"[N]o one is happier to see
streaming services take nominations away from Cable
than Network television. Not very nice
when someone younger comes along is it, Cable?
Cable is looking at Netflix the way
Justin Bieber looks at One Direction."
– Seth Meyers, 66th Primetime Emmy
Awards
The emergence of video streaming
The modern ways of digital communication
and advertisement that is backed up by the internet accounts for more than 22%
of the world’s economic output
If we look at the entertainment area then
it is recorded that 30 percent of overall internet traffic is comprised of
video streaming. Companies such as Time Warner, Comcast, Netflix, Hulu,
and Amazon among other different small video streaming companies and working
side by side to meet the demand of people which is increasing day by day
This great upsurge in the video industry
requires more telecommunication networks to meet the need for network
management, network design, and speed. Internet providers and video streaming
industries are struggling hard to reengineer the networks in a way to accommodate
the massive growth of online and offline videos and make it easier to share the
views online to catch more public
Structure, technological and strategic development of Netflix
Netflix is based on a long-term strategy
of giving its users a wide variety of DVDs. This always put the company in a
hustle to acquire as much new video content as possible to keep their process
updated and subscribers intact
Netflix started its journey with the out
of box idea of utilizing the United States post office for the distribution of
DVDs. This business idea was not only old-fashioned but also innovative. Using
the post office was an innovative approach that was never tried by anyone in
the rental-based industry. This was the building stone of the success of
Netflix because such an approach was very hard to master, as Blockbuster tried
and failed while Movie Gallery and Hollywood Video never dared to try.
Development
strategy
Early years
The initial operations of Netflix were
based upon only two innovations related to technology; DVDs and the internet
Randolph the founding father of Netflix
was unaware of what Netflix could become in the coming year as he said,
"The model does not include being a
geeky Internet company. We initiated it so that anyone with a DVD player has a
place to go where they can rent any DVD and always have the title they want
available "
Netflix starts cutting deals with
distributors for cheaper DVDs to make the window shorten for theaters and the
rental DVDs available. They also tried to make arrangements in Las Vegas
regarding the physical DVD kiosk but failed.
The Business Plan: Subscription Service and Marque program
The business plan of subscription was
different from both of the previous ones; neither was the le carte rental nor
purchase-to-own. Netflix first needs to make it more appealing for its user to
shift from the “ownership” to the “access” and then from the pay-per rental to
the rental plans every month. Netflix started by charging 4 dollars for the
seven-day rental and 2 dollars for the handling and distribution as same the
other whole video industry that was based on la carte distribution back in 1998
“People prefer the convenience, we just
need to wait for people to get more used to the DVD and web before our business
model takes off”
In 1999, soon after a year, Netflix
launched a new program that is named as “Marque Program”. The program had costs
of 15.95$ monthly and the subscriber can enjoy the four DVDs at a time. By
2000, the whole la carte rentals shifted in the favor of “Marque plan”.
This new model offers Netflix the
numerous consumer-centric services that other stores that are stuck in la carte
model cannot afford to give. Netflix has a no-hassle policy no late fee, no
damage or loss of discs, and also no cancellation hassle policy
The technological advancement in the video streaming industry
The DVD
Marketing has a sole aim is to add value
and meet human needs
Netflix was among the first video streaming
companies that capitalize based on DVDs. By 2005, 2/3rd of the
Americans have at least a DVD player in their home and the revenue generated by
the DVDs surpassed the theaters
The technological advancement in the video streaming industry: The shipping
Hastings and Randolph; the founders of
Netflix were trying to find ways to make the company internet-based. They knew
that VHS tapes were fragile, impractical, and large whereas the DVDs are easy
to store and ship in Bulk. Hence, they start using the United States Postal
service to ensure the mobility of DVDs. Netflix invested a lot to innovate the
DVD mailing. For this purpose, they tried 200 packages, innovate the machines in
the post office, and introduced barcodes. Those machines can mark 5000 envelopes
in an hour. For shipping, they installed several warehouses to minimize
shipping time
The
technological advancement in the video streaming industry: The Culture Deck
Netflix also focuses on the corporate
culture to utilize the potential of customers fully. It is meant to encourage,
intellectualism, innovation, and high expectations. They prefer that
performance is worth more than effort. They abruptly kick out the high-level
employee who fail to do the value addition in the company and only included
people with relevant skills. Focusing on inside governance costs of
organization can bring costs of information problems to minimum
The Long Tail
The long tail is the business strategy
that is used by the companies to gain profits by selling the less volume of
rare items, instead of selling large volumes of popular items
The algorithm places an important role in
such models as they first decide the search functionality and then the access
to the inventory. The blockbuster can offer only one option while with long-tail
there are thousands of options available. By this model, the need for large
inventory increases which is also solved by the Netflix algorithm that already
tells what the customers are intended to rent. In this way, the company can be
saved from under and overstock of titles
The mirage of
Streaming: Internet Streaming
Netflix started working on internet
streaming back in 2000. At that time it costs a lot which was almost 10$ and
sixteen dollars to get a single movie
The strategic problem faced by Netflix
There are not many internal factors that
can affect the functionality and profitability of Netflix. As an international
organization with a vast niche the only strategic issue it can and it was faced
was related to its growth and grip on subscribers. As only in the US, it has
the most market shares, comprises 40% of the total subscriber it has are from
the US. The first drop in subscribers it faced was in July 2019 when Disney and
Apple takes a plunge and offer tough rates which were $7 and $5 respectively
(per month) which pushed it behind a little
The international growth:
Globalization is the result of a tug of
war between policy threats and economic fundamentals
The competition becomes the elephant in
the room for Netflix as Apple TV+, Disney+, HBO Max, Peacock, Comcast, and
other giants join the competition and get a lot of attention from investors.
Analytics questions about how Netflix is going to hold up to its subscribers
when the AVOD and SVOD slot is expanding. The subscription domestic is hitting
the wall but Netflix added 500,000 US subscribers in the last quarter of 2019
but then a great decline has been seen in the other quarter
Netflix is spending high in Asia,
especially in India has a population of more than 1 billion. Netflix is
gathering much Indian content and spend around $18 billion on the content in
2022
To see, the possible strategic problems
Netflix is confronting, we need to do the porter’s five forces analysis on it
to take a look deeply.
Porter’s five forces analysis
Internal Rivalry
There is tough competition for Netflix
with its competitors in the market which include Blockbuster, Amazon, and
Redbox. This competition costs Netflix a heavy amount as it spends a lot of its
revenue on marketing. As it has been said that the marketer’s job is to
produce, create and communicate the customer’s value. It is not what the
customer thinks of as the value but what the customer perceives when it comes
to value
Substitute
products and services
Netflix is losing its market shares as
many new competitors have entered the market. Major competitors are HBO Max,
Amazon Prime, Apple TV, and Disney plus. Netflix is quite penetrated in the US
so it is said that any new entrant which damages the current marketing portion
of Netflix can significantly affect the company’s value. Although Netflix has
major market shares the local streaming companies can easily be accepted by the
local customers
Substitutes for
internet streaming services provide minimal danger. The use of television has
become obsolete since Gen Z and millennials prefer internet streaming services
such as Netflix, Hulu, and Amazon. YouTube is another possible option; however,
the quality, genre, and professional content available on it vary greatly.
Cinemas and other forms of media entertainment are also available.
Entry of New
competitors
Even though Netflix
was the first organization to enter the internet video streaming business, and
holds a very strategic alliance because one always needs a strong partner to
polish his skills and it is the core business strategy in many cases
Netflix has to keep an eye on the rising
popularity of the video streaming industry. This industry is open to innovation
and improvement, which always opens a window for new competitors to peek in.
Bargaining Power of Consumer
The industry of video streaming is vast.
This provides the customer with a great deal of bargaining. Major pressure for
the change of marketing practices come directly from consumers
With a growing
number of streaming service options in the same price range and cheap switching
costs for clients, buyers have more bargaining power than ever before in the
business. Due to the monthly subscription model, customers can simply choose
and leave services if the media material offered to them is not up to par.
Bargaining Power of Suppliers
Netflix is very much dependent on the
studios to provide it with the content. In recent years it started to make its
content but still, a major portion of Netflix is comprised of the other
circulated content. This always put it at risk, as if the suppliers stop
sharing the content with Netflix it may cripple the Netflix model.
Supplier power has
increased as a result of growing industry competitiveness. Suppliers have
understood that if they do not give these streaming services creative,
appealing, and high-quality material, they will lose users who would
unsubscribe and migrate to another streaming service. Recognizing this, Netflix
and other streaming services, such as Netflix's Orange Is the New Black, have
begun to create their original content. As a result, suppliers wield a moderate
amount of power in the sector.
Solution
The digital
revolution of social media and the internet are the major features of the
consumer market these days. One way or another the consumer is trapped in this
ecosystem and this is what big giants are utilizing
To counter the
growth market strategic problem Netflix needs to adopt the “International
Strategy”. To plunge deeply into what Netflix is offering and what issues it
can face, let’s take a look at the SWOT analysis of Netflix.
SWOT analysis of Netflix's strengths, weaknesses, opportunities, and threats (SWOT) and make strategic recommendations based on the results.
Strength
Netflix is an
ad-free streaming service that sets it apart from its competitors and is a big
strength for the firm because it offers a fantastic user experience. Netflix is
a well-known service with a strong brand name and brand equity, allowing it to
expand into new markets. This is especially true given Netflix's first-mover
advantage in the internet streaming sector. Allows clients to download content
and watch it at a later time.
Netflix has a
sizable client base as well as a sizable content library. Netflix is an
original content provider, developing its shows and movies that have grown
immensely successful, in addition to acquiring media through contracts with
third parties. Thus, these shows and movies are only exclusively available on
Netflix only and cannot be found anywhere else.
Weakness
Apart from Netflix's
content, all the other content is available on a contractual basis only meaning
they are only available on Netflix for a certain period. Expensive licensing
agreements with third-party content providers. Netflix has an easy to replicate
business model which is a weakness since competitors can easily copy the model
to enter the online streaming industry
An essential
requirement for the company is customers' proper and high-quality internet
connection speed which directly affects customers’ satisfaction while using the
service. A large amount of long-term
debt used to finance new content Majorly depend on the U.S Market for revenue
Opportunities
Netflix has several
opportunities to expand itself throughout the globe such as Increasing the number
of customers by entering new markets, such as China. Consumer preferences are
altering, with an increasing number of consumers turning to internet media
consumption and on-demand streaming services.
Netflix is creating
tailored content for new markets it is entering. Exclusive license and
collaboration deals are being forged to produce more original content.
Technology is always changing.
Threats
The industry Netflix
operates in is facing increasing competition with many large players entering
the market such as Hulu, Amazon, etc. Netflix's other main issue this year has
been the rising costs associated with acquiring new users. From $308 per new
member in 2012 to $581 now, marketing and streaming content spending has
increased dramatically. This is compounded by the fact that the streaming
giant's second-quarter reports in July revealed a slowdown in growth as well as
a drop in domestic customers.
Another key issue is
that, despite spending millions per year on original material, Netflix is still
highly reliant on third-party content, which accounts for 63 percent of its
viewing hours. In reality, two of Netflix's three most popular streams are
'Friends' and 'The Office,' both of which are set to leave the site in the next
two years, with no effort made to replace them other than the costly
acquisition of 'Seinfeld' for 2021
Netflix Needs to Succeed in International Market
Netflix is popular
in the U.S., primarily due to its original content. Yet the assemblage is still
trying to build its international library. Viewing preferences vary from
country to rude and even between different regions of the same rural. To allure
subscribers, Netflix needs to have an expanded content library catering to the
preferences of the diverse audience. Lack of enough local extent is being cited
as one of the principles of its slower growth in international nundinal.
Further, several of its existing shows are commissioned only for the U.S. and
cannot be broadcast in other provinces. This boundary is its content library
until the crew renegotiates the terms for these tales. Expanding its existing
satisfy to international mart will precedence to the higher licensing
detriment, collision the margins negatively. Creating primary, local content
for each international market is also a dear proposition, peculiarly if the
costs cannot be justified by a prodigious subscriber base. However, as Netflix
allures more subscribers, its international segment should become gainful. In
our prediction, the contribution brink reaches around 30% by the extermination
of the period.
Making its
international party profitable is an insubordinate task for Netflix. The crew
needs to invest heavily in local content and more streaming quality over low
bandwidth connections to attract subscribers. However, these costs can be
rescued only if the subscriber sordid expands rapidly. The crew faces rivalship
from several topic players in international fair and broad players such as
Amazon and YouTube Red who are looking to bag a higher market share.
Furthermore, consumers in Asian countries accede to Pay-TV for local content
and might not be face to restore this with Netflix in the immediate future.
Subscribing to Netflix along with the existing Pay-TV subscription can prove to
be expensive unless the former is competent to furnish plain and exclusive
topic content. International nundinal will constrain Netflix’s augmentation in the
future. However, the keynote defiance will be to make this segment profitable
and grow margins over the yearn term.
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