Netflix Has Used the Long Tail in the DVD-By-Mail Business

question 25

Multiple Choice

Netflix has used the long tail in the DVD-by-mail business to its advantage, crafting a business model that creates close ties with film studios. What do film studios stand to gain from taking advantage of the Netflix model targeted at increasing the firm's long-tail offerings?

• A) Discounted fees for marketing some of the less-popular titles from the studios
• B) A cut of the subscription revenue from every disk sent out by Netflix
• C) Greater bargaining power with movie rental firms such as Netflix, Blockbuster, and Wal-Mart
• D) Lower costs related to screening movies in cinemas by releasing them straight on DVD
• E) An equal share of revenue from the digital distribution model through online streaming

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Definitions:

Monopolistically Competitive

A market structure in which several or many sellers each produce similar, but slightly differentiated products; competition is based on product differentiation, prices, and marketing.

Monopolistically Competitive

A market structure characterized by many firms selling products that are substitutes but not perfect substitutes, leading to some degree of market power for each firm.

Fixed Costs

Costs that do not change with the level of output produced, such as rent, salaries, and loan repayments.

Short Run

A period in which at least one of a firm's inputs is fixed and cannot be changed.