report strategic analysis and evaluation of netflix

The company’s primary business is its subscription- based streaming OTT service which offers online streaming of a library of films and television programs, including those produced in-h

REPORT

STRATEGIC ANALYSIS AND EVALUATION

OF NETFLIX

Group 2

Class: Development Economics AEP 61

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REFERENCES

I Introduction

Netflix, Inc is an American media-services provider headquartered in Los Gatos, California, founded in 1997 by Reed Hastings and Mare Randolph in Scotts Valley, California The company’s primary business is its subscription- based streaming OTT service which offers online streaming of a library of films and television programs, including those produced in-house As of October 2018, Netflix has 137 million total subscribers worldwide, including 58.46 million in the United States It is available worldwide except in Mainland China, Syria, North Korea, and Crimea The company also has offices in the Netherlands, Brazil, India, Japan, and South Korea

Netflix’s initial business model included DVD sales and rental by mail, but Hastings jettisoned the sales about a year after the company’s founding to focus

on the DVD rental business Netflix expanded its business in 2007 with the introduction of streaming media while retaining the DVD and Blu-ray rental service The company expanded internationally in 2010 with streaming available in Canada, followed by Latin America and the Caribbean Netflix entered the content-production industry in 2012, debuting its first series Lilyhammer

Netflix has greatly expanded the production and distribution of both film and television series since 2012, and offers a variety of “Netflix Original” content through its online library

In this report, various aspects relating to Netflix’s strategic management will be discussed

II Main body

There are some factors affecting to Netflix

- Limited access in some countries: Netflix is operating its business globally in approximately 200 countries across the world However, it isn’t available in countries like Crimea, North Korea, China, and Syria due to a serious conflict with the US government All the major US companies can’t operate their business in those countries Even if the brand wants to; it couldn’t because of the political conflicts and legal issues

- Permission and Censorship: The restrictions are taking place not only in USA but also in China It requires Netflix to censor its content following to the wishes of its officials, including the whole movie, a major part of an episode, or the complete episode As an illustration that if Netflix wants to run its content business in China or USA, it needs to get permission from the Chinese officials and has to run the content according to their requirement if running to its business Probably, the company won’t be able to run its content The company has to reproduce the content for the Chinese market

b Economic factor:

In the past several years, the performance of the global economy has remained impressive which has resulted in people around the world spending more on

services like Netflix However, trends have slightly changed since the spread of the coronavirus while the economic activity around the world has gone down Thanks to COVID-19, Netflix has experienced a significant rise in its memberships The annual revenue and net income of Netflix during the pandemic year of 2020 has increased by 26.19% and 98.48% respectively By contrast, low economic activity for prolonged periods can have adverse effects

on the business of Netflix since people will try to save more if lockdown extends Moreover, unemployment has risen heavily and if the situation persists soon people will start cutting down on all unnecessary costs, including Netflix

In addition, competitive advantage in price from some competitors such as Disney+ also have several impacts on its revenue Therefore, if the company doesn’t lower its prices competitive to the market, then many customers would

go to the other platforms

c Social - Culture factor

This factor plays an indispensable role in international business operation and marketing strategy They have to pay attention to the varying tastes and preferences of people from different societies and cultures This is the reason why Netflix has brought content that spans several genres and languages; provided a wide range of content suited for audiences of various ages and from different regions This would lead to attract a diverse set of customers from worldwide since people can find a nice collection of movies and shows in their native languages on Netflix In addition, watching video on smartphones is becoming a new trend in over the world instead of watching on TVs and cabal network Therefore, the company should offer cheaper packages for mobile users such as offering $3 package in India

d Technological factor

It is a pivotal factor in business model Netflix has consecutively promoted the development of technological advancement, especially high-quality videos with minimal data as well as automatic translations in order to provide the

subscribers best-in-class experience Using various algorithms and machine learning to recommend the shows and movies worth watching to individual subscribers, which make a great contribution to the success of this company and create an exclusive and unique experience for its subscribers Furthermore, Netflix competes with several businesses including gaming, social media, and other online streaming services and invests a large sum each year in research and development to drive higher user engagement and grow its popularity

e Economic factor

It is of relevance in the context of nearly every large business and has serious influences on their social reputation and brand There is a huge of capital invested in environmental protection each year to minimize CO2 emission, including Netflix As a typical evidence is that video streaming of this company leaves a 1% carbon footprint of the total global carbon emission even though there are approximately 200 million users in over the world Netflix has recently joined hands with EPA to use clean energy It would require the company to show its annual investment in renewable energy Apart from that the company also supports renewable energy projects in 20 countries and across 15 states in the United States This makes a great contribution to improve awareness of environmental protection

f Legal factor

Governments around the world are working on developing a strong legal framework to regulate the technology industry Since a large number of tech players in the world including tech leaders like Apple, Google, Amazon, and Facebook have faced a large number of cases against them related to anticompetitive behavior and user privacy which can lead to pay large fines Therefore, Netflix considered use privacy as one of the most important concerns apart from the protection of user data Legal compliance is now more essential than ever for the technology firms since noncompliance can result in hefty fines and also cause severe damage to a brand’s reputation In addition,

the increasing number of users meet the need of accessing copyright content, which can drive Netflix to face some issues Netflix has found the solution of blocking users from other countries in order to meet copyright law standards with content providers As a result, it has some positive impacts on a small segment of the customers

1,2, Five forces model of Netflix

a Threat of new entrants - Medium to high level

Major organizations such as Apple, Disney, HBO and Britbox (BBC and ITV)

at this point of time are either launching or have recently launched their new streaming services

Furthermore, media companies are investing heavily in developing content and international expansion as the COVID-19 pandemic-fueled boom heats up competition among streaming services; Barriers to entry are high for a new entrant who doesn't already produce their own video content, due to the extremely high investments needed in either producing new content or acquiring content from big players For established organizations in the entertainment industry, the barriers to entry to them are low, as they will be able to immediately launch the service with their own content and can already have a fan base for the organization as a whole or for a specific series The threat of new entrants is a very real and serious issue for Netflix with an increasing number of organizations deciding to launch similar services with their own content The size of these organizations also means initial costs for technology and marketing would not be an issue While many customers will have multiple subscriptions, there will no doubt come a time where subscribing

to so many services is no longer viable so they may decide to close their accounts

In conclusion, the threat of new entrants is high for Netflix and must be monitored carefully

b Power of supplier - Low level

Traditionally, cinemas want an exclusivity window of up to 90 days before moving onto on demand streaming services Netflix, however, has been fighting back against the major cinema chains by demanding a window of 45 days at most Most notably, Netflix's and Martin Scorsese's latest project, The Irishman, was shown in a limited number of cinemas or in independent cinema chains before moving to Netflix With Netflix's increasing power, the powers of traditional cinemas will continue to dwindle This isn't the only time Netflix has done this; in 2018 they released Alfonso Cuaron's Roma, just a 21-day release at independent and small chain cinemas before it started streaming With more and more production companies launching their own VOD services, some of Netflix's most-watched content will soon disappear For example, the forever popular 90's sitcom Friends will be removed from Netflix in 2020 and instead move to HBO's very own streaming service This is unlikely to be the only big-name Netflix will lose, therefore increasing the risk of power of suppliers

In October 2018, Netflix original content accounted for just 37% of Netflix US streams, although this is up from 17% in January 2017 according to video- measurement firm 7Park Data So, while the popularity of Netflix original content is certainly on the rise, viewers still enjoy watching their old favorites such as Friends and The Office US

While the Martin Scorsese deal is a clear indication of the power shift from cinemas to the producers, Netflix will be wary of the number of acquired properties they will be losing That being said, Netflix is in its own right an accomplished and trusted producer of content now; Therefore, the power of alternative suppliers can be considered only a moderate threat

c Power of Buyers - Medium level

The power of viewers will continue to rise because of the increasing number of streaming services being launched

The industry is not very price-sensitive As all the services are priced at very similar rates, viewers will mainly focus on the quality of content As of January

2021, a single subscription costs $12.99 for Netflix, Amazon Prime $8.99, Hulu

$5.99 and Disney+ $6.99 a month

Viewers are not tied into contracts, so many viewers are paying monthly with the option to cancel subscriptions at any time, thereby putting even more power into the hands of the consumer

The power of buyers cannot be underestimated here, with viewers now having the choice to watch whatever they want if they cannot find something they desire on Netflix they can simply look on a competitors site for something else Also, as stated previously with content moving to other suppliers, it is only natural for viewers to therefore follow the content to other platforms

Therefore, the power of buyers will always be high because of how easy it is for viewers to join and cancel subscriptions

d Threats of Substitute Products - Moderate level

In the UK, the daily average time people are watching broadcasted TV is 192 mins in 2021, down from 242 mins in 2018 While the average viewing time of subscription videos on demand such as Netflix rose by 7 mins in 2019 compared to 2017

YouTube accounts for a large part of total video viewing as 12% of all time spent watching video is on YouTube, who offer live streaming as well as recorded content

With traditional broadcast television on the decline, especially among young adults, who are switching to subscription video services, the threat of a substitute product is low for Netflix

e Competitive Rivalry - Medium level

Take Amazon for example:In order to expand its offering, Amazon Prime not only gives you access to their video streaming services, but many other benefits such as faster delivery (same day, | day), Music and books

In 2018 UK, Netflix had 8 of the top 10 most streamed shows for subscription streaming services Topping the list was Friends (BBC News, 2018)

Competitive rivalry is high is for Netflix While competitors such as Amazon can offer additional services for customers’ subscription fees, others are removing the most popular video content from Netflix to show on their own platform

- Operations:

In Porter's value chain analysis, operations are the processes or services that transform inbound logistics into outbound logistics So the ease of access, quick search, stability, and security of the server is the primary concerns.Netflix uses cloud architecture on its servers that store the content Users can connect to Netflix servers through multiple devices Cloud architecture provides a reliable foundation for all these operations It includes searching and organizing features

- Outbound Logistics:

Outbound logistics are the activities related to the distribution of products or services to the customers (include product delivery, storage, and distribution

both internally and externally) The Netflix value chain model includes wholesalers and retailers order fulfillment, distribution, scheduling, processing, and storage

The company operates a digital media rental business In that case, the outbound logistics include services that deliver digital media to customers through downloads or streaming

- Marketing and Sates:

Netflix marketing is an innovative, agile approach based on brand development through customer relationship management Constant analysis and optimization are the foundation of marketing the Netflix model

In the last few years, Netflix has increased its marketing budget drastically In the year 2019, Netflix spent 2.65 billion USD on marketing endeavors alone It included promotions and advertisements to expand the customer base

- Service:

Netflix delivers its products and services online Therefore, the after-sales services need to be quick yet robust It includes a wide range of activities, including training, part supply, installation services, repair of products, and post-sales maintenance

Netflix provides customers with the best and prompt after-sale services Its support team helps customers with their queries in real-time, which may include account issues or payment issues Since the company's operations are spread worldwide, it is crucial to be available 24/7 and in many languages to connect without any problem

b Support activities

- Infrastructure

Firm infrastructure support activities consist of activities such as — planning, general management, quality management, legal services, along with finance and accounting