Requirements for Textbook Case#ll Netflix Please answer the following questions. Answer each question separately. Each answer for each question must be 2 pages minimum, double spaced, l2 font, Times New Roman. The report must include a title page with the assigmnent title, course number and section, student name and student ID number. 1. How strong are the competitive forces in the global streaming marketplace? Use the ve forces framework to support your answer. 2. What forces are driving change in the streamed entertainment industry? Are these driving forces likely to have a favorable or unfavorable impact on competitive intensity and lture industry protability? 3. What is Netix's strategy in 2020? Which of the ve generic competitive strategies discussed in Chapter 5 most closely t the competitive approach that Netix is taking? What type of competitive advantage is Netflix trying to achieve? 4. What is your appraisal of Netix's operating and nancial performance based on the data in case Exhibits 1, 2, 5, 7, and 8? What positives and negatives do you see in Netix's performance? (Should present key nancial indicators and ratios) 5. What 24 top priority issues does Netflix management need to address? EXHIBIT 1 Netflix's Consolidated Statements of Operations, 2015-2019 (in millions, except per share data) [(g) For tables, all underlines should be the length of the longest numerical entry in each column, which may sometimes vary from column to column; align vertically on $ and ones digits; set end parenthesis to the right of the ones digit and no underline; underlines should be continuous, no breaks for commas or parentheses] 2015 2016 2017 2018 2019 Revenues $6,779.5 $8,830.7 $11,692.7 $15,794.3 $20, 156.4 Cost of revenues (almost all of which relates to amortization of content assets) 4,591.5 6,257.5 7,659.7 9,967.5 12,440.2 Gross profit 2, 188.0 2,800.8 4,033.0 5,826.8 7,716.2 Operating expenses Technology and development 650.8 780.2 1,052.8 1,221.8 1,545.1 Marketing 824.1 1,097.5 1,278.0 2,369.5 2,652.5 General and administrative 407.3 315.7 863.6 630.3 914.4 Total operating expenses 1,882.2 2,421.0 3, 194.4 4,221.6 5, 1 12.0 Operating income 305.8 379.8 838.7 1,605.2 2,604.3 Interest and other income (expense) (163.9) 30.8 (591.5) (378.80) (542.0) Income before income taxes 141.9 260.5 485.3 1,226.5 2,062.2 Provision for (benefit from) income taxes 19.2 73.8 (73.6) 15.2 195.3 Net income $ 122.6 $ 186.7 $ 558.9 $ 1,211.2 1,866.9 Net income per share: Basic $ 0.29 $ 0.44 $ 1.29 $ 2.78 $ 4.26 Diluted 0.28 0.43 1.25 2.68 4.13 Weighted average common shares outstanding (in millions) Basic 425.9 428.8 431.9 435.4 437.8 Diluted 436.5 438.7 446.8 451.2 451.8 Note 1: Some totals may not add due to rounding. Source: Company 10-K reports for 2010, 2017, and 2019.C-l42 PART 2 Cases in Crafting and Executing Strategy EXHIBIT 2 Selected Balance Sheet ano C sh Flow Data for Netix, 2015-2019 (in millions) Selected Balance Sheet Data Cash and cash equivalents $1,809.3 $ 1,467.6 $ 2,822.8 $ 3,794.5 $ 5,018.4 Current assets 5,431.8 5,720.3 7,670.0 9,694.1 6,178.5 Total current and non-current content assets 7,218.8 14,682.0 20,112.20 20,1075 $245045 Total assets 10,2029 13.5866 19,012.7 25,974.4 33,975.7 Current liabilities 3,529.6 4,586.7 5,466.3 6,487.3 6,855.7 Long-term debt" 2,371.4 3,364.3 6,499.4 10,360.1 14,759.3 Stockholders' equity 2,223.4 2,679.8 3,582.0 5,238.8 7,582.2 Cash Flow Data Net cash (used in} provided by operating activities $ (749.4) $(1.474.0) $ {1,785.9} $(2,680.5) $ (2.8873) Net cash provided by (used in} investing activities (179.2) 49.8 34.3 (339.1) (387.1) Net cash provided by (used in} nancing activities 1,640.3 1,091.3 3,077.0 4,048.5 4,505.7 All of Netlx's long-term debt consisted of senior unsecured notes that ere Issued at various points in time and had various maturity ates and various xed rates of Interest. ources: Company 10-K Reports 201 I, 2015, 2017, and 2019. EXHIBIT 5 Netflix's Performance by Business Segment, 2015-2019 (in millions, except for average monthly revenues per paying member and percentages) Domestic Streaming Segment 2015 2016 2017 2018 2019 Paid memberships at year-end 43.4 47.9 52.8 58.5 61.0 Paid net membership additions 5.6 4.7 4.9 5.7 2.6 Average monthly revenue per paying membership $ 8.50 $ 9.21 $ 10.18 $ 11.40 $ 12.57* Revenues $4, 180.3 $5,077.3 $ 6,153.0 $ 7,646.6 $ 9,243.0 Cost of Revenues (Note 1) 2,487.2 2,855.8 3,319.2 4,038.4 4,867.3 Marketing costs 313.6 412.9 603.7 1,025.4 1,063.0 Contribution profit (Note 2) $1,375.5 $1,712.4 $ 2,078.5 $ 2,582.9 $ 3,312.6 Contribution margin 33% 34% 34% 34% 36% International Streaming Segment Paid memberships at year-end 27.4 41.2 57.8 80.8 106.1 Paid net membership additions 1 1.7 14.3 18.5 22.9 25.3 Average monthly revenue per paying membership $ 7.48 $ 7.81 $ 8.66 $ 9.43 Note 3 Revenues $1,953.4 $3,211.1 $ 5,089.2 $ 7,782.1 $10,616.2 Cost of Revenues (Note 1) 1,780.4 3,042.7 4,359.6 5,776.0 7,449.7 Marketing costs 506.4 684.6 832.5 1,344.1 1,589.4 Contribution profit (Note 2) $ (333.4) $ (516.2) $ (102.9) $ 662.0 $ 1,577.1 Contribution margin (17)% (16)% (2)% 9% 15% Domestic DVD Segment Paid memberships at year-end 4.8 4.0 3.3 2.7 2.2 Average monthly revenue per paying membership $ 10.30 $ 10.22 $ 10.17 $ 10.19 Note 3 Revenues $ 645.7 $ 542.3 $ 450.5 $ 365.6 $ 297.2 Cost of Revenues (Note 1) 323.9 262.7 202.5 153.1 123.2 Marketing costs Contribution profit (Note 2) $ 321.8 279.5 $ 248.0 $ 212.5 $ 174.0 Contribution margin 50% $2% 55% 58% 59% Global Totals Paid memberships at year end 75.6 93.1 1 17.2 142.0 169.3 Global average monthly revenue per paying membership $ 8.15 $ 8.61 $ 9.43 $ 10.31 $ 10.82 Revenues $6,779.5 $8,830.7 $11,692.7 $15,794.3 $20, 156.4 Operating income 305.8 379.8 838.7 1,605.2 2,604.2 Operating margin 5% 4% 7% 10% 13% Net income $ 122.6 $ 186.7 $ 558.9 $ 1,221.2 $ 1,867.0 * Includes United States and Canada, due to a Q4 2019 change In Netflix's reporting of its geographic business segments. Note 1: Cost of revenues for the domestic and International streaming segments consist mainly of the amortization of streaming content assets with the remainder relating to the expenses associated with the acquisition licensing and production of such content Cost of rev- 9.00 x 11.25 inW dIxxxiv (584 of 853) 82.8% EXHIBIT 7 The Growing Financial Strain of Netflix's Strategic Emphasis on Producing Original Content In-House, 2015-2019 (in millions of dollars) 2019 2018 2017 2016 2015 Streaming content obligations at year-end $19,490.1 $ 19,285.9 $ 17,694.6 $ 14,479.5 $ 10,902.2 Additions to streaming content assets 13,916.7 13,043.4 9,805.8 8,653.3 5,771.6 Additions to DVD content assets Note 1 38.6 53.7 17.2 78.0 Amortization of streaming content assets 9,216.2 7,532.1 6, 197.8 4,788.5 3,405.4 Amortization of DVD content assets 2.7 1 1.2 60.7 79.0 79.4 Net cash used in operating activities (2,887.3) (2,680.5) (1,785.9) (1,474.0) (749.4) Proceeds from issuance of debt 4,469.3 3,921.8 3,020.5 1,000.0 1,500.0 Proceeds from issuance of common stock 72.5 124.5 88.4 37.0 78.0 Outstanding senior notes 14,893.0 10,360.0 6,499.4 3,364.3 2,371.4 Note 1: This item was reclassified and merged into a different accounting category on the company's Cash Flow Statement. Source: Company 10-K Reports 2019, 2018, 2017, 2016, and 2015. EXHIBIT 8 Netflix's Outstanding Long-Term Debt as of December 31, 2019 Debt Issues Principal Amount Interest Due Dates at Par Issue Date Maturity Date 4.875% Senior Notes $1.00 billion October 2019 June 2030 June 15 and December 15 3.625% Senior Notes $1.23 billion October 2019 June 2030 June 15 and December 15 5.375% Senior Notes $1.34 billion April 2019 November 2029 June 15 and December 15 3.875% Senior Notes $900 million April 2019 November 2029 June 15 and December 15 6.375% Senior Notes $800 million October 2018 May 2029 May 15 and November 15 4.625% Senior Notes $1,260 million October 2018 May 2029 May 15 and November 15 5.875% Senior Notes $ 1.9 billion April 2018 November 2028 April 15 and November 15 4.875% Senior Notes $1.6 billion October 2017 April 202 April 15 and October 15 3.625% Senior Notes $1.561 billion May 2017 May 2027 May 15 and November 15 4.375% Senior Notes $1.0 billion October 2016 November 2026 May 15 and November 15 5.500% Senior Notes $700 million February 2015 February 2022 April 15 and October 15 5.875% Senior Notes $800 million February 2015 February 2025 April 15 and October 15 5.750% Senior Notes $400 million February 2014 March 2024 March 1 and September 1 5.50% Senior Notes $700 million February 2015 February 2022 April 1 and October 1 5.375% Senior Notes $500 million February 2013 February 2021 February 1 and August 1 Source: Company 2019 10-K Report, p. 55