen. That's why nowadays, people prefer
to stay on a platform that is stable with its price and also offers a wider range of
series/movies for all audiences.
Not to mention that the price of Netflix in its early days, the standard package was
worth $7.99 in 2010 and now it's worth almost double what it was originally worth, we
don't think it's a comfortable option.
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Thirth risk: Less payment accounts.(Appendix 4)

Netflix had warned in April that it expected to lose two million customers this second
quarter, an announcement that shocked Wall Street and cast doubt on its long-term
growth prospects.
However, Tuesday's expected earnings announcement reflects that defections were
not as pronounced as the company feared, thanks to the new season of Stranger
Things, which helped stem the leakage.
In addition, the company expects new customer additions between July and
September to total 1 million.
For its part, Wall Street expects 1.84 million new users for the next quarter.
Earlier this year, Netflix announced its first drop in subscribers in more than a
decade, a sea change for a company that for years experienced seemingly
unstoppable growth that revolutionized entertainment consumption, shaking up the
traditional TV and movie business.
Its position as a global giant was cemented when the pandemic hit in 2020 and
people, stuck at home with few entertainment options, flocked to its shows.
However, as pre-Pandemic habits return, Netflix is struggling to attract new
subscriptions and maintain the loyalty of existing members.
Also, Netflix has said it will experiment with different ways of presenting the new
charges before launching them globally later this year.
When things were going well, Netflix could afford to ignore account sharing, but now
it is trying to take advantage of people who share passwords, even at the risk of
alienating some, said Guy Bisson, chief executive of Ampere Analysis.
"I think they will probably gain more than they would lose by doing this," he said.
"They can implement it sequentially and gradually and make sure it has the effect
they expect."
In addition to trying to make more money from existing audiences with the
crackdown on password sharing, Netflix has said it will experiment with a lower-cost
service that incorporates advertising.
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Solution

We see described in one of the top 3 risks that Netflix is planning on adding a lower

subscription tier which will be paid and it will have ads on top of that. However,

people do not like ads, and that is why they pay a subscription. Netflix currently does

not have a free subscription, which may impact the usage of the platform. An

example of a great platform that has a free subscription is Crunchyroll. This platform

is focused on Anime and Asian Dramas, and has 4 tiers of membership. They offer a

free service which is ad-supported, and then they have 3 tiers of subscription going

from 7USD to 15USD, each one with extra perks as the tiers go up. Netflix can adopt

a system similar to this, taking into consideration that crunchyroll had over 5 million

PAID accounts and over 80 million accounts registered in the last year (2021).

(Appendix 3). It is important to remember that crunchyroll focuses exclusively in

Anime and Asian Dramas, which narrows down their audience a lot. Netflix, being

the most popular streaming service and providing a lot of variety can implement a

free subscription to their platform and their revenue would increase a lot as well as

their active users.

This solution would impact directly to the top 3 risks mentioned later in the analysis,

and it would also indirectly impact other risks like lack of variation caused by Netflix

canceling shows due to low profit. Adding a free subscription would bring a lot of new

users in, and having different tiers of subscription will increase the revenue

exponentially. This will also combat the users’ complaints of rising the prices of the

subscriptions. The basic subscription can remain the same price and give the users

the exact same experience, while a higher subscription can give the user extra

benefits without disrupting the experience of lower-tier users.

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Conclusion

Thanks to this analysis we can point out that most of the risks can be taken care of

simultaneously, because they involve the discontent of the users of Netflix. Based on

the ranking of risks, we see that competition is our top priority. Amazon Prime and

Disney+ are pushing for that number 1 spot and they are constantly growing while

Netflix is slowly losing some subscribers due to poor decision-making. We also have

the risk of people not subscribing or even unsubscribing due to the increase in

prices. And finally but equally as important is the risk of people sharing accounts,

thus impacting the revenue of the company.

These risks can bring Netflix down in an instant because of their high impact and

high probability, so this is why it’s important to make some changes to the

subscription system. Doing this will impact all 3 risks in a very positive way and may

be the turning point for Netflix and their way back to being the indisputable number 1.
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References

-Gregory, A. (2021). Complete Analysis of Netflix, Inc. [Honors Theses]. University of

Mississippi.

https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=2780&context=hon_thesis

-Netflix (NFLX) - Market capitalization. (n.d.).

https://companiesmarketcap.com/netflix/marketcap/

-Pallotta, F. (2022, October 18). Netflix is back to growing after a nightmare year of losing

subscribers. CNN. https://edition.cnn.com/2022/10/18/media/netflix-earnings/index.html

-Moody's comments on Netflix's (Ba1 Positive) weaker than expected subscriber

performance and guidance. (2022, April 21).

https://www.moodys.com/research/Moodys-comments-on-Netflixs-Ba1-Positive-weaker-than

-expected-subscriber--PR_465329

-Mullin, B. (2022, October 18). Netflix Adds 2.4 Million Subscribers, Reversing a Decline.

New York Times.

https://www.nytimes.com/2022/10/18/business/media/netflix-subscribers-earnings.html

-Netflix Net Income 2010-2022 | NFLX. (n.d.). MacroTrends.

https://www.macrotrends.net/stocks/charts/NFLX/netflix/net-income

-Stoll, J. (2022, October 18). Content spend of Netflix 2016-2022. Statista.

https://www.statista.com/statistics/964789/netflix-content-spend-worldwide/

-Molenaar, K. (2022, September 22). 20+ Netflix Stats: Subscribers, Revenue, Growth and

More [2022]. Influencer Marketing Hub. https://influencermarketinghub.com/netflix-statistics/

-Stoll, J. (2022, May 4). Number of Crunchyroll subscribers 2012-2021. Statista. Retrieved

November 16, 2022, from https://www.statista.com/statistics/594952/crunchyroll-users/

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Annex

Appendix 1

Appendix 2

Appendix 3
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Appendix 4

P.I MATRIX