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Analyzing Pricing Decisions for Netflix and Blockbuster

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Using the spreadsheet handout Netflix and Blockbuster Financial Data, answer the following:

Develop simple cost-volume-profit models for Netflix and Blockbuster.
What is the unit volume break-even level of Netflix?
What is the break-even revenue level of Blockbuster?
How can Netflix and Blockbuster achieve profits equal to 10% of revenues?
How can Blockbuster improve profitability given the CVP model?
What conditions would allow Netflix to increase price, and how would that affect profits?

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Solution Summary

Your tutorial creates computations in Excel (click in cells to see formula and source of amounts) for breakeven in units and revenues and revenues needed to achieve a 10% return on sales. Two paragraphs discuss what Blockbuster needs to do to improve profits and how Netflix might be able to raise prices.

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Develop simple cost-volume-profit models for Netflix and Blockbuster.

See breakeven tab in Excel. Note assumptions. See the links (click in cells to see) back to the data given to see where I got amounts.

What is the unit volume break-even level of Netflix?

See computed for you in Excel.

What is the break-even revenue level of Blockbuster?

See computed for you in Excel.

How can Netflix and Blockbuster achieve profits equal to 10% ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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