Netflix’s Strategy in 2018 PDF

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Netflix’s Strategy in 2018: Case Analysis Madison Shirley Joyce Meyer GBA 490- March 25th, 2021Table of Contents Executive Summary........................................................................................... Issue #1.........................................................................

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Netflix’s Strategy in 2018: Case Analysis Madison Shirley Joyce Meyer GBA 490-900 March 25th, 2021

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Table of Contents Executive Summary……………………………………………………………………………….3 Issue #1……………………………………………………………………………………………3 Issue #2 ………………………………………………………………………………….............................3 Issue #3…………………………………………………………………………………...............3 Recommendations…………………………………………………………………………….….3 External Analysis Appendix A: PESTEL Analysis…………………………………………………………4 Appendix B: Dominant Economic Characteristics………………………………………5 Appendix C: Five Forces Analysis……………………………………………………5,6 Appendix D: Drivers of Change………………………………………………………6,7 Appendix E: Competitor Analysis…………………………………………………..….7 Internal Analysis Appendix A: Weighted Competitor Strength Analysis……………………………..….12 Appendix B: SWOT analysis………………………………….…………………..……..13 Appendix C: Financial analysis……………………………………………………….…14

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Executive Summary Netflix is the world’s leading internet and television network. The company operates globally and has subscribers in over 190 countries. Netflix offers a variety of content to their subscribers at an extremely low cost.

Issues Rising Competition Netflix might be considered the top competitor in the online streaming services market, however, competition is rising and competitors within the industry are not to close behind Netflix. Netflix and competitors within this industry offer nearly the same type of products, content, relatively comparable prices, and features. The cost of switching from Netflix to a competitor such as Amazon prime, is extremely low for consumers due to Netflix’s lack of contracts, agreements, and costs to cancel account.

Foreign Regulations Domestic and foreign government regulations have prevented U.S. companies such as Netflix from operating in the certain countries like Syria, Crimea, and North Korea. Governments in some countries, such as China, have refused to offer licensing to companies in the United States, like Netflix, which prohibits their ability to operate globally and gain global recognition. In 2017, Netflix negotiated a licensing arrangement with the Chinese government that allowed Netflix to exclusively provide their original content to a leading provider of online entertainment services in China. Although this agreement has allowed Netflix to gain a limited amount of brand recognition from China, the agreement has not generated much revenue for the company. Competition from Rivalry Netflix might be in front of the line in competition right now, but with Hulu providing live streaming services, Netflix may fall behind. Netflix needs to further advance their products to keep up with consumer preferences and demand. Recommendation: I would recommend that Netflix competes directly against Hulu and future competitors by starting contracts with a variety of T.V. and cable providers in order to add live T.V. show subscription options into their membership plans for consumers. I would also recommend that Netflix pursues its current strategy of creating original content because when the content is produced by the company themselves, there is no risk associated with licensing agreements or

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content approval. In addition to the decrease in risk, creating original content adds to company creativity and brand image and recognition.

External Analysis PESTEL Analysis Political Factors: 

 

Foreign countries with strict regulations affect companies within this industry due to their limited ability to globalize. The U.S. government has also instituted restrictions that prevent U.S. based companies such as Netflix, from entering into certain markets or having operations in countries such as North Korea, Syria, and Crimea. Some regulation changes can limit the content of companies that is shared online. Content providers who are expanding into different geographic regions are problems issues with censorship issues

Economic Factors: 

 

Companies within the online streaming services industry implement low-cost competitive prices to compete against traditional TV and cable providers. This strategy increases the consumers decision to buy a service such as Netflix, due to this option providing lower costs and better services, making it more economically logical from a consumer’s standpoint. The most economical and convenient choice for consumers, especially family households with 3 or more individuals, seemed to be unlimited Internet streaming plans such as Netflix of Hulu. Economic growth within this industry has given global companies and communities the ability to stream services through the implementation of high speed internet connection.

Sociocultural Factors:  

A change in consumer preference to watch videos through mobile devices, computers, and other technological devices has caused an increase in consumer demand of internetbased streaming platforms. Due to the increase in demand for online streaming through different devices, this leads to a decrease in demand for consumers to invest in television and cable providers, which gives a lead way in the market for online streaming service providers such as Netflix.

Technological Factors: 

Technological changes and the advancement in technology is what powers this industry and has further increased competition due to the rise in consumer demand of streaming videos on mobile devices, laptops, etc. for convenience.

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 

Advancement in technology has eased the ability to access high speed internet globally, however, companies within this industry continuously have to improve their compression techniques for better streaming quality and minimal data usage. Products within this industry are powered by technology. Competition continues to increase due to the rise in technological advancements and companies using technology to their advantage to improve their services.

Environmental Factors:  

Internet-based streaming services require various levels of servers and content delivery networks which can cause harm to the environment due to the pollution and radiation that is produced. Groups that are against harming the environment may protest against companies within this industry which causes social and political issues and could further harm a company’s reputation and success.

Legal Factors: 

 

Online-streaming service companies are required to obtain specific licenses and permits to purchase and stream someone else’s content and/or networks on their platforms. When the license or permit expires, the company must renew the agreement, or remove the content. Companies within this industry are required to follow a multitude of legal requirements from different governments when operating globally. Licensing for companies in the U.S. is difficult to obtain due to various implications of foreign government policies on the countries content. Many foreign countries with large markets, such as China, have strict censorship and control over the content produced within their area.

Dominant Economic Characteristics

Market Size and Growth Rate: In 2018, nearly 3.8 billion of the world’s population used the internet and an additional 700 million had access to high-speed internet. With the demand for access to high-speed internet and content, as well as the improving economic conditions globally and advancement in technology, the market size and growth rate for online-based streaming is growing rapidly and likely to increase dramatically in the future. Scope of Competitive Rivalry: Rivalry within this industry is extremely competitive. Netflix was the market leader in 2018, followed by Amazon Prime and Hulu. These 3 major online streaming services compete against each other and smaller or less popular competitors such as Showtime, Direct TV Now, or Sling TV. Over the past several years, there has been a dramatic increase in global demand for 5

internet subscriptions. The increase in internet subscriptions and access to high-speed internet globally, has caused an increase in demand for online streaming services. Due to the increase of consumers gaining access to the internet, new entries entering the industry of online streaming services poses a risk for the companies that are already operating within this industry, especially ones operating in foreign countries or planning to expand their operations internationally. Product Innovation: Technological innovations play a major role in how competitors within this industry create their products to compete against each other for consumer subscribers. Certain technological innovations have made it possible for different devices, such as an iPhone and iPad, to stream video content simultaneously. Companies within this industry compete on product differentiation through the services or packages they offer, the timing of movies and TV shows released on their platforms, as well as the monthly or yearly subscription costs, in comparison to rivals. Economies of Scale: Companies within this industry benefit from economies of scale and use it to their fullest advantage to maximize efficiency in all operations. When more users are attracted to a company’s online streaming service, or the company’s subscriber base grows, the more profitable and successful the company will be in the long term. Learning/Experience Curve Effects As technology advances and consumer preferences change, companies have to learn how to create their products to adjust to the changing cultures within society over time. Companies within this industry, such as Netflix, had to shift from a culture of producing, distributing and selling DVDs, to creating online and internet-based digital platforms for convenience of streaming new and old movies or TV shows. Five Forces Analysis Threat of New Entrants: (Moderate) There is a moderate threat of new entries in this industry due to the increase in demand for online streaming services. Companies that have a profuse amount of resources, are looking to enter this industry in the near future. T.V. and cable providers are now offering streaming platforms as a package for their services. Although there is an increase in companies wanting to enter this industry, there are still high barriers to entry due to licensing and capital requirements. Competition from Substitutes: (Strong)

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Substitutions of products or services remain a challenge for companies within this industry due to the multitude of competitors such as Hulu, Netflix, and HBO, as well as the substitutes apart from streaming services, such as DVD’s or cable television. Switching from one streaming application or streaming service provider to another is easy for consumers and contributes to the strong competition for substitutes. Buyer Power: (Moderate) Buyer power is a moderate force in the online streaming service industry. Factors contributing to this are the low switching costs consumers incur when switching services as well as the fact that there are no legally binding contracts for consumers. Consumers also have a large number of alternatives to choose from and have minimal consequences for switching and/or cancelling services. Supplier Power: (Strong) The bargaining power of suppliers within this industry is strong due to many different factors, the strongest being the power that suppliers have in the ability to select content providers of their choice. It is important for companies to choose the right suppliers to ensure their streaming platform receives the best content and latest shows or movies. Companies are able to produce original content which decreases the need to rely on production companies for content. Rivalry: (Moderate) There are many external factors that contribute to the moderate force of competitive rivalry within this industry. Rivalry remains competitive due to the low-switching costs among the few large industry brands, along with the ability for consumers to obtain each streaming service for a relatively inexpensive cost. The rapid increase in demand for online streaming services could result in new entrants and further increase competition. Drivers of Change in the Industry Increasing Globalization 

The increase in consumer access to high-speed internet connections and streaming services allows companies in this industry to operate outside of the United States, enabling companies like Netflix to gain more subscribers or customers, increase brand recognition, and generate more revenue from markets outside of their domestic region.

Technological Advances 

Technological advances have enabled Internet streaming services to provide platforms that make streaming from any device more convenient, in addition to the ability to stream movies or TV shows simultaneously on any device you chose. Some companies have partnered with T.V. or cable providers to create pre-installed applications on their devices or buttons on their remotes with their platform for easy consumer access.

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Low-cost Alternatives 

Companies within this industry give their consumers the ability to access online streaming content, such as movies and TV shows, at an extremely low-cost compared to competitors like cable providers. Subscribers are able to stream content on their platforms at a low-cost and with unlimited access, which makes online streaming providers much more appealing to consumers. Competitor Analysis

Netflix: Netflix was the world’s leading internet television provider in 2018. The company offers memberships to consumers globally and streams a large variety of content including original series, T.V. shows, movies, documentaries, feature films, etc. Netflix began offering 3 different types of subscription plans starting in 2018. The basic plan priced at $7.99 a month, the most popular plan, known as the standard plan, is priced at $10.99 a month, and the premium plan priced at $13.99 a month. Amazon Prime: Amazon Prime announced they had over 100 million membership subscribers globally as of 2018. Amazon Prime competes directly with Netflix with their membership service strategy. Amazon Prime offers memberships for a fee of $119 annually and $11.99 monthly. They implement many benefits into their membership subscription program. They offer 2-day shipping, discounts for students, special deals, and Amazon Prime video that offers a variety of movies, T.V. shows and music through online streaming. Prime video has also added original content to its offerings, as well as debuting NFL Thursday Night Football. Hulu: Hulu had over 20 million subscribers as of May 2018, which was an increase of 8 million subscribers over one year. Hulu offers a live streaming plan that allows subscribers to gain access to 50 or more live television channels, along with their variety of online video content, without having to purchase services from a cable a provider. Hulu also offers discounted rates of $8 a month for regular streaming, however, in order to cover these low costs, customers encounter commercials during their streaming experience. Hulu also offers a plan for $12 per month for commercial free streaming.

Key Success Factors

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Wide Range of Content: Offering a variety of content such as movies, documentaries, shows, and original movies/ television series, is an important factor for success for companies in this industry. Brand Image and reputation: Maintaining a strong brand image by offering a variety of content, subscriptions, or other benefits at low prices is important for companies to gain subscribers, remain competitive within industry, and be successful overall. Low Prices: Companies within this industry offer a variety of unlimited content through online streaming platforms, which consumers have access to on multiple devices, by paying extremely low prices compared to T.V. and cable providers. Technological Software: Advancements in technology have positively impacted this industry and its ability to be successful. The use of software technology has made it possible for companies to add recommendations generated from ratings to tailor to the subscriber and their individual preferences. Technological advances have also made it possible for companies to make online streaming and viewing of content on their platforms simultaneously through different devices, possible. Increasing Globalization: Establishing global recognition and increasing company profits have been obtained by companies in this industry through increasing globalization. Internet access is rapidly increasing globally, giving companies in this industry an opportunity to expand into markets globally.

Strategic Group Map

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High

HBO GO

Amazon Prime

MO

Pr ic

Moderate NETFLIX HULU

Low Low

Moderate

High

Global Reach

The strategic map shows an overview of the internet streaming industry’s top competitors. Each circle represents the online streaming service provider and their placement of global reach on a scale of low to high and prices offered to consumers on a scale of low to high. For example, Netflix has a high global reach and offers low subscription costs.

Internal Analysis

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Competitor Strength Assessment (rating scale: 1= very weak, 10= very strong)

Key Success Factor/Strength Measure Increasing Globalization Low prices Technological software Wide range of content Brand image and reputation Sum of Importance weights Overall weighted competitive strength

Amazon Prime Strength Weighted Rating Score

Hulu Strength Rating

Weighted Score

1.0

9

.9

10

1.0

9 9

.9 .9

7 8

.7 .8

9 9

.9 .9

.25

9

.9

8

.8

9

.9

.25

8

.8

8

.8

8

.8

Importance Weight

Strength Rating

.20

10

.15 .15

Netflix Weighted Score

1.00 4.5

4

4.5

SWOT Analysis Strengths

Weaknesses

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  

Breadth and variety of content, with access to over 140 million hours of movies and television shows. Global reach with millions of memberships in over 190 countries. Netflix has a strong brand image and is one of the most well known and most popular streaming services in the world.

Opportunities  Negotiation of licensing agreements with foreign countries such as China  Increase in market expansion to parts of the world that are newly introduced to internet access and streaming services.

 

Expensive cost to create original content. Netflix does not own a large majority of the content that is available on their platform

Threats  Domestic and foreign government regulations prohibit Netflix from expanding their market into certain countries  Rising threat from competition creating major threat to Netflix due to companies that are rich in resources and have well-known brand names and

Financial Analysis

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Profitability: 2015 3 2 . 2 7 %

2016 3 1 . 7 2 %

2017 3 4. 4 9 %

6 , 7 79 . 5 4 , 5 9 1 . 5/ 6 , 7 7 9 . 5

8 , 8 3 0 . 7 6 , 0 29 . 9/ 8 , 8 3 0 . 7

1 1, 6 9 2. 7 7 , 6 5 9 . 7/ 1 1, 6 9 2. 7

Gross Profit Margin

4 . 5 1%

4 . 3 0 %

7 . 1 7 %

Calculations

3 0 5 . 8/ 6 , 7 7 9 . 5

3 7 9 . 8/ 8 , 8 30 . 7

8 3 8 . 7/ 1 1 , 6 9 2 . 7

Current Ratio

2015 1. 5 3 89