In July 2000, Reed Hastings, chairman and CEO of NetFlix.com, Inc., faced a critical decision. Three months earlier, following one of the worst episodes on record for the NASDAQ market, NetFlix had submitted its S-1 filing for its initial public offering (IPO).1 As a result of the market downturn, many Internet companies had been forced to withdraw their IPOs. Investment bankers indicated to Hastings that NetFlix would need to show positive cash flows within a twelve-month horizon in order to have a successful offering. Hastings knew that NetFlix was at a crucial stage. With revenues doubling every six months, NetFlix was enjoying tremendous success. But continued success depended on the company’s ability to sustain …show more content…
2 Paul Kagan Associates, Inc., as cited in NetFlix S-1 filing.
Hastings viewed NetFlix as a combination of a traditional video store, such as Blockbuster or Hollywood Video, and a subscription cable TV service, such as HBO, Cinemax, or Showtime. By paying a single monthly subscription fee ranging from $15.95 to $19.95, a NetFlix subscriber could