Dynamic decision-making analysis of Netflix's decision to not provide ad-supported subscriptions

Yufei Zhou, Sihan Wang and Nuo Zhang

Technological Forecasting and Social Change, 2023, vol. 187, issue C

Abstract: Netflix is a leading digital streaming platform that provides a variety of content to users. Netflix charges a fixed amount from its users for its services. Unlike other digital streaming platforms, Netflix does not support subscriptions supported by ads; consequently, Netflix's subscriptions are decreasing. However, Netflix does not offer ad-supported subscriptions. In this context, we aimed to explain why Netflix does not provide them by modelling a monopolist's decision-making using asymmetric information. We compared a shutdown policy with other strategies using the first-best contract with complete information as the benchmark. The results indicate a close relationship between the customer base and the efficiency of the shutdown policy. This outcome at least partly explains Netflix's choice of strategy, its past success, and its current dilemma.

Keywords: Netflix; Shutdown policy; Contract theory; Principle-agent model; Information asymmetry (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:187:y:2023:i:c:s0040162522007399

DOI: 10.1016/j.techfore.2022.122218

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