Construct an annual subscriber model for Netflix that can be used to forecast the expected cash flows for a new subscriber over the next five years. What is the value of a new Netflix subscriber? (Assume a discount rate of 20%.) Based on your analysis, should Netflix be acquiring new subscribers? - How do I calculate the XNPV and when do I apply the the discount rate of 20%?

New Subscriber Model New Subscriber / No Conversion to Paid Status Feb-00 1 Cost DVDs* Shipping** Total for 1 month Subscription with no conversion to paid status Apr-00 3 May-00 4 May-00 5 Jun-00 6 0.00 Revenue Subscription Fee Mar-00 2 Total 0.00 0.00 0.00 0.00 0.00 0.00 (98.28) (4.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (98.28) (4.00) (102.28) 30% 0.00 0.00 0.00 0.00 0.00 (102.28) New Subscriber / Converts to 6 month paid subscription Feb-00 1 Cost DVDs* Shipping** Total for 6 month Subscription with conversion to paid status Apr-00 3 May-00 4 May-00 5 Jun-00 6 0.00 Revenue Subscription Fee Mar-00 2 Total 19.95 19.95 19.95 19.95 19.95 99.75 (98.28) (4.00) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (147.42) (25.50) (102.28) 30% 5.82 5.82 5.82 5.82 5.82 (73.17) New Subscriber / Converts to 60 month paid subscription Feb-00 1 Revenue Subscription Fee Cost DVDs* Shipping** Total for 60 month Subscription with conversion to paid status Grand Total Total for 1 month Subscription with no conversion to paid status Total for 6 month Subscription with conversion to paid status Total for 60 month Subscription with conversion to paid status Grand Total Mar-00 2 Apr-00 3 May-00 4 Jun-00 5 Jul-00 6 Aug-00 7 Sep-00 8 Oct-00 9 Nov-00 10 Dec-00 11 Jan-01 12 Feb-01 13 Mar-01 14 Apr-01 15 May-01 16 Jun-01 17 Jul-01 18 Aug-01 19 Sep-01 20 Oct-01 21 Nov-01 22 Dec-01 23 Jan-02 24 Feb-02 25 Mar-02 26 0.00 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 (98.28) (4.00) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (102.28) 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 (306.84) 40% 11.64 11.64 11.64 11.64 11.64 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 (102.28) 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% (102.28) 30% 5.82 30% 5.82 30% 5.82 30% 5.82 30% 5.82 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% (102.28) 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% (1,069,969.21) * DVD's are $17.55 each, must buy 5.6 for every new subscriber for the first month and then .56 every month thereafter ** Shipping is $1 per DVD, average rentals per month is 4.3 Apr-02 27 May-02 28 Jun-02 29 Jul-02 30 Aug-02 31 Sep-02 32 Oct-02 33 Nov-02 34 Dec-02 35 Jan-03 36 Feb-03 37 Mar-03 38 Apr-03 39 May-03 40 Jun-03 41 Jul-03 42 Aug-03 43 Sep-03 44 Oct-03 45 Nov-03 46 Dec-03 47 Jan-04 48 Feb-04 49 Mar-04 50 Apr-04 51 May-04 52 Jun-04 53 Jul-04 54 Aug-04 55 Sep-04 56 Oct-04 57 Nov-04 58 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 19.95 (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) (9.83) (4.30) 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 5.82 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 0.00 30% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% 5.82 40% Dec-04 59 Jan-05 60 Total 19.95 19.95 1,177.05 (9.83) (4.30) (9.83) (4.30) (678.13) (257.70) 5.82 5.82 241.22 5.82 5.82 65.77 0.00 30% 0.00 30% (102.28) 0.00 30% 0.00 30% (73.17) 5.82 40% 5.82 40% 241.22