Case study over current position of Netflix and where it is heading. AFI framework was used to provide insight into new viable strategies with recommendations on how Netflix can maintain a competitive advantage in the future.
3. The science of
today is the
technology of
tomorrow
1997
Rent DVDs
2007
World of Streaming
2015 – Now
Household Name
4. History of Netflix
Founded by Reed Hastings 1997 in
Las Gatos, California
DVD by mail rental service
IPO 2002 at $15.00 per share: 82.5
Million in shares
Challenged traditional movie rental
business model
Blockbuster and Rental stores
demise
5. Netflix company overview
Business Model
• Online VOD streaming
subscription service
• Original and leased content
• Differentiation Business
strategy
• Transnational strategy
Financial Profile
• Maret Cap: 156.9 Billion
• Revenue 2018: 15.79 Billion
• Net Income 2018: 1.211
Billion
8. Rivalry among existing
competitors - High
$14.99
$8.99
$5.99
$8.99
$11.99
$15.99
MONTHLY SUBSCRIPTION COSTS
Basic
Standard
Premium
Content is King!
9. Threat of new
entrants - Moderate
Capital
Technology
Infrastructure
Content
Industry
network
Licensing
content
Original content
Regulation
Vary by country
Can change
13. SWOT Analysis
Strengths
- Increasing amount of international subscribers
- Geographically diverse markets
- Exclusive
licensing agreements and partnerships
Weaknesses
- US profits dropping
- US operations represented
⅔ of Netflix revenue (relative to expenses)
- Non-diversified
source of income → Primarily from
subscriptions
- Only 20 languages
- Limited content internationally
14. SWOT Analysis
Opportunities
- Global expansion
- Improvement of streaming services
- Use and advantage of loyal subscribers due
to original content (OITNB)
- Further develop region specific business
models
Threats
- Slowing growth in domestic market
- Advertising
- Video file sharing websites (piracy)
- New entrants
- Legal regulations
- Adapting to all markets
- Competition in other countries
- Internet availability and AWS reliance
15. VRIO analysis
Capability Valuable? Rare? Inimitable? Organized for Value?
Netflix CineMatch algorithm Yes No Yes Yes
Original content Yes No Yes Yes
Quality of Internet streaming Yes No No Yes
Lack of Ads Yes No No Yes
Netflix brand Yes Yes Yes Yes
16. Competitive Advantage Creation of:
• Utilization, incorporation of
Internet/Technology
• Piggy-backing onto
technology advances
• Turn of the century
• Instant, Convenient
• Flat fee
Sustainable:
• Original content
• No advertisements
• Recommendation algorithm
18. Competition in global
markets
• Competition with established, local video
streaming providers
• Japan: Local “Rakuten Showtime” and
Hulu Japan were competing already
• Underdeveloped infrastructure
19. Regulatory
Restrictions
• Subject to US regulations and imposed
sanctions
• Syria absent from January 2016
expansion announcement
• Difficulty in entering the Chinese market
• Censorship
20. Local Adaptation
Difficulties
• 22 languages offered, streams in over 190
countries
• Explored partnerships and joint ventures
w/providers in these markets
• $5 billion on international content
creation in 2016
• Preference for local language and services
• Cultural differences/preferences between
customers
21. Financial Costs
• Investment related costs with global
expansion
• Pricing too high for most global markets
• Premiums for licensing in the
international market
• Q3 2015 $68 million loss in the
international business segment
• FX currency exposure
• $94m in lost international revenue
in 2018
22. Recommendations to
Overcome Challenges
• Research infrastructure and
capabilities before market entry
• Expand/maintain relationships with
translation services
• Partnered with over 45 different
companies
• Allocate resources toward improving
controllable costs
• Hedge currency risk
23. Strategic
insights
“Our focus is not on Disney+,
Amazon or others, but on
how we can improve our
experience for others.”
- Netflix
“We are more in competition with
Fortnite. Goal is to become the one
source of entertainment media.” -
Netflix
24. Strategic insights
• Tighter user subscription controls
• ⅔ users share accounts
• Leverage unique Netflix capabilities
• Aspirational self vs. Revealed
• Predict unstable consumer demands
• Expansion into international markets
• Cost management?
• Strategic Alliances local SVoD companies
This Photo by Unknown author is licensed under CC BY-SA.
26. As we ramp up our original content production, we are
building out expertise in a number of disciplines,
including creative, marketing, legal, finance, licensing,
merchandising and other resources related to the
development and physical production of content. If we
are not able to manage the growing complexity of our
business, including improving, refining or revising our
systems and operational practices related to
our streaming operations and original content, our
business may be adversely affected.
– from 2018 10K
