Final answer:
Netflix misestimated customer departure due to a miscalculation of market substitutes and a misjudgment of consumer preferences for physical DVDs over streaming. Despite past challenges, trends suggest streaming could become more dominant, potentially benefiting Netflix in the long term.
Step-by-step explanation:
The reason why the estimate of customers leaving Netflix was so far off is primarily due to the underestimation of the number of close, but not perfect, substitutes in the market. With a variety of choices like Vudu, Amazon Prime, Hulu, and Redbox, as well as the continued demand for physical DVD disks, Netflix initially misjudged the elasticity of demand for its streaming services. Jaime Weinman's observation about Redbox's convenience highlighted that many customers still found a five-minute drive to pick up a DVD more convenient than streaming a movie online in 2012.
Netflix's failure to consider these close substitutes indicated a misstep in their understanding of customer preferences and tastes. However, as trends evolve, it is possible that the increasing population's preference for streaming video could overtake the desire for physical DVDs. Despite the criticism and jabs Netflix received in 2011, the company had the potential for a comeback given the shifting consumer behaviors toward online streaming.