Netflix Strategic Management

| Netflix| Heather Murdock, Brian Wynn, Joseph Casey, Samuel Faulkner, Allen Porter, Josh Blum| | The University of Memphis| 4/13/2013| | “Netflix, Inc. is the world’s leading Internet television network with more than 33 million members in over 40 countries enjoying more than one billion hours of TV shows and movies per month, including original series. For one low monthly price, our members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen.
Additionally, in the United States, our subscribers can receive standard definition DVDs, and their high definition successor, Blu-ray discs, delivered quickly to their homes” (SEC Filings, 2013). Reed Hastings and Marc Randolph established Netflix in 1997 in order to offer online movie rentals. In 1999, the firm launched its infamous subscription service that offered unlimited rentals for a monthly subscription, but it was not until the year 2000 that Netflix gave their firm a true competitive advantage when it implemented its movie recommendation algorithm. Within two years, Netflix made its IPO at a net value of $82,000,000 on NASDAQ.
From the IPO to present, Netflix has amassed more than thirty-three million members. During this continual climb, Netflix opened its streaming service in 2007, created major partnerships from 2009 until 2010 which allowed for Netflix widgets on electronic hardware systems, and since 2010 has been establishing international operations in primarily English speaking countries (Company Overview: Netflix Timeline, 2013). Knowing the background of the company, the individuals responsible for managing the company can be discussed with an understanding of what they have achieved.

At the center of everything, Netflix related is Reed Hastings, the Co-Founder, and CEO. Prior to Netflix, Reed founded one of the 50 largest software companies, Pure Software. Reed has additionally served on the California State Board of Education from 2000 to 2004. Reed’s long-term determination has resulted in the company’s endured success despite serious dilemmas. Kelly Bennet is the Chief Marketing Officer. Prior to Netflix, Kelly served as VP of Interactive World Wide Marketing at Warner Brothers for nearly a decade. Additionally, he has served executive positions in Dow Jones International and Ignition Media.
Kelly’s wide range of media experiences has provided the company with the effective understanding of the company is marketing channels. Tawni Cranz is the Chief Talent Officer. Prior to Netflix, Tawni was the HR director of Bausch & Lomb. Tawni has worked with Netflix since 2007. Jonathan Friedland is the Chief Communications Officer. Prior to Netflix, Jonathan was the SVP of Corporate Communication for The Walt Disney Company. Before his executive position, he spent 20 years as a foreign correspondent and editor. Bill Holmes is the Chief Business Development Officer.
Prior to Netflix, Bill served as Vice President Business Development & Strategy at DivX, Inc. Neil Hunt is the Chief Product Officer. Prior to Netflix, Neil served in various engineering and product roles at the software test tool companies. Bill has been with Netflix since 1999. David Hyman is the General Counsel. Prior to Netflix, David was the General Counsel of Webvan. David has been with Netflix since 2002. Ted Sarandos is the Chief Content Officer. Prior to Netflix, Ted was an executive at ETD and Video City. Ted has been with Netflix since 2000. David Wells is the Chief Financial Officer.
Prior to Netflix, David spent six years in senior roles across Deloitte Consulting. David has been with Netflix since 2004. Finally, there is an illustrations board of directors who monitor Netflix to ensure that the executive’s vision for the company is aligned with the stockholder’s needs. The important individuals on the board of directors are Ann Mather, Reed Hastings, and Timothy Haley (Company Overview: Management, 2013). The combined corporate experience of all the executive members has provided Netflix with an invaluable brain trust to power their dominant market share.
Knowing who runs Netflix and knowing what the individuals share, as a common mission and value system, will help clarify the company’s situation in future paragraphs. Netflix does not have an official mission statement or series of values known to the public. However, the company hiring policy does list company culture qualifiers, which are rather similar to an ad hoc value system. In a company where efficiency and responsiveness is everything, Netflix does not carry very many policies or mission statement related items because they believe policies are largely ineffective at producing desired results.
Their concept centralizes around the idea that the Netflix corporate brand sustains itself by creating the highest quality product and service with the highest quality employee. This undetermined result orientated mission statement means that the employees and management hold a great deal of ethical and work autonomy. This autonomy has generated a clarified list of desired employee values: Judgment, Communication, Impact, Curiosity, Innovation, Courage, Passion, Honesty, and Selflessness (‘Top Reasons to Work at Netflix’, 2013).
Knowing the motivation behind Netflix being a result oriented methodology, it will be relatively easy to understand the major goals of the company. The core strategy of Netflix is to grow their streaming subscription business domestically and internationally. Netflix has established streaming services to more than 40 countries outside of the United States. Netflix executives believe streaming content online is a large long-term growth opportunity. Due to an economy of scales, Netflix current controls the majority of the content streaming market.
The other primary strategies for Netflix includes maintaining the highest customer satisfaction in the market, providing Netflix’ streaming service on every device, and transitioning a larger market portion into international markets. It is understandable why Netflix has been willing to venture into unexplored business ventures, such as the online content streaming, with full confidence that these new ventures will carry their company into the next generation of entertainment consumption mediums when you compare their ventures to their values and person-embodied technologies.
Netflix’ intention to be usable on every device is the company’s stretch goal. The effort to become primarily a content streaming company is a long-term challenge due to the mentioned content licensing liability that would adversely affect the business if obstructed (SEC Filings, 2013). Regardless of any ambitions, there are difficulties that the company has had to face, forcing Netflix to change their long-term strategy. “Prior to July 2011, in the (United States) … subscribers could receive both streaming content and DVDs under a single ‘hybrid’ plan” (SEC Filings, 2013).
The hybrid plan was broken into two different subscription services, and subscribers could choose which services interested them the most. That decision was an emergent strategy that developed due to the implementation of DVD kiosks by Red Box and Block Buster. The Stock peaked at an all-time high of 295 during July 2011, and the decisions resulted in an 80% loss in stock value (Yahoo! Finance Inc. , 2013). The company continued to recover with a primarily international and streaming strategy (SEC Filings, 2013). Netflix has successfully established itself in several related industries.
They are a powerful online media provider and well as the leading online movie and game rental distributor. Several recent changes in these industries have occurred due to the competition of big business. Some changes have had a positive and negative effect on Netflix. On the political side, Netflix and other entertainment providers have benefited greatly from the U. S. Department of Homeland Security recent initiatives on the seizing of dozens of illegal streaming and torrent sites due to copyright infringement. Over the past several years’ websites such as torrentfreak, alluc. org, dvdcollect. om, and watchnewfilms. com have been seized or shut down by the U. S. government. These initiatives were a product of the growing concern of copyright infringement from the TV and film industry. Similar to the massive seizures of programs such as limewire and napster in the mid 2000 is forced by the music industry. This has also helped the Legal side of the industry that was much more complicated six years ago than it is today. Copyrights, Trademarks, Patents, and licensing have become easier to obtain for legitimate businesses due to the confidence and maturity of the industry as a whole.
An unforeseen change in copyright law could have an effect on Netflix and its competitors. The economic factors that affect this industry are unclear. Logic suggests that entertainment spending would decrease during a recession due to a decrease in disposable income. However, DVD rentals have continued to grow. This may be because consumers are seeing DVD rentals and online streaming as cheap entertainment alternatives to their counterparts, such as visits to the movie theater or the purchase of an expensive DVD. The sociocultural factors that have affected the industry are mostly related to the advancement of technology over the last decade.
Consumers are more tech savvy and thus are purchasing more products and services that enhance the speed, quality, availability, and price of what they watch. One demographic concern is the aging of the population. As baby boomers grow older they may begin to pursue less visual entertainment. There are no substantial ecological factors affecting this industry. The energy used to run the Netflix’ servers might be a concerning factor if not for the large reduction of domestic shipping and transportation that companies such as Redbox are using instead of streaming.
If anything this industry’s emergence has had a positive effect on the environment because it is transforming what used to be physical product with a life cycle into timeless packages of data. The technological advances in video streaming since Netflix first decided to be an instant video provider are astounding. From what was just an emerging technology just a decade ago is now a major function of every major website in the world. The most significant entry into the market was actual TV networks designing their own websites for content streaming.
Not only does this erase content that Netflix would be potentially able to offer their customers but also creates new competitors. In reference to Netflix’ other side of the business, there has been several changes in the way consumers rent DVD’s. Redbox has emerged as an industry giant by establishing kiosks all over the U. S. making DVD rental cheap and extremely hassle free. Traditional brick and mortar establishments are practically nonexistent due to the convenience and price of by-mail, kiosk, and instant viewing channels.
The five forces model for Netflix is complicated because the DVD rental business and online media streaming are two very separate markets with different customers and competitors. The threat of new entrants on the DVD rental side of the company is not as great as it is on the online streaming side. DVDs are an older technology and a large amount of capital is required to enter this market. It is also difficult to classify exactly who and what Netflix’ direct competitors are as this industry is rapidly evolving and shifting. Netflix competes with companies on several levels of the video entertainment industry.
Netflix and its competitors serve consumers on a number of alternative channels for in-home entertainment such as: brick and mortar rental businesses, DVD vending machine services, DVD mail delivery, online rental, pay-per view rental, video on-demand services, online video purchasing, and brick and mortar retail stores. This collection of competition makes it difficult to assign a particular competitor to a specific strategic group. The threat of new entrants is low. Capital requirements to enter this industry are high and existing competition have established brands and developed unique echnology. The main concern for Netflix is if a large indirect competitor with recourses suddenly decided it wanted to enter the market. The power of suppliers is high in this industry. Netflix obtains its product directly from studios. A broken relationship could cost them an immense amount of viewing content and in turn provide their competitors with that same content. There are no viable substitutes for the content they purchase from the major film and television studios. Supplier can and are forwardly integration themselves into the industry.
The most notable example of this is from the premium cable networks such as: Starz, Encore, Showtime, and HBO. These networks have all established their own premium sites for content streaming with a log-in available through a customer’s cable provider. The power of buyers is moderate to low. The customers are individual consumers so they do not present a great deal of buyer power as a purchasing group. However, Netflix’ revenue is obtained completely form individual customers that are price sensitive. As a whole they are not capable of backward integration which gives them only moderate power.
The threat of substitutes is very high. There is an abundance of different channels a customer could go through to replace Netflix. Netflix customers could simply turn to Cable and satellite television networks, movie theaters, other streaming sites, free sites, rental kiosks and purchasing DVDS to replace Netflix. The switching costs are all relatively low. The rivalry among existing competitors is also relatively high and should only continue to increase. Partnerships are occurring throughout the industry that will put pressure on Netflix not only for its customers but also its content.
Verizon is now partners with Coinstar’s primary subsidiary, Redbox, to launch their own on-demand video streaming site called Redboxinstant. Redbox will now compete with Netflix directly on both sides of its business. If Time Warner allows HBO to offer its website HBOGO to customers without a cable subscription then HBO will transform into a direct competitor of on-demand subscription. Amazon has jumped into the market with their launch of Amazon Prime. Users pay a yearly fee and have access to instant movies, television series, e-books, and a whole array of other value adding services.
Wal-Mart has purchased VuDu, another streaming service that integrates into devices such as Sony’s Playstation 3 to provide instant viewing to subscribing members. Unlike other services Vudu offers titles available the same day they are released on DVD. Google, Apple, and BlockBuster have all also joined the market with their own version of on-demand entertainment. The competition remains high because these are all powerful companies with equal strengths striving for market leadership. Capabilities| Valuable? | Rare? | Costly to Imitate? Organized to capture value? | Competitive Advantage? | Mail-in DVD Rental| Yes| Yes| Yes| Yes| Temporary due to product life cycle. Sustainable for now| Convenience| Yes| No| Yes| Yes| Sustainable/Temporary| Title Variety| Yes| Yes| Yes| Yes| Sustainable| Online streaming| Yes| No| Yes| Yes| Competitive Parity/ Temporary Advantage| Instant queue | Yes| Yes| Yes| Yes| Sustainable advantage| Physical Distribution| Yes| Yes| Yes| Yes| Temporary due to product life cycle. Sustainable for now| Strengths| Weaknesses| Opportunities| Threats|
Instant queue system that makes movie recommendations to customers. | Potential liability for negligence, copyright, or trademark infringement. | Investing in viewing material and streaming content. | Changes in consumer viewing habits| Content can be accessed via hardware applications i. e. Xbox, PlayStation, Ipad, Wii. | Declining subscriptions to domestic DVD rental service. | Adoption and growth of internet TV. | Online subscription-based entertainment video market segment saturation| Brand awareness| Customer information could be accessed by unauthorized personnel. Future of the Consumer Electronic Ecosystem: “Internet on Every Screen”| Content providers refusing to license streaming content upon acceptable terms. | Largest collection of premium content. | Operational failure in any of the key systems. | International streaming segment represents a significant long-term growth| Changes in U. S. postal rates| Netflix is confident that expansion into more markets worldwide will help the business continue to grow. This is evident because Netflix cites its expansive reach as a major component of its success, as well as, an important factor in the company’s plan for the future.
A goal promoted on the company’s investor relationship website is the intention to provide Netflix video streaming services to any and all screens with Internet connection. So far, the company has managed to reach subscribers in 40 countries while supplying a library of over one billion hours of video (Netflix). This wide reaching and easily available nature of this service has been the source of much of Netflix’ success since the company began. Based on the statements included with the Netflix financial releases, the company views an economic perspective of competitive advantage and the industry as a whole.
This perspective is less focused on accounting ratios and data than the fundamental value-added philosophy. The main concern from this perspective is value creation. Netflix has added value to the videos they license by providing a convenient system for streaming the video to the end user and then made that system available to individuals worldwide. The availability of Netflix in so many areas is the primary method being utilized to capture the value already created by the working system born here in the United States. Netflix holds a primary concern in the continuous presence in the technologically developing areas of the world.
In these areas, the economic value added to videos is great. Far from electronic stores and Hollywood, the ease and convenience of Netflix video providing service becomes more and more significant. Netflix respects this philosophy and has responded by continuing to advance into new areas around the globe (Netflix). Triple Bottom Line Netflix has differentiated itself from the competition in both video streaming and rental. Netflix began by changing the video rental market. It entered the industry with the plan to dispense movies across America directly to its subscribers’ homes.
Not long after, Netflix began adding on online method of viewing video instantly. According to the company website, members can play; pause; and resume watching, all without commercials or interruptions. There are many video-streaming services available, most of which are free. Hardly any competitor can match Netflix’ boast of no commercials because of their reliance on ad stream revenue. Netflix also differentiates itself in that the software remembers your video selections. With this memory of video selections, it can then recommend new videos that you have not seen.
The most notable form of differentiation in the video streaming industry is exclusivity. This deals with what video is actually viewable by the users. The provider makes video available legally by contracting with the rights holders of the videos. This severely limits free services already available because they centralize their business model on revenue through advertising. This issue may provide Netflix with its biggest advantage. Because Netflix charges its members a subscription cost, it can then use the greater funds to negotiate with video rights holders.
While Netflix cannot be considered a cost leader when compared to the free video streaming services available, it still utilizes cost management to compete with other pay services that may try to enter the market and those already available. The company advertises that for one low monthly price, Netflix members can watch as much as they want, anytime and anywhere. This low monthly price is due to four factors. One, Netflix has already overcome the cost of input. This regards the substantial investment required to launch a video streaming program on a massive scale and complete negotiations with video rights holders.
Two, Netflix is also developing its economy of scale. The Netflix streaming service is spreading into 40 countries, and each new market can be reached with already developed software and without having to invest in a completely new process. Three, Netflix is further along the learning curve than competitors. The company has been ironing out kinks in the video streaming process much longer than most competitors. Four, Netflix experience gives it a viable source of advantage against industry newcomers. Netflix’ competitive scope is very broad in the video streaming market.
The company is working to reach any and all potential customers with an Internet connected screen. The American market is somewhat segmented between the more tech savvy video streamers and delivery service recipients. For its video streaming service, Netflix is approaching the market with a fast pace, expanding into most areas where internet is available. Netflix’ generic strategy is integration though it leans more towards service differentiation than cost leadership. It strays from a cost position due to the many free video providers already available online.
However, other pay services have difficulty competing because Netflix’ success with economies of scale and experience in the industry. Many factors differentiate the Netflix service from the rest of the market. These videos are available to members on-demand without commercials. Netflix also provides its members with video recommendations based on the customer’s past selections. Furthermore, Netflix has been successful at reaching more and more developing areas that are beginning to go online. In these areas, Netflix’ product has even more differentiation due to the low competitor presence.
There are positives and negatives to the Netflix business strategy. The negatives begin with the cost of premium video rights. It is difficult to differentiate via better video because they will cost more to distribute. This causes trouble because it becomes a tradeoff between more exclusive video selection and cost management. All the while, free services are looming putting together more and more comparable video selections. The benefits of Netflix strategy stem from its heightened revenue when compared to competitors.
Because Netflix charges members, it can spend more on rights to show videos, and its lack of advertising diminishes the threat posed by free services. With Netflix current cost structure, it can benefit greatly from spreading to the markets becoming available due to the expansion of the Internet. A key suggestion to made for improvement to Netflix’ business strategy would be to move along the productivity frontier towards differentiation and away from cost leadership. With a higher price, Netflix can provide better videos that are more exclusive.
This is crucial in order to take advantage of the vulnerability of video limitation within the free video-streaming services. Netflix’ already industry-leading experience should put to use in maximizing the already unique service it provides. It is also possible that segmenting the video-streaming service could benefit the company by diversifying its competitive position. Netflix could provide a free service, with commercials for revenue and limited video offerings. It could then simultaneously offer a low cost subscription with no commercials but limited video offerings.
Its final offering could be a premium subscription with a higher price. This membership would benefit from the higher cost because it would have a greater variety of video offerings afforded by the new revenue. This option continues to differentiate Netflix’ service while still offering low cost options to the price conscious customer. It will be very important that any raise in subscription cost be met with identifiable upgrades to video selection in order to retain subscribers. Netflix Inc. is still very much in the growth stage of the ndustry life cycle. Currently the company seeks to expand operations in Latin American countries, Europe, and South America. Their international subscribers grew from 4. 3 million in the third quarter of last year to 6. 1 million in the fourth quarter (Forbes, 2013). In fact, with all of the success overseas, Netflix has actually started to slow their international expansion, so that they may better analyze new potential markets before officially entering. Netflix uses the advantages of its long tail business model to overcome problems like thin markets.
Through online services, Netflix has risen above competitors like Blockbuster, with advantages like unlimited inventory space through digitization and its multiple process innovations (Parr, 2010). Including such advantages as being available on multiple platforms (mobile, Xbox, Apple TV, etc. ), and having the ability to quickly add or remove products from its database. The technology utilized by Netflix to stream its products to consumers on multiple platforms has expanded rapidly. The online streaming service from Netflix was introduced in 2007, and in 2010 Blockbuster filed for bankruptcy (Parr, 2010).
The technology is so widespread and compatible a subscriber can view a program from their office computer, to their mobile phone, and then to their Blue-Ray player or tablet. The speed of diffusion in the movie/television industries was due to the advances in internet services, similar to what is occurring in the music and book industries. Netflix’ internet streaming service is currently the dominant technology on the industries S-curve today. The remainder of its DVD mail order service is in the decline stage, even though Netflix still holds on to that service.
The biggest paradigm threat that Netflix faces is the emergence of Redbox and the ability to stream movies and TV shows from other sources like HBO Go. Netflix has several trademarks and copyrights that it protects vigorously. Its advantages like online software and no late fees have given it quite the competitive advantage. Netflix has even filed a lawsuit against Blockbuster in recent years for copyright infringement of their new online services (Sander, 2013). Vertical value chain: Stage 1 raw materials: Netflix receives most of its product through the production of outside film studios such as Warner Bros. Disney, Viacom media networks, DreamWorks classics, 20th television, Hasbro studios, Saban Brands, The Weinstein Company, Open Road films, Relative Media (Reuters, 2013). The contracts made with each studio provide Netflix with the physical inventory necessary to meet the demand of consumers, and the rights to digital streaming for its online services. Netflix also participates in this upstream activity through the production of their very own television series. Stage 2 Component and Intermediate Goods: Philips and Sony jointly manage the patent for optical media cd manufacturing (CD Manufacture, 2013).
Although, in North America the patent is expired, so any cd production in Canada or the United States of America is not subject to license fees. However, worldwide the patent still applies, so licensing fees would apply on arrival to any merchandise shipped internationally where the patent is still in effect (CD Manufacturing, 2013). After acquiring DVD’s for the still remaining physical distribution side of the business, Netflix must then package the merchandise appropriately so that its logo and trademarks are clearly visible when received by consumers. Stage 3 Final Assembly:
For Netflix this requires the challenge of taking its finished product and delivering it with convenience and ease to subscribers. Outbound logistics plays a major role for success in customer satisfaction. Netflix must keep executing well in the delivery of their physical products if it wishes to maintain a key provider in mail order services. Stage 4 Marketing and Sales: Netflix has several mediums it can use to reach consumers. Of these, television commercials, internet ads, newspaper/magazine ads, and even video game consoles are crucial ways Netflix reaches its consumers.
Netflix also utilizes discounts as a way to attract new customers, mainly its one month free trial if offers to new users. Netflix is also implementing strategies where they are now starting to offer individual service so that customers may choose which service to pay for (Schneider, 2010). The new service will provide the option for consumers to choose between the DVD rental by mail or the online streaming services. Progress is still being made on a combination package for users that use both services. Stage 5 After-Sales service and support:
For Netflix, service and support may be the most crucial part to maintaining its customer base. The challenge for Netflix lies in that it must provide service and support for two completely different services. For mail order customers, Netflix must provide expedient deliveries consistently and be able to handle issues such as lost deliveries and theft. Online streaming customers have their own range of service and support that is required to accommodate. For example, Netflix must have a wide selection readily available for its users, and it must constantly update their library with new material.
Netflix must also rely on Amazon for this portion if their business since Netflix uses Amazon’s web services (AWS) for online streaming. Netflix has a unique vertically/horizontally disintegrated system. In the past Netflix has used several horizontal integrated techniques that have led to their success by acquiring multiple studio contracts and controlling industries that deal in video distribution (Schneider, 2010). It is dynamic in the sense that most of its products where manufactured, created, and marketed at some point through an outside entity.
This creates a marketing advantage where several consumers already have developed favorites and genre preferences leaving Netflix with the task of compiling the merchandise needed for shipment related services and securing the rights with major film studios to stock their digital library for online subscribers on multiple platforms. On the other hand, Netflix has begun to produce and provide some of its own programming, like their new hit series “House of Cards” (Funding Universe, 2013).
This for many is ground breaking because it is the first television show to bypass the cable network system, and the entire first season is available for viewing instantly which is also unprecedented for a television series. It would seem that Netflix is moving to be more fully vertically integrated with the increase of success it is having from its own studios, but for the time being taper integration would apply with most of their digital products being produced from an outside source. The only acquisition that Netflix has had in the past 3 years is with a company that is named DreamBox Learning.
Netflix has not been interested in growing based on acquisitions and mergers thus far in their venture. The acquisition of DreamBox Learning is thought to be a philanthropic move for Netflix due to this deal involving a partnership with the non-profit organization known as The Charter School Fund (Dreambox, 2010). Dream Box Learning is a company that makes interactive schooling software for kids of all ages. Netflix saw this as opportunity to distribute learning throughout school systems while also boosting the reputation of Netflix. The software is also in use for kids from kindergarten all the way thru the 12th grade.
This investment made by Netflix gave DreamBox Learning the ability to reach more kids and wider range of students. Netflix has a couple over very strong strategic alliances; one of their top strategic alliances is with a company we all know very well, Apple. The availability of Netflix on the iPad and Iphones has helped Netflix gain more users who are looking to watch movies or download shows onto their devices. Along with these devices, Netflix is also available on the Apple TV device so that users are able to watch the movies directly through their TVs.
Blackberry and RIM tried entering an alliance but were never able to finalize a deal. This would most likely hurt blackberry since the amount of recent users of Netflix is on the rise. Another strategic alliance you have probably seen with Netflix is the availability of it on your TV’s, DVD players and Blu-ray Players. These all work over hardwire or wifi network allowing you to view movies and shows via the Internet through your TV and or players. Netflix has done this to gain the people who do not want to wait on the videos to reach them through the mail.
This is the latest technology which includes smart TV’s and Blu-ray players which both have apps pre installed on them so all you have to do is hook them up to an internet connection and you are able to view the movies or shows that you would like (HD TV Test, 2012). This was a great opportunity for Netflix to enter the apps game and really push them to the top. This alliance has defiantly helped Netflix get to their goal of millions of users by making it easier to get the movies right in your home without having to wait.
As the TV prices have dropped recently and more people buying smart TVs this was a great move for Netflix to really get their name out to the people who had not previously used them. Netflix does not seem to be a company who has an alliance management origination but is just looking at technology and developing ways to enter the market all the time. They are always looking for new and improved ways to get the product into the hands of their users more effectively and efficiently. Netflix is a company that has spread its seed internationally they just recently expanded into Latin America.
This was their first international release of Netflix and has proven to be a hard market to corner because of the competition that is out there (LA Times, 2012). Since then they have now emerged in countries such as Norway, Denmark, Finland, and Sweden. They have also reached out to people in Canada, Ireland, and Great Britain. These markets, which already have companies supplying them with videos on demand, have proven to be harder for Netflix than originally anticipated. Is this going to discourage Netflix from entering the market in other countries is the biggest question people are asking right now.
Growth in these regions has been slower for Netflix than anticipated and they are currently looking into new ways to distribute their videos in these countries. One of the main problems that Netflix has had in Latin America is that some of the DVDs were not carrying subtitles, making it undesirable for people to rent. In order to compete with their competitors in this market Netflix now makes sure that all of the movies or shows being distributed in Latin America have subtitles. So far, in Canada, Ireland, and Great Britain Netflix has been successful and is looking to spread out across Europe.
The next question you ask yourself while doing research is how is Netflix going to reach the market of China or Japan or when are they going to try. According to research, the time has not been much insight as to whether Netflix will even attempt to enter these markets. Just recently, the Chinese government launched a video service much like Netflix (Reuters, 2012). Trying to compete with the Chinese government is really going to be difficult and this might be one reasons that Netflix has decided not to enter those markets.
Netflix is using an International Strategy based on the fact they have to have movies in different languages or with sub titles in order to reach these markets. They are doing their best to make sure that every market they enter is going to be a successful journey. This one of the main reasons people have stated they have yet to enter both the Japanese or Chinese markets due to the control the government has over what is entering their markets. The strategy has proven to be effective for Netflix and they have succeeded in the countries they have entered.
The changes they have had to make in the markets show their willingness to succeed and just how driven Netflix really is. Netflix currently has two separate services that are DVD’s by mail and the online streaming of movies and shows. As of the fourth quarter of 2012, Netflix had 27. 15 million subscribers worldwide. Revenues for the Online streaming service were $589 million and $254 million for DVD’s by mail. However, the contribution profit/loss for the online streaming service was $-105 million and $125 million for DVD’s by mail.
While the online streaming service brings in more revenue for Netflix, the costs of operating it surpass those of the DVD service. The DVD service has fixed costs, while the online streaming service must negotiate licenses with each individual company on a case-by-case basis. With this knowledge, it is obvious that Netflix must make a strategic change in order for the company to have a long life. The major issue the subscribers have with the online streaming service of Netflix is that it does not offer newer releases.
If Netflix were to offer newer releases then they could then charge higher prices with justification and make more of a profit on the online streaming service. Considering the major competitors such as, Redbox and Amazon already offer newer releases, Netflix would need to make this change within the next year or they could go out of business. Netflix is collaborating with major media companies such as, Paramount Pictures, Lions Gate, and MGM, so they would be able to work out a deal with them in order to enact this change.
Netflix has released statements about making this change and they say they do not want to offer newer releases and follow their competition (Daily Finance, 2012). The culture and values of the company is to have their low monthly rate of $7. 99 for unlimited streaming and they do not want to drive away potential customers by increasing the prices. An alternative for increasing the overall price would be to have tiered pricing where they can keep the original price but also have an option for newer releases plus the originals for either $8. 99 or $9. 99.
This way they could still say that their prices start at $7. 99. This change could increase profits and bring in more subscribers. The resources that Netflix would need would be to have the rights to the majority of the new releases and the media companies, which is already in place. They have deals with some of the most known media companies in the business, so this would not be a problem for them. In addition, there would not need to be any new policies or procedures in order to implement this change. There are seven members on the Board of Directors, two of which are women.
There are no minorities on the board. The CEO, Reed Hastings, is also the chairman and has been since inception. The largest direct shareholders of Netflix are all of the people on the Board of Directors. However, the largest institutional holders include Icahn, Vanguard, and Goldman Sachs. One of the latest legal issues Netflix has had has been a privacy violation of its customers. There was a class action lawsuit against the company because they were disclosing records of what the customers were watching. This is an ethical issue for the company considering it deals with a violation of privacy.
Netflix made a $9 million settlement which resulted in a 14% decrease in the net income for the fourth quarter of 2012. The CEO, Reed Hastings, is not a Level 5 manager. He does not make good strategic decisions for the company or for the customers considering he is not willing to offer newer releases, which could eventually be what saves Netflix in the end. After all that has been discussed about Netflix, I would not invest in the company because the company could potentially not survive the next five years. Works Cited Company Overview: Management. (n. d. . Netflix. Retrieved March 8, 2013. https://signup. netflix. com/MediaCenter/Management Company Overview: Netflix Timeline. (n. d. ). Netflix. Retrieved March 8, 2013. https://signup. netflix. com/MediaCenter/Timeline Yahoo! Finance Inc, NFLX: Summary for Netflix, Inc. – Yahoo! Finance. (n. d. ). Business Finance, Stock Market, Quotes, News. Retrieved March 8, 2013. http://finance. yahoo. com/q? s=NFLX SEC Filings (Form 10-K). (n. d. ). Investor Relations: Netflix, Inc. Retrieved March 5, 2013. http://ir. netflix. com/sec. cfm Top Reasons to Work at Netflix. n. d. ). Netflix Jobs. Retrieved March 8, 2013. jobs. netflix. com/jobs. html Munarriz, R. (n. d. ). Netflix: No, We Won’t Stream New Releases – DailyFinance. DailyFinance – News and Advice for a Lifetime of Financial Decisions. Retrieved April 14, 2013, from http://www. dailyfinance. com/2012/12/24/netflix-no-we-wont-stream-new-releases/ DreamBox Learning Acquired by Charter Fund in Partnership with Education Philanthropist and Netflix CEO Reed Hastings | DreamBox Learning®. (2010, April 20). Intelligent Adaptive Learning™ | DreamBox Learning®.
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