CEO Reed Hastings started Netflix in 1997 after becoming angry about paying Blockbuster Video $40 for a late return of Apollo 13.
CEO Reed Hastings started Netflix in 1997 after becoming angry about paying Blockbuster Video $40 for a late return of Apollo 13. Hastings and Netflix struck back with flat monthly fees for unlimited DVDs rentals, easy home delivery and returns via prepaid postage envelopes, and no late fees, which let customers keep DVDs as long as they wanted. Blockbuster, which earned up to $800 million annually from late returns, was slow to respond and lost customers in droves.
When Blockbuster, Amazon, and Walmart started their own mail-delivery video rentals, Hastings recognized that Netflix was in competition with “the biggest rental company, the biggest e-commerce company, and the biggest company, period.” With investors expecting it to fail, Netflix’s stock price dropped precipitously to $2.50 a share. But with an average subscriber cost of just $4 a month compared to an average subscriber fee of $15, Netflix, unlike its competitors, made money from each customer. Three years later, Walmart abandoned the business, asking Netflix to handle DVD rentals on Walmart.com. Amazon, by contrast, entered the DVD rental business in Great Britain, expecting that experience to prepare it to beat Netflix in the United States. But, like Walmart, Amazon quit after four years of losses. Finally, 13 years after Netflix’s founding, Blockbuster declared bankruptcy. With DVDs mailed to 17 million monthly subscribers from 50 distribution centers nationwide, Netflix is now the industry leader in DVD rentals.
However, its expertise in shipping and distributing DVDs won’t provide a competitive advantage when streaming files over the Internet. Indeed, Netflix’s Watch Instantly download service is in competition with Amazon’s Video on Demand, Apple’s iTunes, HuluPlus at Hulu.com, Time-Warner Cable’s TV Everywhere, and DirectTV Cinema, all of which offer movie and TV downloads. Moreover, unlike DVDs, which can be rented without studio approval, U.S. copyright laws require streaming rights to be purchased from TV and movie studios before downloading content into people’s homes. And that creates two new issues. First, does Netflix have deep enough pockets to outbid its rivals for broad access to the studios’ TV and movie content? Second, can it convince the studios that it is not a direct competitor? HBO, for instance, won’t license any of its original shows, like The Sopranos, for Netflix streaming. It also has exclusive rights for up to eight years for content from Twentieth Century Fox and Universal Pictures. HBO co-president Eric Kessler says, “There is value in exclusivity. Consumers are willing to pay a premium for high-quality, exclusive content.” If other studio executives think this, Netflix will not acquire the video content it needs to satisfy its customers. Planning involves determining organizational goals and a means for achieving them. So, how can Netflix generate the cash it needs to pay the studios? How can it convince them it’s not a competitor so they will agree to license their content?
Netflix must also address the significant organizational challenges accompanying accelerated growth. Hastings experienced the same problem in his first company, Pure Software, where he admitted, “Management was my biggest challenge; every year there were twice as many people and it was trial by fire. I was underprepared for the complexities and personalities.” With blazing growth on one hand and the strategic challenge of obtaining studio content on the other, how much time should he and his executive team devote directly to hiring? Deciding where decisions will be made is a key part of the management function of organizing. So, should he and his executive team be directly involved, or is this something that he should delegate? Finally, what can Netflix, which is located near Silicon Valley, home to Google, eBay, Apple, Hewlett-Packard, and Facebook, some of the most attractive employers in the world, provide in the way of pay, perks, and company culture that will attract, inspire, and motivate top talent to achieve organizational goals?
Question: If you were in charge of Netflix, what would you do?
In your post please provide at least two APA references to support your answer (You can utilize the textbook). You can utilize the Purdue Online Writing Lab (OWL) (Links to an external site.) website for the correct way to reference the articles used.
DQ2 “Tough Love”
Prior to the completion of this discussion board post, please review:
Reading: Chapter 2 The History of Management Page 22.
Chapter 2 The History of Management PPT Preview the document
Review this website (Links to an external site.), to learn about the relationship between labor and management.
Background: As a manager with lots of experience in negotiations, you’ve experienced a lot of different conflicts. There was one case where a worker argued that he should be allowed to smoke his (legally prescribed) marijuana at his desk. Another time, someone asked you to mediate between two executives who were having a strategic disagreement—one thought that the company should invest in tulip futures, while the other thought that pork bellies were the future. But even with all of this experience, you haven’t seen a case like the one going on at a Mott’s apple juice factory that you’ve been called in to consult on.
Mott’s, a division of Dr. Pepper Snapple Group, employs 305 people at its juice factory in Williamson, N.Y., near Rochester. All 305 employees, however, have been on strike for more than three months. They are protesting the fact that the company wants to make severe cuts in pay and benefits—a reduction of wages by $1.50 (about $3,000 per year), a pension freeze, a reduction in 401K contributions, and a decrease in the health insurance subsidy.
On the surface, these cuts seem to make some business sense because companies all over the world are struggling. But what is so unusual in this case is that Dr. Pepper Snapple Group is more profitable than it ever has been. In the last year, its net income was $550 million, a dramatic improvement from the previous year, when it lost $312 million. Because of this success, employees are accusing the company of being greedy. Stuart Applebaum, the president of the factory workers’ union, says “[Dr. Pepper Snapple doesn’t] even show respect to lie to us. They just came in and said, ‘We have no financial need for this, but we just want it anyway because we figure we can get away with it.’”
The company, meanwhile, defends the pay and benefits cut by arguing that its current labor costs are considerably higher than other local companies. The average pay at the Mott’s plant is $21, whereas other factories and transportation companies in the area pay closer to $14. In a public statement, the company defends the move, saying in part, “As a public company, Dr. Pepper Snapple Group has a fiduciary responsibility to operate in the best interests of all its constituents, recognizing that a profitable business attracts investment, generates jobs, and builds communities.”
You have been assigned to a task force with representatives from management and labor that has been charged with resolving the crisis. As all of you review the files, you realize that this is a critical case; if the employees lose, other companies might be motivated to take similar actions and cut labor costs (and increase profits) even when they are not struggling financially.
Questions: For this management situation, think of yourself as the task force leader and answer the following questions.
How could you help steer negotiations between labor and management so that the conflict between them is healthy and productive? Is that even possible?
Is the company justified in trying to cut costs even when it has made a huge profit? Are the employees justified in not working to protest what they perceive as unfair cuts?
In your post please provide at least two APA references to support your answer (You can utilize the textbook). You can utilize the Purdue Online Writing Lab (OWL) (Links to an external site.)website for the correct way to reference the articles used.
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