Netflix Game Stream Analysis

1. MGMT 430 B
Professor Majid Majzoubi
Group 6
Mackenzie Warfield, Heather Dickson, Lauren Mallory,
Melis Jordan, and Trey Davis
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2. 2

3. Value Proposition
Americans associate Netflix with successful streaming,
and Netflix Gamestream will be the first company to
offer a wide array of games for streaming that are
compatible with any device, at a reasonable price.
3
We propose that Netflix enter
the game streaming industry.

4. Opportunity
Game Streaming Industry
Doesn’t currently
exist yet
$25 billion spent
per year in U.S.
Revenues up by
>20% per 5 years
Race for first
mover advantage
● Started as DVD rental service → now a streaming service
● Controls over ⅓ of all downstream internet traffic in the U.S.
during peak times (evenings, weekends)
● Netflix can only grow by 6-9 million more subscribers in U.S.
● Crossed industries once, can do it again
4
“As long as Netflix can continue this trend of
innovation, the company will remain an
important voice in the entertainment
industry” -Steve Fuller, statistician

5. Summary of Environment
Life Cycle Stage
GROWTH
Revenue Volatility
HIGH
Concentration
LOW
Barriers to Entry
HIGH
Competition
HIGH
Regulation Level
LOW
Technology Change
HIGH
Capital Intensity
LOW
Globalization
MEDIUM
What is Netflix really competing for?
SCREEN TIME
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6. Competitive Advantage
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● Big data & algorithms
● Strong association with successful streaming
● Original content
● Fierce brand loyalty
● Customer acquisition & retention
○ 37% of world’s internet users are Netflix subscribers
● Massive Content Delivery Networks (CDNs) already established
● ISP boxes installed in thousands of data delivery centers nationwide
● Netflix already thrives in key challenge areas- lag time, connectivity,
bandwidth, compatibility

7. Competitive Advantage(continued)
ENTRY COST TESTOWNERSHIP TESTBETTER-OFF TEST
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8. Target Market Profile
8
18-35 years olds
Play video games 3 times a week
Like the quality of services they
receive
Convenience is important to them

9. Target Market Profile
9
Works full-time in finance
Lives in the city
Likes to play action games
Finds new games through online video
channels
Likes to listen to crime podcasts
Engaged to be married soon
Student studying architecture
Lives in a dorm
Likes to play strategy games
Finds new games through friends
Likes to ride a bike
Vegan
Shops online
Jack, 29 Abbie, 18

10. Marketing / Communication Plan
#NetflixandChillisnotsoChillAnymore}
}
| |
encaptures company core
campaign
new excitement that crafted
for our new target market
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11. Pricing / Distribution
Movie/Show Account
Type
Movie/Show Account
Cost
Gamestream Cost
(Single Screen)
Final Cost
No Movie/Show
Account
$0.00 $40.00 $40.00 a month
Basic $8.99 $35.00 $43.99 a month
Standard $12.99 $35.00 $47.99 a month
Premium $15.99 $35.00 $50.99 a month
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12. Key Operations Points
● Delivery
○ What may have to change is the
capability of these centers.
○ With new commands to perform
every minute, they will have to
adapt
○ Streaming platforms such as Apple
TV and XBOX will need to become
compatible with the new gaming
capabilities as well
Customers’
Devices
Open CDN
Boxes
Streaming
API
Website Consumer
AWS Cloud
CDN Boxes
Cite: Dorfman
12

13. Key Operations Points(continued)
● Relationships
○ Netflix will need to develop
strong relationships with
members of the gaming
industry such as Take Two.
○ Approach government &
private agencies to learn
different laws and regulations
around the world.
FEDERAL
GOVERNMENTS
GAME
DISTRIBUTORS
GAME
DEVELOPERS
PRIVATE
GAMING
AGENCIES
Gaming Content
Laws & Regulations
13

14. Infrastructure Technology
● There are additions to be
made
○ New game-dedicated
CDN centers will need
to be created
○ More free ISP boxes will
also need to be installed
● These may seem costly, but,
in the end, it will better
Netflix’s overall service
● Technology will stay relatively
constant
● Netflix’s algorithm will need to
now include gaming
preferences
14

15. “People” Expansion
● The Gamestream sector would be an entirely
new department
● Within this department would be positions
such as
○ Vice President of Gaming
○ Director of Content Acquisition
● Key Attraction & Reason for Retention
○ Thrill of changing the game industry
CEO
Vice President
of Gaming
Director of
Content
Acquisition
Director of
Game
Streaming
Director of
Design
Customer
Service
Game-Specific
Marketing
Game-Specific
Legal
See Appendix for Hiring Details and Basic Job Descriptions
15

16. Financial Pro-Formas Summary
Capital Expenditures in 2019: Purchase of Property and Equipment = $405 million
Startup Costs: $377 million
Content Acquisition Costs in 2019: $1,581 million
Cash Required in 2019: $2,363 million
See Appendices L-N for detailed Income Statement and Cash Flow Analysis
#’s in millions 2019 2020 2021 2022 2023 2024
Revenues $0 $1,462 $2,193 $3,290 $4,935 $7,402
COGS $0 $585 $861 $1,267 $1,863 $2739
Marketing $212 $238 $362 $551 $839 $1,277
Tech & Dev. $56 $121 $186 $288 $444 $685
General and
Administrative
Expense $109 $58 $88 $131 $197 $295
Net Income ($378) $324 $490 $741 $1,122 $1,697
Cash Flow from
Operations ($65) ($59) ($49) ($14) $67 $234
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17. Industry Risks / Mitigation
Lag, bandwidth, connectivity,
compatibility
CDNs, ISPs
Licensing
NEW GAME CONTRACTS,
ORIGINAL CONTENT
Price
SUCCESSFUL MARKETING,
PRICE BUNDLES
Brand Recognition
SUCCESSFUL MARKETING,
BIG DATA, ALGORITHMS
Copyright Laws
NEVER WORK OUT OF A
CONTRACT, TRANSPARENCY
International Regulations
COMPLY WITH LAWS,
CREATE DIFFERENT CONTENT
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18. Summary
ENTER THE MARKET
ENTRY COST TESTOWNERSHIP TESTBETTER-OFF TEST
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19. QUESTIONS?
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20. Appendix
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21. ● A. VRIO Resource Analysis
● B. Porter’s Five Forces
● C. Value Chain Analysis
● D. Competitor Analysis
● E. SWOT Analysis
● F. Marketing Material Examples
● G. Pricing
● H. AIDA Marketing Model
● I. Marketing Monitors & Controls
● J. Organizational Employee Distribution
● K. Brief Descriptions of New Positions
● L. Pro Forma Income Statement for the Firm
● M. Cash Flow Forecast for the Firm (2)
● N. Pro Forma for the Video Game Segment
● O. WACC Calculation for Netflix (3)
● P. NPV of Gamestream
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Appendices

22. A. VRIO Resource Analysis 22
Valuable? Rare? Costly to imitate? Organized to Capture Value?
YES YES/NO YES YES
BRAND
Customers are extremely
loyal to Netflix. 37% of
worldwide internet users are
Netflix subscribers.
While a video streaming service
is not rare, Netflix goes above
and beyond. Netflix offers its
customers a unique experience.
The reason Netflix’s customers
are so fiercely loyal is because
the brand offers them a unique,
customizable experience. The
algorithms that provide this are
extremely advanced.
Netflix is a staple of the
American screen time market.
YES YES YES YES
BIG DATA/
ALGORITHMS/TE
CHNOLOGY
INFRASTRUCTUR
E
These algorithms collect very
specific and useful
information for the company,
giving it major competitive
advantage.
Companies strive to have such
detailed algorithms and big data.
Netflix’s complex CDN network
and data algorithms are very
costly to imitate. Netflix keeps
costs down by allowing data
centers to install ISP boxes for
free, but not all companies
would be able to have the
influence to do this.
Yes. Netflix succeeds as a deeply
personal and customizable
service due to these algorithms
and data.
YES YES YES YES
CONTENT
Yes, 60% of Netflix users
say that Netflix’s original
content is extremely
important to them (Fuller).
The Netflix model is not rare,
and many companies offer
streaming for video and many
companies are trying to offer
streaming for games. However,
Netflix’s original content is rare
and the company could extend
this to its gaming service.
Netflix invests heavily in
original content creation- a long
term strategy that not every
company is willing to pursue.
Netflix customers are extremely
likely to be repeat users because
of the amount of content,
including original content.
Appendix Home

23. 23
Threat of New Entrants Medium While regulations, concentration, and capital investment are low, competition and
technology change are very high, making new entrants a medium level threat.
There are thousands of aspiring game creators and several companies that are
trying to get into the game streaming market but they don’t all have the same
infrastructure as the big companies do. To be successful in game streaming, it
really requires a massive data delivery network.
Threat of Substitutes Medium Currently, Playstation Now is the only semi-successful game streaming service
available, and it’s not receiving much love from consumers due to its lag times,
connectivity issues, older games, and price. Since the game streaming industry is
a relatively non-existent market, the threat of direct substitutes is low. However,
there are a number of indirect substitutes- PS Now, Xbox Game Pass, traditional
game purchasing, not playing (non-consumption).
Bargaining Power of
Suppliers
High Game suppliers like Blizzard, EA, Nintendo, Valve, and Rockstar Games are
sometimes very protective of their games and sometimes only allow games on
certain console companies to license (about 10% of the time). In addition,
licensing will be incredibly expensive as companies like Microsoft and Sony will
be able to offer high payouts/royalties to game creators
Bargaining Power of
Buyers
Medium Buyers won’t have many other streaming options to choose from but if the price
is too high, buyers will just opt to continue traditional gaming. These buyers are
technologically intelligent and will figure out the most cost effective way to game
Rivalry High Several large and powerful companies are vigorously attacking this opportunity
right now. These competitors have lots of money, resources, and power.
B. Porter’s Five Forces
Appendix Home

24. 24
Primary Activities Support Activities
Inbound Logistics: For video storage: Content Delivery Network
CDN (2 types of servers (hard disk drives and flash drives) in
multiple geographic locations)
Operations: data is shared with entire company on internal server,
not a lot of standardization. Netflix prefers brief, useful memos or
face to face discussion.
Outbound Logistics: For video streaming: Content Delivery
Network CDN (2 types of servers (hard disk drives and flash
drives) in multiple geographic locations) (CDN only requires about
40 employees) and ISP boxes that large network connectivity
centers can install on their premises. For customer
information/search feature/login feature/etc.: Amazon Web
Services (AWS) (Amazon may have a problem with Netflix
Gaming using AWS or Amazon may like the increased revenue
from Netflix paying for that much cloud space) (Techquickie)
Marketing & Sales: reasonable prices, very communicative with
customers/fans, funny/relatable social media, innovative
standalone marketing gimmicks (apps from shows, interactive
websites, etc.), focus on virality
Service: very communicative, call lines, 24 hour chat, online help
center
Firm Infrastructure: public company, board members often
observe senior mgmt meetings, board communications are
accessible to all on company’s internal shared system, very
transparent and cooperative (Larcker)
HR Mgmt: tons of autonomy is placed in employees’ hands, no
vacation or expense account policies, hold informal reviews all the
time instead of formal reviews annually, managers are in charge of
teams and hiring only A employees (McCord)
Technology Development: licensing and creation of originals
Procurement: seasonal contracts and originals
C. Value Chain Analysis
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Name of the Competitor Advantages Disadvantages
Amazon Cloud infrastructure, Twitch , Amazon
Prime, customer loyalty
No game contracts, more of an
information company
Verizon “Verizon Gaming” Bandwidth, connectivity Bundles limited to Verizon users,
no game contracts
Apple Access to games on app store, customer
loyalty, cloud infrastructure
No game contracts outside mobile,
no screen streaming
Google “Project Stream” Assassin’s Creed works well (fighting
game), connectivity, demonstrated
improved latency for single player
Not very far in development, not a
streaming company
Microsoft “Project x Cloud” Xbox, already has catalog of games, far
into R&D, Xbox Game Pass subscription
Not a streaming company,
customer loyalty dependent on
games offered
Sony “Playstation Now” Playstation, already has catalog of games,
Playstation Now has allowed PC and PS4
users to stream PS 2, 3, & 4 games for 5
years ($20/month, $100/year)
Playstation Now hasn’t done very
well due to price and latency
issues, customer loyalty dependent
on games offered, current offerings
are dated
D. Competitor Analysis
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Strength Weakness
● Strong brand name
● Large selection of content
● Customized content per viewer
● No commercials
● High user satisfaction
● Large consumer base
● Capability of consumer usage through
multiple devices
● Competitive pricing
● Users sharing accounts
● Dependence on suppliers
● Possible licensing issues
● Streaming Quality difference amongst users
● Using AWS
Opportunity Threats
● International markets
● Growing demand for game streaming service
● Technology growth
● Netflix original series
● Other strong brands with high opportunity to
grow
● Rapid technology change
E. SWOT Analysis
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F. Marketing Material Examples
Appendix Home

28. Movie/Show Account
Type
Movie/Show Account
Cost
Gamestream Cost
(Single Screen)
Final Cost
No Movie/Show
Account
$0.00 $40.00 $40.00 a month
Basic $8.99 $35.00 $43.99 a month
Standard $12.99 $35.00 $47.99 a month
Premium $15.99 $35.00 $50.99 a month
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G. Pricing
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Awareness Actions ● Large video advertisement placed during primetime events such as the Superbowl
● Sponsorship of the 2019 Game Awards
● Print advertisements
Interest Actions ● Social media presence (Instagram, Facebook, Twitter, etc.)
● YouTube in-display advertisements and posted videos
● Promote “free first month”
Desire Actions ● Influencer promotions from celebrities and popular gamers
● Personalized emails to current and potential subscribers
● Optimization of SEO
Action ● Customer feedback opportunities & surveys
H. AIDA Marketing Model
Appendix Home

30. I. Marketing Monitors & Controls
We plan to monitor our progress toward 5% of revenue from Gamestream Accounts by simply keeping
track of how many people sign up for an individual or bundled account and by watching our financial
statements. This will be relatively simple as these monitors are already in place--Netflix currently keeps
records of members and types of accounts these members have. To monitor how effective the new
promotion strategies are, we suggest keeping track of Cost per Click (CPC) on how many views YouTube
advertisements receive. Netflix currently has 7.4 million YouTube subscribers and over 2,500 videos posted.
We project that the number of subscribers will grow to at least 8 million about one month after the new
advertisements are introduced. “Pre-play” advertisements on specific channels will also be useful to monitor
the amount of views these videos receive individually as well as to see how far the advertisements are
reaching. Finally, we will monitor our television advertisements (specifically SuperBowl ads) by tracking the
Cost per Thousand (CPT) for viewers watching the program at the time.
Surveys and focus groups will also be held within the first year of planning and after the official
announcement. This will assure that Netflix takes the necessary precautions to serve its subscribers properly.
At this time, Netflix will be able to ask for suggestions for games and platform advancements. Focus group
participants will be compensated, and survey respondents will be entered into a raffle to receive a free year of
the Netflix Bundled Service (video and gaming).
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Appendix Home

31. Category Year 0
(2019)
Year 1
(2020)
Year 2
(2021)
Year 3
(2022)
Year 4
(2023)
Year 5
(2024)
Management 5 5 5 0 0 0
Content & Streaming 10 20 10 10 10 5
Customer Service 0 15 5 5 5 0
Other 20 15 20 10 10 10
TOTALS 35 55 40 25 25 15
*based on hired years and assuming no fires*
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J. Organizational Employee Distribution
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Vice President of Gaming Director of Content Acquisition
● Degree from an accredited college or university
● 3-5 years experience in the gaming industry
● 2+ years in a management position
● Widespread knowledge of both the streaming and gaming
industries
● Strong leadership and decision-making skills
● Degree from an accredited college or university
● 2-4 years experience in the game development and/or content
development
● Widespread knowledge of the gaming industry
● Ability to demonstrate credibility and integrity
● Exceptional writing and communication skills, used to relay
ideas to higher management
Director of Game Streaming Director of Design
● Degree from an accredited college or university
● 2-4 years experience in video/game distribution
● Widespread knowledge of both the streaming and gaming
industries
● Proficiency in Microsoft Word, Adobe, Dreamweaver, HTML
● Degree from an accredited college or university
● 3-5 years experience in gaming design
● Widespread knowledge of the gaming industry
● Proficiency in Microsoft Word, Adobe, Dreamweaver, HTML
K. Brief Descriptions of New Positions
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L. Pro Forma Income Statement For the Firm
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M. Cash Flow Forecast for the Firm
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M. Cash Flow Forecast for the Firm (continued)
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N. Pro Forma for the Video Game Segment
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N. Pro Forma for the Video Game Segment Continued
Appendix Home

38. 38
N. Pro Forma for the Video Game Segment Continued
Appendix Home

39. 39O. WACC Calculation for Netflix
Appendix Home

40. O. WACC Calculation for Netflix (continued) 40
Appendix Home

41. 41
O. WACC Calculation for Netflix (continued)
Appendix Home

42. 42
P. NPV of Gamestream
Appendix Home

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