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General Overview of Netflix: Business Analysis
Netflix Inc., a leading internet entertainment company, was founded by CEO Reed Hastings and software executive Marc Randolph. Their vision to become “the amazon.com of something” began with the sale and distribution of rental DVDs by mail and transformed into an internet based streaming system of computer television. In 1997, Netflix was established as a way for customers to enjoy movies without historically sitting in a theatre, driving to the local rental store, or creating a dent in your wallet. Originally, Netflix offered their primary services which allowed customers to order rental DVDs online and shortly receive them in the mail based on a “pay per rental” transaction. After increasing consumer interest, Netflix began offering monthly subscriptions; this new promotion gave customers the opportunity to continue ordering their preferred movie rentals but now at a semi-restricted, unlimited rate and a low monthly fee. After a decade of concentration in regards to a growing mailing service, Netflix officially offered the availability of “streaming.” This new means of internet entertainment would allow customers to freely watch television shows and movies wirelessly on their television, laptop computers, and phone, creating a new wave of future, competitive entertainment within the industry.
Over the lifespan of Netflix Inc., the company’s performance has both increased and declined, yet overall, their global expansion, internal growth, and technological advances have placed them as a thriving tech and entertainment company. In 2002, Netflix’s Initial Public Offering was priced at $15 a share; within the next 17 years, the Internet Entertainment Titan experienced periodic fluctuations with regards to their stock market performance, reaching as low as $4.85 and rising as high as $418 a share. Today, however, Netflix Inc. is considered to be one of the “market’s five most popular and best-performing tech stocks,” included in FAANG, represented alongside Facebook, Amazon, Apple, and Google (Kenton, Will), and is currently selling for approximately $360 a share. This performance success can be attributed to the numerous investments and ventures Netflix has taken and incorporated into their business strategy including partnerships, self produced original programming, and international expansion; all while continuing to advance their internal technology. These ventures have achieved great success both globally and domestically shown by advancing foreign market entry, continually increasing subscribers, critically acclaimed and award winning television shows, and a reputation that has created a competitive advantage of consumer loyalty and innovation within the industry.
Netflix first began partnering with “consumer electronics companies to stream on the Xbox 360, Blu-ray disc players, TV set-top boxes, PS3, Internet connected TVs, Apple iPad, iPhone and iPod Touch, the Nintendo Wii and other Internet connected devices” (About Netflix). By pairing with well known electronic companies, consumers who used those specific products, products that were especially popular for gaming, communication, and genuine everyday use, were also able to access Netflix through those product systems and use them interchangeably.
While offering unlimited streaming and DVD entertainment through already established movies and television shows produced and directed by outside companies, Netflix decided to launch their own original programming with the intention of offering long term series, short term series, and movies. This innovative venture led to numerous awards for the specific shows themselves, the actors and actresses, and the entire company; all while achieving extensive recognition throughout the world. While continually expanding and innovating, Netflix has made strides toward increasing the capability of their internal technology; by creating an algorithm to specifically identify the preference patterns of users, the company is able to offer suggestions on current and future watching choices. The ways Netflix has distinguished themselves within this industry through ventures and investments has truly contributed to the ever growing customer loyalty both domestically and internationally.
Beginning in 2010 and extending into 2019, Netflix has successfully expanded their international business by launching its entertainment services in over 190 countries, reaching over 140 million paid, global subscribers. As an American company, Netflix grew domestically during their first decade before attempting global access. After finding internet streaming to be successful, Netflix looked to insert themselves into areas that would welcome their existence rather than create barriers. Though Netflix exceeded gradual commitments in terms of years taken to expand their services globally, they first began their global initiative by offering its services to Canada, which shares cultural, economic, and government ties with the United States, allowing similarities to assist in the company’s ease of entry. Once the company was able to gain experience in a foreign market, their strategy increased region by region as well as country by country. By 2011, Netflix furthered their reach by launching services in Latin America and the Caribbean. In 2012, Netflix began their European campaign by offering services in the United Kingdom, Ireland, and the Nordic countries. In the following years of 2013, 2014, and 2015, Netflix successfully reached another 10 European countries including Netherlands, Austria, Belgium, France, Germany, Luxembourg, Switzerland, Italy, Spain and Portugal; the company also established presence in Australia, New Zealand, and Japan. By 2016, Netflix was fully globalized in 190 countries and continues to seek market entrance into China and India, two of the most populous nations in the world (About Netflix).
As previously stated, Netflix is available in 190 countries. The company is known for its rapid growth; it began in the United States to expanded to a worldwide audience in only 7 years. The company used a very strategic approach to expand internationally in such a short amount of time. Netflix went to Canada first in 2010 because the countries are very close together; since the two countries are so close geographically, they share many similarities. This was the first phase of Netflix’s rapid globalization process. After learning how they could expand in a foreign country, the company was willing to attempt the process in other locations as well. The second step the they took was expanding to 50 countries across Europe, Latin America and the Caribbean. This helped Netflix to continue learning about the internationalization process and ways to improve their strategy. The third phase of Netflix’s globalization process was expanding to 190 countries total. After this long term goal was reached, the company added local languages to its users interface, dubbing and subtitles.
Netflix is available in almost every part of the modern world. There are only a handful of nations that don’t have available access to Netflix including North Korea, Syria, Crimea and lastly, China, the largest growing market. According to the Netflix Help Center, the streaming service isn’t available in North Korea, Crimea or Syria due to U.S. government trade restrictions, however, CEO Reed Hastings said in 2016 that he hoped the company would reach China in the future. Due to government intervention, the many government regulations and the already established online streaming services available to Chinese consumers, China is a complex and slightly problematic market to enter. In the long run, however, this venture would be very beneficial for Netflix, as they would be able to reach one of the largest populations and increasingly growing markets in the world.
Although Netflix is available almost completely worldwide, the online streaming service varies amongst every country. Netflix itself is slightly different in other countries for a variety of independent reasons, but primarily because of the costs of the films. Hollywood entertainment companies and studios put forth a large amount of money into producing movies and television shows, however, online streaming services have made it easier for people to pirate or steal these films directly from their electronic devices. These companies, such as Disney, want to profit as much as possible off of their films to not only balance their expense but to also make a large profit, seeing as it is primarily a for profit business. Because Netflix has enhanced profits for these entertainment companies, the studios and Netflix work together to enforce copyright laws in each country that Netflix is available in. The process is somewhat difficult and time consuming because Netflix must secure content deals country by country. Different countries are willing to pay for different types of content, for example, what is considered to be a popular movie in the United States may not be as appealing to consumers in foreign areas. Therefore, Netflix works in a similar way to a supply and demand type system in regards to the films that they offer in different nations.
The specific amount of shows and movies that Netflix offers on their service changes from country to country. The Netflix library offered in the United States has the largest amount television shows and movies available. In February of 2019, Netflix was recorded to have 1,081 TV shows and 4,579 films in the U.S. According to an article by Quartz, in 2017 it was recorded that Netflix had 49 million American subscribers making Netflix available in 43% of American households. Proceeding behind the United States, U.S. territories American Samoa and Puerto Rico have the next largest amount of entertainment available on Netflix libraries, followed by the Caribbean and South America. Although Canada was the first foreign country for Netflix to expand to, they have a smaller library than most Caribbean and South American countries.
Netflix began creating and producing self made programming including series, movies, and documentaries, partially for global releasing rights, competitive advantage, and promotion. The original Netflix TV shows and movies are very popular and most are known worldwide; for example, the shows Stranger Things and House of Cards, both renowned, award winning shows. However, Netflix doesn’t just aim to entertain their American audience; “It also develops original series for subscribers in non-US markets that are also available to US subscribers—for example, Marseille, a French political drama; or Hibana, a Japanese drama about the country’s competitive comedy scene. As the number of subscribers from other countries has grown, so, too, has Netflix’s library of original content,” (Lotz, Amanda). Netflix seeks to promote their brand by creating shows that are specifically relevant to others around the world based upon their culture and language, enhancing their global business strategy.
According to the Netflix, there are many different job opportunities working within the country both domestically and abroad. Netflix headquarters is located in Los Gatos, California but the company has locations worldwide. The Netflix Help Center currently lists locations such as Brazil, the Netherlands, Taiwan, The United Kingdom, Spain, India, Mexico, France, South Korea, Singapore, Japan and several locations throughout the United States. The numerous locations are run by a highly motivated employees, boasting great customer service and brand promotion; just another reason why Netflix remains competitive in the industry. Customers can access Netflix customer service representatives in different ways including phone conversations and through an online chat room; Netflix seeks to make sure that these calls and conversations are effective and helpful to their customers. Netflix then assesses customer satisfaction specifically relevant to customer service practices by allowing the customer to take a short survey about their interaction after it is completed. The company disregards the original practice of an automated voice system or robot, viewing it as an impersonal experience with the valued customer. We also see many examples of great human interaction through their customer service such as in the case of Mike Mears, a service representative that bantered with a customer in a customer service chat room. Mears pretended to be a character from the show Star Trek; after a screenshot of the chatroom was put online, it was talked about around the world. “The exchange resonated with anyone who’s ever sat through the hell of an automated customer service call, and it’s one example of how Netflix is aiming to do something different with its customer service. Netflix help chats don’t feature a robotic, dizzying array of menu options, or a company agent using a script,” (Stenove, Timothy). The interaction, being both personal and helpful, shows that Netflix takes great consideration with regards to the experience, satisfaction, and overall enjoyment of their customers.
Netflix created their mark within the entertainment industry by engaging in a multitude of strategic business decisions. This section will discuss those very strategies that Netflix used to position themselves as they are today, compete with other popular streaming services, and how they were able to make themselves more accessible through ventures and investments.
When Netflix first started in 1997 it was a simple DVD rental service that provided consumers unlimited access to mail order DVDs through a subscription based process. This mail order DVD service created competition within the industry, specifically for the DVD rental company Blockbuster. Blockbuster was a very similar rental store for DVDs and video games, so the fact that consumers no longer had to traditionally drive to an actual store to rent a movie or game was a massive threat to Blockbuster. Reed Hastings, CEO of Netflix, was unconcerned by Blockbuster as a significant threat to his business. In 2000, Hastings had offered to sell Netflix to Blockbuster for a 50 million dollars payment. According to the Business Insider, the former CEO of Blockbuster, John Antioco, ended the negotiations because he thought that Netflix was a “very small niche business,” however, Netflix is now worth more than 32 billion dollars and Blockbuster is a simple thing of the past (Dunn).
Netflix’s DVD rental service is still operating today even though they began offering streaming movies in 2007; according to Billings Gazette, over 2.7 million people still rent DVDs from Netflix (Monahan). A few reasons exist as to why people still use this service instead of streaming television shows and movies right from their electronic devices. Firstly, there are many areas of the United States where internet access is extremely difficult to come by, not because it is not available, but primarily due to the particular geography of the consumer. For example Owyhee, Nevada is not equipped with easily accessible internet connection because of the specific geographical area, however, because they do have postal addresses, they can more easily receive DVDs. Another reason consumers still continue to use the DVD service is because of preference; though Netflix offers an extremely large streaming base to choose from, their DVD collection exceeds that, enticing existing users to opt for a mailed in DVD of their favorite movie instead. Even though Netflix still continues to offer their DVD service, its membership and usage has fallen significantly. According to CNBC, as of 2018 Netflix lost 4.8 million DVD subscriptions and there are now only 17 distribution centers left. Netflix does not plan to discontinue their original mailing service in one action but rather allow the entire service to phase out until it is no longer in demand enough to have reasonably keep it in operation; because of this, Netflix is contributing a small amount of their finances into DVD’s to it as possible (D’Onfro).
In 2007 Netflix satisfied peoples’ late-night movie needs with the release of Watch Now (Patches). With Watch Now customers were able to stream from a selection of one thousand movies whenever they desired, so customers no longer had to worry if the store was closed or if they did not own the movie. When Watch Now was first released, DVD subscribers with $5.59 plans were allowed to stream six hours per month (Patches); though because of this relatively new service, the overall quality, service, and performance were not reaching the highest of standards. However, two years after the release of Watch Now, the quality and the service surpassed Movielink, a similar entertainment service offering movies and television shows from outside sources. Movielink was bought by Blockbuster in an attempt to stop their downfall that they caused when they rejected Netflix (Patches), however, the service did not assist enough to productively compete in the industry alongside Netflix. In order to continue competing at a growing rate against other streaming services, Netflix focused on accessibility, international expansion, price differentiation, commercial free streaming, an increasing library of television shows and movies, and the creation of the self produced programming of series and movies.
In terms of accessibility, Netflix wanted to reach as many consumers as possible. To reach a variety of the consumer market, the company’s business strategy incorporated three areas of importance; the DVD service would remain operational, the use and collaboration of game system developers, and the process of expanding internationally. As previously mentioned, by keeping the DVD mailing service, Netflix would be able to reach a large consumer base, including those who lived in geographical areas known to have little to no internet connection at all. Also, though the DVD service does not contribute heavily to the company’s overall revenue, Netflix does not pour large amounts of finances into that operation, leaving a lesser risk of deficit. In regards to the collaboration with game system developers, according to Microsoft news, in 2008 Netflix and Microsoft announced that they will be working together to allow Xbox users to stream on the gaming system. They also announced that consumers would be able to create a virtual movie theatre allowing you to watch movies and television shows with your friends and family (Microsoft and Netflix Unveil Partnership to Instantly Stream Movies and TV Episodes to the TV via Xbox Live). This partnership not only helped to reach those consumers interested in video game entertainment but it also made it easier for customers to stream movies and shows onto their television. Netflix later made arrangements with other game system developers like Sony and Nintendo, allowing subscribers to watch on the Wii and the PlayStation.
Unlike such competitors as Hulu, Netflix welcomed and exemplified international expansion with their first foreign entry into the Canadian market in 2010, later entering Latin America and the Caribbean in 2011, and then followed by entry into most of Europe and parts of Asia (About Netflix). By 2016, according to Netflix Media Center, Netflix could be found in a total of 190 countries. Netflix continues to compete with streaming companies such as Hulu and Amazon Prime through membership pricing, commercial integration, and original programming.
Netflix continues to boast reasonable subscription prices for members, however, as with all products and services, the prices have risen over the last decade and continue to rise over time. Netflix has three different membership plans: basic, standard, and premium. The differences between the plans include price, image definition, and device use. Pricing ranges from $8.99 to $15.99, image definition ranges from standard definition, high definition, and ultra high definition, and devices used, meaning the amount of devices able to be used at the same time by various people range from one screen to four screens. (Choose the Plan That’s Right for You). Unlike Hulu, however, all Netflix membership plans are commercial free, allowing consumers to watch movies and shows without being interrupted by commercials; just one advantage that most consumers hold to a high standard and demand.
Another way that Netflix competes with Hulu and Amazon Prime Video is with their large selection of tv shows and movies, this also includes award winning shows and movies that Netflix produced. In 2016 Netflix had over five thousand different titles in their library, however this number is continuing to drop (McAlone). In 2013 Netflix released their first four original series; House of Cards, Hemlock Grove, Arrested Development and Orange is the New Black (About Netflix). According to Netflix Media Center, in 2014 they received 31 primetime Emmy nominations for their original shows House of Cards, Orange is the New Black, and The Square. House of Cards went on to win three awards making Netflix the first internet TV network to win a primetime Emmy (About Netflix).
Even though Amazon Prime Video and Hulu have features that Netflix does not have, Netflix is still the most popular streaming service with more subscribers than both Hulu and Amazon combined, in 2018 Netflix had over 118 million subscribers worldwide (Molla). The biggest disadvantage that Netflix has is the wait time for tv shows and no live tv. Hulu provides subscribers with episodes the day after they air and they also provide live tv for sports and news.
As of 2017 Netflix has no plans to get into live tv and their focus is on being the “on demand streaming leader in movies and TV series” (Snider). As far as for their plans internationally they are still looking to expand into other countries and they are also testing out a new membership plan in India to make it cheaper and easier to access the thousands of movies and tv shows. This new plan would be a mobile only plan for a little over $3 a month, this cheap monthly plan will allow users to subscribe in shorter increments (Netflix Testing Mobile-Only Subscription Plan for $3 per Month: Report). Since its creation Netflix has been growing, a chart from Business Insider shows the percentage of domestic and international users along with the total amount of subscribers. This chart show very rapid growth and it does not look like their growth is slowing down anytime soon. Once developing countries begin to get reliable internet and a more reliable infrastructure Netflix will be able to expand into those countries (McAlone).
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