growth than the firm had experienced—about 2 million per quarter.

Why was the estimate of customers leaving so far off? In the more than two decades since Netflix had been

founded, there was an increase in the number of close, but not perfect, substitutes. Consumers now had choices

ranging from Vudu, Amazon Prime, Hulu, and Redbox, to retail stores. Jaime Weinman reported in Maclean’sthat

Redbox kiosks are “a five-minute drive for less from 68 percent of Americans, and it seems that many people still

find a five-minute drive more convenient than loading up a movie online.” It seems that in 2012, many consumers

still preferred a physical DVD disk over streaming video.

What missteps did the Netflix management make? In addition to misjudging the elasticity of demand, by failing to

account for close substitutes, it seems they may have also misjudged customers’ preferences and tastes. However,
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