Netfix Inc. Case Report

This was written in March 2020.

Summary

Netflix is a streaming entertainment service company that offers subscription-based videos ranging from movies, television episodes, to children programs. Founded in 1997 by Marc Randolph and Wilmot Reed Hastings Jr., Netflix started its business model as DVD direct mailing in replacing VHS tapes. The company constantly shifts its business model due to external competitors’ threats. Netflix started off selling physical DVDs to Marquee Plan where Netflix tried to place a pricing strategic plan to compete against other DVDs rentals. At the beginning of 2000s, Netflix met its biggest competitor at that time — Blockbusters. It has over 7,700 stores, and $4.96 billion revenue in 2000, while Netflix is expecting losses of $57 million. Same year, Hastings proposed an equity alliance of selling 49% stake and taking “Blockbuster.com” to Blockbuster. This deal is supposed to make Netflix the online back-end support system for Blockbuster, yet, Blockbuster management declined the offer. Since then, Netflix went on almost a decade pricing and RnD war with Blockbuster to drive each other out of the market. From Blockbuster $19.99 per month v.s. Netflix $22 per month to Blockbuster $17.99 per month v.s. Netflix $14.99 per month, the pricing competition doesn’t end here. In 2006, Blockbuster launched the new service of hybrid mail and in-store rental model. This prompted Netflix to focus on developing product advantage. In 2007, Netflix introduced a streaming service that allows subscribers to access one thousand videos through their computers. However, acquiring streaming content posed a challenge for Netflix since content providers had long-term contracts with cable channels like CNN, ESPN, and HBO. Luckily, content providers also recognize how Netflix can generate more revenue for old shows, and attracts more viewership for shows. The Redbox kiosks that were developed by Mitch Lowe became a threat to physical rental stores that eventually alongside with Netflix diverting the customers originally from Blockbuster caused bankruptcy of Blockbuster in 2010. Since then, Netflix has been focusing on creating original content and expanding its international viewership. By 2020, Netflix market cap is $155.82 billion with annual profit of 1.21 billion in 2018. The major products and services it is producing are: Month Subscription Plans to Netflix Website, Recommended system on Videos. Their major competitors are: Amazon Prime Video, Hulu, YouTube Red, HBO Now, Sling TV, and Disney Plus.

Strategic Challenge

Strategic Growth Opportunities

  • Growing independence on original programming and acquiring of talents
  • Revenue for sponsors in original series
  • Growing operating costs on quality and original content
  • Greater debt to maintain competitive pricing
  • Create pricing strategy by offering bundle packages
  • Partner internationally with electronics companies
  • Internal electronics service (Sony, LG, Apple) for built-in deliver movies devices
  • Deal-making with more partners to attract new customers from those brands
  • Cost in the deal-making process
  • Design customer loyalty program in pricing strategy to retain subscribers
  • A new cheaper price package deal for customer who has subscription for 3 plus year
  • Keep quality content with no ads
  • Reduce short-term revenue from new customer loyalty program
  • More marketing in Asia and Europe on Netflix subscription. Work with local celebrities and promoters in facilitating brand image worldwide
  • Producing regional-cultural specific programs
  • Producing korean television shows like Crash-Landing (a growing-demand and viewership in 2020), niche marketing in original Spanish series like La casa de paper(Money Heist)
  • The exponential growth allows Netflix to have more leverage against investors in expanding globally
  • Increase operating cost in acquiring global human capital/talent in producing regional programs
  • Data Scientists & Software Engineers in data mining and machine learning to create more accurate and personalized recommendation list

Recommendation for Opportunities

Among the five strategic growth opportunities, the first strategy of “Differentiating Value Propositions in video content and marketing strategy” is the essence to success of Netflix in foreseeing future. Evaluating from the SWOT (Image 6) analysis of Netflix, the major strengths of Netflix is its high brand image, large platform of producers, and massive global consumers. Weaknesses of dependence on the content producers, franchise of classic shows, and dependence on internet service providers. The strategy of focusing on quality over quantity with more original contents gives Netflix more independence and power in decision-making. Thus, the policy of going for original content gives Netflix freedom in marketing(strategy 2& 3) and program settings (targeting niche customer segments). It is now or never for Netflix. With the rising biggest original content creator Disney Plus, constant change in customer’s taste, extreme competitive market in video programming and acquiring talents, Netflix must strategically allocate its money and human capital to the most appealing & critical traits in their service to differentiate and position Netflix into an unique market that can not be imitated.

A undergraduate student studying Computer Science and Data Science at New York University