QUESTION
The emergence of global capital markets has created the demand for harmonization of financial reporting standards. In the space below, explain the difference between "adoption" and "convergence." And, explain why it is highly unlikely from a political perspective that the United States will "adopt" International Financial Reporting Standards.
200 words
Part: A Tale of Two Companies
The two companies in this case study are Netflix and Outerwall Inc. (Redbox). While these two companies are sometimes considered to be competitors, they appear to have very different market positions and strategic visions. In this assignment, we will explore the relationship between strategic vision and financial metrics.
Part A: Start by gaining a familiarity with the two companies - a quick Internet search, perhaps a glance at the Wikipedia entry, or a scan some recent press releases should be adequate.
Part B: Review the SWOT analyses presented below. SWOT is a familiar acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and Weaknesses are intended to describe conditions internal to the organizations. Opportunities and Threats are terms used to describe the external environment within which the organizations operate. SWOT analyses are so familiar that a simple Internet search will again point to SWOT analyses prepared for public distribution by companies such as Value Line.
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A SWOT Analysis for Netflix
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Strength
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Brand recognition
Accessibility
Original Content
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Weakness
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Cost of content
DVD subscribers declining
Raising subscription prices
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Opportunity
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International expansion
Original In-House programming
Word-of-mouth campaigns
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Threats
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ISPs: Netflix accounts for about 30% of daily internet traffic. With net neutrality laws struck down, Netflix may have to assume more debt or cut content.
Competition (Amazon Prime, YouTube)
Content price increases
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A SWOT Analysis for Outerwall Inc. (Redbox)
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Strength
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Lower costs than its competitors
No monthly membership fee
Kiosks have user-friendly interface
Online movie reservation
Smartphone app
Wide selection of locations
Flexibility in return process
Constant addition of new release DVDs
Convenient locations
Open 24 hours a day
Large newly released movie selection
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Weakness
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Limited amount of DVD selections
Limited machine capacity
Maintains DVDs in stock
High cost of contracts with production studios
Must destroy DVDs as stated in contracts with production studios
Can only use Credit/Debit card to pay
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Opportunity
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Expand to the video game industry
Expand to PC game rental
Video streaming to customers
Permanent downloading over Internet
Opportunity to sell music
Expand to the international market
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Threats
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Netflix high market share in the online streaming industry
DVD lifespan - a technological shift from physical DVD's to digital streaming
Increased digital streaming (Amazon.com, Hulu)
Online piracy
Licensing contracts can discontinue or increases prices
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A SWOT Analysis for Outerwall Inc. (Redbox)
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Strength
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Lower costs than its competitors
No monthly membership fee
Kiosks have user-friendly interface
Online movie reservation
Smartphone app
Wide selection of locations
Flexibility in return process
Constant addition of new release DVDs
Convenient locations
Open 24 hours a day
Large newly released movie selection
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Weakness
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Limited amount of DVD selections
Limited machine capacity
Maintains DVDs in stock
High cost of contracts with production studios
Must destroy DVDs as stated in contracts with production studios
Can only use Credit/Debit card to pay
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Opportunity
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Expand to the video game industry
Expand to PC game rental
Video streaming to customers
Permanent downloading over Internet
Opportunity to sell music
Expand to the international market
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Threats
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Netflix high market share in the online streaming industry
DVD lifespan - a technological shift from physical DVD's to digital streaming
Increased digital streaming (Amazon.com, Hulu)
Online piracy
Licensing contracts can discontinue or increases prices
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Sources: https://www.nilsacampos.com/2013/10/29/redboxs-swot-reveals-attractiveness-and-provides-promise-for-the-future-2/
Part C: Some Observations. The strategy at Netflix appears to be growth oriented. Netflix appears to believe that by building up their content warehouse (which includes TV shows, movies, and original content) they are investing in a strength. While content may be an intangible legal right of use, rather than a physical asset such as a DVD, there is an obvious parallel with the idea of "inventory." During the period we are considering in this case, Netflix's spending for content has grown every year.
Outerwall Inc. (Redbox) was once a strong player in this industry. But, Outerwall Inc. (Redbox) appears to have focused on the profit opportunities presented by a mature market rather than focusing on the marketplace of tomorrow.
Part D: Questions. Comparative financial statements for Netflix and Outerwall Inc. (Redbox) are provided at the bottom of this document. Use the information in these statements to respond to the numerical questions below. You are free to access information using the Internet and other sources.
1. Compute the dollar amount of the change in the total holdings of "content" for Netflix and for Outerwall Inc. (Redbox) between 12/31/2013 and 12/13/2015.
2. Describe the risk associated with Netflix's investment in content.
3. Describe the risk associated with Outerwall Inc.'s (Redbox) investment in content.
4. What are the primary sources of financing that Netflix used to acquire the funds needed to implement a strategy that focused on growing their content holdings? (include in your answer specific numerical data taken from the financial statements provided)
5. Compute the percent change in the total assets for Netflix and Outerwall Inc. (Redbox) between 12/31/2013 and 12/31/2015. How do these percentages align with the strategic visions of the two companies?
6. Outerwall Inc. (Redbox) reported substantial sums of cash from operations over the three year period ($326,085,000; $338,351; $327,834). What did they do with the cash they generated from operations? (include specific numerical data taken from the financial statements provided) And, how does the manner in which they used the cash generated from operations align with the strategic vision for the company?
7. Outerwall Inc. (Redbox) reported each year a positive number ($2,829; $2,683; $1,538) in the Cash Flow Statement under the heading "Effect of Exchange Rate Changes." Explain what this number represents. And, identify the circumstances that would cause this number to be negative rather than positive?
NETFLIX, INC: FINANCIAL STATEMENTS (values in 000's)
Financial Statements for Outerwall Inc. (Redbox) - values in 000's
Attachment:- questions - Accounting.rar