NETFLIX

Company's Growth Story

•         Within a decade, subscriber base grew from seven million U.S. subscribers to 93 million people worldwide

•         Aims to stake claim as the FIRST GLOBAL TELEVISION NETWORK - Not much growth opportunity left in US Market with already 49 million American subscribers (which makes it available in 43 percent of U.S. households) and hence seek to expand abroad

•         1990 - Distributed DVDs- mainly films- by mail

              2007 - Launched National Video Streaming Service

              2013 - Added film and television production as well as online distribution

              2016 - Television series broadcasted on its network accounted for 70 percent of its               streaming

              2016 - Added more than 5.8 million paying members between October & December 2016 of which 1.43 million belonged to US (beating internet forecast of 1.15 million)

 

REASONS FOR IMMENSE SUCCESS

•         Netflix delivers programs "on demand" via internet which gives the user option to choose what and when to watch according to his comfort rather than simply watching what is being broadcasted.

•         Subscriber-funded services just like Netflix must offer enough programming that viewers find the service worthy of their monthly fee charged from them. While every broadcasted show doesn't require a mass audience, the majority do so that the subscriber finds enough value offered on the platform and continues to pay.

•         Conglomerated Niche Strategy :  Develops programs for audiences with varied interests ranging from serial dramas ("House of Cards") , horror series ("Hemlock Grove") to action series like Daredevil. Netflix caters to around 2,000 taste communities.

               Gathers extensive data about its subscribers' behaviour with the help of internet  distribution , cultivates its library according to information obtained and then provides the users with their likely desired content.

•         Broadcasts shows produced not only for the US Audiences but also develops original series for subscribers in non-U.S. markets that are also available to U.S. subscribers such as “Marseille,” a French political drama or “Hibana,” a Japanese drama about the country’s competitive comedy scene.

•         Develops localized content which helps it to compete with local channels or networks relying primarily on regional language entertainment. And if it can't produce the required local content , it outrightly purchases the content from local publishers either for an upfront fee or upfront fee plus royalties. 

 

THE BUSINESS MODEL

•         Subscribed-Based Business Model : Netflix makes money by selling the audiences to the advertisers. The viewers pay a monthly fee for access to the library of content available on Netflix

•         The Process

1. Buy /License the commercial rights to broadcast or stream content from the different production houses (which are the real owners of the content).

2. Prepare and maintain a Robust Platform to broadcast these pieces of content.

3. Attract users to view these contents for free for a certain time (Free Trial for a month or so) and develop their interest in the same.

4. Convert Free Users to paid recurring subscribers and charge them a monthly fee for viewing the content.

5. Maintain this subscriber base by continously buying fresh and new content.

NETFLIX OPERATIONAL STRATEGY

Considering the Porter's Three Generic Forces Model (1985) , Netflix pursues competitive advantage through DIFFERENTIATION LEADERSHIP. In fact, Netflix tries to deliver an offering perceived as unique by the mass market and its sources of differentiation are mainly two : Content and Criterions of Use.

1. CONTENT

Change in proposition from focussing earlier on quantity to now focussing more on the Quality. Netflix tries to offer its users appealing content, especially through its TV series of high quality and their availability exclusively on the Netflix platform. Moreover, from 2013 Netflix also ventured into creating its original productions which delivered prime content only to its loyal users.

2. CRITERIONS OF USE

Netflix tries to focus more on the functionality, usability and performance to be able to provide the users with a lively and innovative entertaining visual experience and not just provide any ordinary watching experience. Netflix focusses on maximising the user experience and provides features unique in many aspects : from 4k video definition to compatibility with almost every device, from many language and subtitles offerings to binge watching.  

To be able to fully sustain its competitive advantage , the available resources and capabilities (shown below) should be organized effectively.   

Considering the Ansoff's Matrix Model (1957) , Netfix has implemented both Market Development and Vertical Integration Strategies.

•         MARKET DEVELOPMENT

Leveraging on its core competencies and experience , Netflix is present in 190 countries and this expansion allows it explore new revenue opportunities and counterbalance the slow growth in the US. It is ,however, important to note here that since Netflix is continously reinvesting money into content at an extraordinary rate, the only way to sustain this model is to continously genrate new subscrptions.

•         VERTICAL INTEGRATION

Netflix began its backward integration bu producing exclusive content since 2013. The strategic decision allows it to mitigate suppliers' bargaining power and control the content costs, to sustain the international expansion and to respond better to customers' preferences thereby increasing its retention.

The bar charts below show the growth as achieved by Netflix both in terms of Profts as well as Revenue generation.

CHALLENGES AHEAD

1. INTERNATIONAL EXPANSION : In most of the countries it has entered, it has been a late entrant implying that the local competitors have been well established and have already acquired a significant customer base. It hence becomes difficult for Netflix to establish itself in such a strong market space.

2.BACKWARD INTEGRATION : To counter the increasing bargaining power of suppliers. Vertical Integration to allow better control over content costs. Also can go in for revenue-sharing agreement which makes the studios more willing to offer their content.

3. MOBILE WATCHING : Increase in people watching shows on the go worldwide but common mobile contracts allow users to watch no more than 2-3 HD films a month. Hence, to cater to such a segment Netflix can go in for "download and watch later" feature.

PARTNERSHIPS

Microsoft : In 2008, Netflix subsequently partnered with Microsoft for developing a streaming

video app for their gaming console. As part of the partnership Netflix developed a native app for

the game console Microsoft XBox 360. This gave access to XBox Live Gold Members access to

Netflix on their television via their game console. For Netflix it meant that the market of 12

million XBox Live members was opened up, whereas for Microsoft could market their XBox for

the million Netflix subscribers. The deal required Netflix to maintain the streaming video

technology exclusively to XBox for an year. Subsequent to that Netflix would develop a Blu-ray

disk based streaming video solution for Sony’s Playstation. The company would later go on to

generalize the software platform they developed for DVD players to enable Netflix integration

via Software Development Kits (SDKs). This also meant that as Smart TVs emerged and

prevalence of streaming video over the internet developed over the years, Netflix was essentially prepared and could offer easy integrations.

Sony : In 2009, Netflix partnered with Sony Electronics that enabled Netflix subscribers to

instantly watch movies streamed from Netflix on Sony's BRAVIA Internet Video-capable

HDTVs and on previous BRAVIA models compatible with Sony's BRAVIA Internet video link

module.

Amazon : In 2008, Netflix partnered with Amazon web services to transfer its complete database

to cloud.This process started in 2008 and completed in 2016.

Orange Group : Orange and Netflix have renewed the agreement signed in 2014 for the distribution

of Netflix for Orange TV customers in France, and have expanded their partnership to all countries in

which the Orange Group is present.

This strategic partnership will enable the Group’s subsidiaries in Europe, Africa and the Middle

East to distribute Netflix in the future, bringing their customers the rich, globally popular,

exclusive content of this service to all their screens: licensed and original TV series, movies,

stand up comedies, documentaries and children's programmes. Netflix is the home of award-

winning shows likeStranger Things , Orange is the New Black, House of Cards andThe Crown;

and global phenomena such as13 Reasons Why andNarcos. Orange has been a Netflix

distributor in France since 2014 and in Spain in recent months.