Case Study

Netflix (B): The 2011 fiasco (Cartoon case)

4 pages
April 2013
Reference: IMD-3-2250

In July 2011, after its share price had reached an all-time high, Netflix announced its intention to split the company’s DVD rental and online movie streaming services by creating two separate businesses, and The change in its business model would entail an important price increase. Following angry protests from customers, including a negative Twitter stream, Netflix’s CEO and founder Reed Hastings sent subscribers a personalized e-mail of apology which only served to make matters worse. The case describes the events that took place between July and October 2011.

Learning Objective

Discuss the motivation behind a highly successful industry leader’s radical change of business model and the ensuing failure of its strategy.

Change Management, Brand Launch, Customer Relationship, Pricing
Northern America, United States of America
Netflix, Media
Published Sources
© 2013
Available Languages
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Netflix (E): Capture value (Cartoon case)
By Stefan Michel and Sarah Von Blumenthal
Case reference: IMD-7-2499 ©2023
This case is part of a series on Netflix. Case (A) discusses the company's growth until July 2011. Case (B) tells the story of Netflix’s sharp share price decline after it announced it was splitting the business in two and increasing prices. Case (C) covers the years 2012/13, when Netflix found its way back to success. Seeing that the industry bottleneck was shifting from the channel (who can reach the viewers?) to the content (who owns the movie rights?), Netflix started to produce its own TV shows (e.g., House of Cards, Hemlock Grove). Case (D), set in 2020, focuses on a diverse set of strategic challenges Netflix is facing. First, as indicated already in the (C) case, the cost of content through licensing and production continued to increase. Netflix users had to get used to more frequent cancellations of their favorite show. Second, the “streaming war” between Netflix, Disney+, Hulu, HBO Max, Apple TV, Amazon Prime Video and YoutTube was intensifying on two fronts: competition for subscribers and for content. Third, Netflix was increasing its global presence to accelerate economies of scale by introducing new pricing strategies in foreign countries. Fourth, most movies are watched on mobile phones, where a vertical format is more natural than the traditional horizontal format. It was an open question whether movie producers should adopt this trend set by Instagram and TikTok. Thanks to the growing subscriber base, Netflix’s revenue and profitability were increasing. But is the company well equipped for the intensifying “streaming war”?
Reference IMD-7-2499
Copyright ©2023
Copyright owner IMD Copyright
Organization Netflix
Industry Media
Available Languages English

Research Information & Knowledge Hub for additional information on IMD publications