Netflix has revealed that it has sustained a $39 million loss because of Kevin Spacey, which is a significant sum even for a corporation of its size and scale. To be exact, the loss can be attributed to the content that will never be released because of the stories of sexual misconduct that came out about Spacey, meaning that the costs poured into creating that content have been wasted. As a result, while Netflix has not seen fit to release exact information about the makeup for the loss, it is not difficult to guess that much of it came from House of Cards as well as a Gore Vidal biopic, while the rest presumably came from other projects that saw Spacey’s involvement in one way or another. Still, while the $39 million loss is painful, it was nonetheless the right choice for Netflix to cut ties with Spacey even when matters are examined using a purely financial sense.
Simply put, Netflix isn’t one of the businesses out there that can claim to have an inelastic demand for its services. For those who are unfamiliar with that term, inelastic demand is when a change in price for a particular product or service has little effect on the number of people who choose to consume it. In contrast, elastic demand would be when such changes can have significant effects on consumers. Regardless, the example that tends to be used to illustrate inelastic demand is that of a life-saving drug, which the consumers can’t stop buying because if they do, they will die. Netflix does not have this advantage, not least because there are other media companies that are launching new competitors.
As a result, Netflix needs to pay a lot of attention to its reputation. Generally speaking, reputation isn’t something that can be measured in a numerical sense with ease. However, it is nonetheless something that can prove critical in financial matters because a sound reputation helps businesses reach more people while also making itself more attractive to those people. Effectively, this means that businesses with a sound reputation can sell more with less effort, meaning that a loss of reputation can be a serious hindrance from a purely financial perspective.
The loss that resulted from Netflix cutting ties with Spacey hurt, but it had to be done for the sake of protecting Netflix’s reputation, particularly since more people have become concerned with sexual misconduct in recent times than ever before. Furthermore, it should be noted that taking decision action in this regard also helped Netflix to build up its image in the eyes of its potential customers, which once again, is important because perhaps unsurprisingly, people like to buy things from companies that look like they care about doing good in the world. This can sound strange, but the proven effectiveness of corporate citizenship is something that has been shown through a number of studies over time. As a result, while Netflix took a loss in the short run, its choice means that it has avoided stepping into a potential pitfall in the long run.
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