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Netflix’s Overview and Performance
Netflix has become a worldwide phenomenon in which people are given the ability to stream the most popular movies, television shows, and even have DVDs delivered to their homes for a low monthly fee. “The company has a subscriber base of more than 117 million members across 190 countries globally” (Harrington, 2019, p. 5). They offer a different variety of packages you can get depending on the number of screens you are looking to stream their services on and also have the ability to add the DVD service to your package as well if you would like for an additional fee.
Netflix has currently been dominating the streaming service industry within the past three years. Their revenues have drastically increased between the years of 2016-2018 making them a strong force within their industry. In 2016, revenues amounted to $8,830.67 million with a gross profit of $2,800.77 million (Harrington, 2019). In 2017, revenues generated were $11,692.71 million with a gross profit of $4,033.05 million (Harrington, 2019). Finally, in 2018 revenues were $15,794.34 million with a gross profit of $5,826.80 million (Harrington, 2019). As one can see, the revenues of Netflix has increased each year, therefore, there seems to be a definite need and want for what Netflix has to offer to its consumers.
The research and development also has increased in the amount of dollars spent each year. In 2016-2018, $852.10 million, $1,052.78 million, and $1,221.81 million was spent on R&D respectively (Harrington, 2019). Therefore, Netflix has been actively searching to find ways each year to bring the best ideas and offerings to the table to better serve their customers and to make their company the best it can possibly be.
International Strategy
Netflix has not only dominated the United States market, but they have also made strides to expand internationally to other countries. Their international strategy includes expanding their product to these other countries in an effort to meet the streaming needs of these potential customers. In doing this, the sales overseas has dominated the US market sales, making Netflix a global business (Uttley, 2018). The company has always been well known in the United States and it appears that just recently Netflix is beginning to gain some international appeal (Uttley, 2018). The company has gained 5.4 million members from across the globe and only 2 million members from the US in the first quarter of 2018 which was a 50 percent increase from the previous year (Uttley, 2018). “This has led some experts to speculate that by the end of 2020 the company will have added a further 70 million subscribers to its services and that this will mainly be fueled by international growth” (Uttley, 2018, p.5).
Netflix also differentiates itself to international markets in the way it provides a wide array of content to its customers. The content the company offered in its beginnings was more targeted towards the US market in which English was the main language available to watch the programs in. Now, the company has a vision to spend around $8 billion to display all the content they have to offer in different languages in an effort to appeal to other countries around the world (Uttley, 2018). Netflix has truly had an impact on broadening its demand to number of different markets through the way in which they have decided to expand to customers around the world (Uttley, 2018). “By the end of 2018, CFO David Wells wants to have 700 TV series’ available worldwide and also offer 80 original productions that will be non-English and not produced in the US” (Uttley, 2018, p. 6). Netflix’s strategy to expand international is, therefore, providing to the specific needs in different countries that is not already being met currently.
Although Netflix has competition from such streaming companies as Hulu and Amazon Video, they are continuing to be the leader dominating the streaming industry with 71% of demand while Amazon and Hulu only come in with 11% and 9% demand respectively (Weprin, 2019). Without the discovery of Netflix, we would not have much of a streaming industry today. Most people have become comfortable with Netflix because of the wide array of entertainment that is provided and people prefer it over other streaming services. The demand for Netflix is high compared to other streaming services, therefore, Netflix does not see the need to reduce their prices because there seems to be a need or want for the streaming service regardless of how much it is costing the customer.
The business level strategy Netflix is aiming to offer to its consumers in India most aligns to the focused differentiation strategy. The needs and wants of customers in the US are very different from those needs and wants of those in India. Culturally, we all have different desires and Netflix is trying adamantly to meet the needs of their customers in India by looking at the market and what is most popular when it comes to streaming in the country. It is certain that Netflix is not very price sensitive but instead the company is very adamant on changing the amount of data their streaming services need in order to run. In India, Netflix streaming on a mobile device is very popular and the amount of data this usually takes is 200 kb (Pelts, 2017). Due to the fact this phenomenon is so popular in India, Netflix is striving to get the amount of data usage down to 100 kb (Pelts, 2017). This simple action makes Netflix more favorable to its customers especially since streaming on mobile devices is very popular in India. The company may even be taking measures to totally exempt their customers from any charges that come with the usage of data which customers would most definitely get an advantage from (Pelts, 2017).
Netflix also set itself apart from the US market and tried to focus on offering original content in India to its viewers. They did just this when they introduced there first ever original series in India called Sacred Games based off a very famous novel (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). They “also planned to expand its portfolio by including content in regional languages like Bengali, Gujarati, Tamil, Punjabi, and Marathi” (Sharma, S., Srivastava, Chandoke, & Prakash, 2016, p. 4).
Weaknesses
Although Netflix is one of the biggest streaming services in the world, they do have some weaknesses they need to improve on to completely dominate the market. First off, their prices they charge are higher than most of their competitors. Netflix this year increased its prices in the US from $7.99 for a standard plan to $8.99, the two-screen plan went from $10.99 to $12.99, and the premium plan will go from $13.99 to now $15.99 (Blumenthal, 2019). In doing so, Netflix has given competitors a major hand in winning over potential customers that will decide to leave Netflix because of the price increases. Netflix prices in India continue to remain the same at $7.35 for the basic plan, $9.55 for the standard plan, and $11.76 for the premium plan (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). Since the company is currently trying to build up their business and compete with others in India it would not be wise for them to increase their prices (Pathak, 2019).
Another weakness Netflix has is based on solely its content. Although Netflix does offer original content it does not own all its programming (Bradshaw, 2017). In 2018, 8 million dollars of Netflix’s budget went to just licensing alone which is a lot of money they could have been spending in various other areas of their company (Rahman, 2019). Lastly, it has become aware to the public that Netflix is not environmentally aware which has not brought the best publicity to the company (Lewis, 2016). They are lacking in this area opposed to their competitors such as Amazon and Facebook who are heavily environmentally friendly in which they use renewable energy (Lewis, 2016). Netflix needs to get these key weaknesses under control before it affects their business as a whole.
When it comes to the price being charged, Netflix needs to price their services more reasonably and consider the fact that they do have other competitors out there that can offer a similar product they are offering for a much lower price. Hulu for instance has a membership that starts at $5.99 which is substantially cheaper than what Netflix wants to charge for their service. If Netflix was to raise their prices in India as they have done in the US, they would lose a lot of their clientele to other competitors which have lower prices such as Amazon or Hulu which would not be the smartest thing to do financially.
The fact that Netflix is spending a substantial amount of money on their licensing agreements is taking away from the money that could do to producing original content in India. Indian customers are very persistent on their need for original content outside from the US. In order to keep their customer base in India content, it is almost essential that they start producing and spending more money on what their customers ultimately want which is series’ and movies specific to India. If Netflix does not try to achieve this goal, they could see their business moving in a negative direction in the near future.
Lastly, most people in today’s society like to be environmentally aware and will actively participate in making the world cleaner and the fact that Netflix does not adhere to such practices may affect their following in a negative manner throughout the world. Companies that have concerns for the environment are more likely to have a solid following then those who do not. It would smart for Netflix to become involved with making the world a more environmentally friendly place which in the end would give them more attention and more of that good publicity that they so anxiously need.
Assessing the Competitive Environment in India
Digital video consumption is a very instrumental trend in India. By the end of 2014, the number of online viewers of video content surpassed 200 million users (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). It seems that this a way of the future in India as it is estimated that by 2020 the digital video market will have about 35-40 billion users (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). With this projection, Netflix and or other competitors making themselves a player in the streaming market was definitely a good investment. Due to the fact that Indian consumers prefer digital online media, Netflix and other streaming companies have made it a priority to offer an application in which you can stream their content right from your phone which makes the demand for these streaming companies much more desirable to the Indian market. Netflix and other streaming services offer the feature of the application but not all competitors have their app available on all kinds of devices as Netflix does which sets them apart from the competitors (Baxi, 2017).
Video Streaming is also something that has become a popular trend in India. Before the founding of such companies as Netflix or Hulu, YouTube was where 60 million users of the Indian population would go to stream videos and get their daily dose of entertainment (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). It was found that “across age groups, genders, and regions, there was a high inclination towards movies” (Sharma, S., Srivastava, Chandoke, & Prakash, 2016, p. 2). This is why people began to find a demand for streaming services that not only offered content but offered movies and or series’ in which they were able to stream freely and at any time. Hence why Netflix and other streaming services where born. There was a definite need for entertainment to be readily available at the click of a button and Netflix came around at the right time when this need was very strong.
Bollywood is a very influential trend in the Indian society. This is currently a $2.1 billion dollar industry in India and it is expected to grow to $3.7 billion by 2020 (Bureau, 2017). The amount of films being produced in India is the largest around the world with 1,500-2,000 films being produced each year in over 20 different languages (Bureau, 2017). Even with these numbers, India does not come close to matching the $11 billion that the US and Canada make in revenues (Bureau, 2017). With India being extremely popular for offering its country with original content, Netflix must step up its game to offer the same diversified original movies that Bollywood in India is not already tailoring to. Netflix has taken one step in the right direction by its introduction of a new series in India called “Scared Games” and also, they secured streaming rights to a very popular Bollywood actor, Shah Rukh Khan (Bengali, 2018). Netflix making these types of strides to bring the India people what they want is definitely a stepping stone for success in India.
Key Issues
There are two main issues that are holding Netflix back from achieving its true potential in India. The first issue would have to be the high prices that Netflix is charging opposed to other streaming services. When Netflix first launched in India, their main target market was to focus on the rich and elite and then to make the rounds to other consumers in the Indian market (Madhavan, 2017). Netflix underestimated how much other consumers may have been interested in their product and this helped to lead to their downfall in attracting a diverse variety of customers to their product. The prices being charged from the subscription service ranges from $7.50 to $12 which can be quite costly for a streaming service monthly (Sharma, S., Srivastava, Chandoke, & Prakash, 2016). India has a competing streaming company to Netflix called Holstar and Eros Now which is reasonably priced compared to Netflix. Holstar’s services are priced at about $3 for its premium service and Eros Now is only charging around $1.50 per month for its most expensive plan they offer (Singh, 2018). Because of their pricing structure, Eros Now has about 8 million customers who pay monthly for their subscription (Bhattacharya, 2018). In today’s society, when it comes to similar products we like to compare them to other services offered in terms of price and if Netflix wants to come on top in this country they will need to be more price sensitive in order to best cater to their customers.
Another key issue that Netflix needs to address in the next two to four years would be the need for more original productions to be produced for the audiences in India. Since the Indian population wants and thrives on the need for original content, Netflix needs to step up its game in bringing customers what they want. With Bollywood being so popular and producing thousands of original movies a year right now, Netflix is not even close to this offering. They have only one original series so far and have produced only 8 original films since their launch into the Indian market (Mitter, 2018). If Netflix wants to be able to compete with other streaming networks, they need to work on producing more original films in order to live up to and compare to Bollywood.
Recommendations
I believe a major reason for Netflix not being as successful as they could be in the Indian market has a lot to do with the prices they are charging for their services. I think it would be super beneficial for the company to look to achieve a cost leadership strategy when it comes to the Indian market. With their being some many other competitors out there offering lower prices for streaming services it is easier for Netflix to be overlooked even though they offer a product that is differentiated from its competitors. Since their product is already differentiated it would make sense for Netflix to compete with other competitors on lower price because it is something that other competitors are offering and something they are not which gives them the lower hand.
Another idea I think that would benefit Netflix when it comes to price is to solely provide streaming on mobile devices in India to save money and costs. Due to the fact digital consumption and streaming on mobile devices is very popular in India, it is more logical for them to reduce their costs in this way. If in fact Netflix was able to eliminate the charges of data to stream their service, I feel like this option would be preferred over streaming on laptops or televisions. We are living in a society in which we are always moving and on the go, therefore, providing the streaming services mainly on mobile devices would meet the needs and expectations of the Indian society that aligns with such a trend.
Ethics Question
Since Netflix does not own all of its content they stream they have encountered some ethical concerns such as lawsuits due to copyright or licensing agreements of the programs. One such example of this was over the 1948 film called Bicycle Thief (Gardner, 2015). This movie was thought to be available to the public for over three decades because no one filed for a renewal of the copyrights (Gardner, 2015). It was found that even though the film may have not been under copyright that the subtitled version may still have been, and this was the ethical issue at hand (Gardner, 2015). This issue adds to the fact that Netflix needs to offer more original content instead of spending all of its money on upholding licensing agreements and renewing copyrights. If the company did this, they would have less of a headache because they would own most of its content and would not have to deal with lawsuits coming their way left and right.
Another ethnical concern that comes into play is the issue of the increase in the subscription fee for Netflix. Netflix has offered the same monthly price for a steady amount of time and most customers have been assured that the $7.99 fee would be promised to them for life (Cullins, 2016). There was a certain period in which Netflix guaranteed that the $7.99 fee would be the locked in rate if customers continuously maintained their subscription (Cullins, 2016). George Keritsis was one of these individuals who was promised the $7.99 per month fee but then suddenly one day his rate was increased to $8.68 (Cullins, 2016). He also was advised via email that his price would ultimately be $9.99 per month (Cullins, 2016). The man decided to sue the company for breach of contract because this was not what Netflix told him to be true and they went back on their word (Cullins, 2016). Being honest to your customers is the most important thing when owning a company. It is not just or right to tell people one thing and do another. Netflix should be held accountable for the wrongful actions they have acted on and for deceiving their customers in this way. It may be hard for customers to trust or be loyal to Netflix in the future because of this action.
In conclusion, Netflix needs to focus on several factors and issues to make their expansion to India a success. They need to look specifically at what their customer preferences are in this country and then solely base what they need to provide to their customers on this measure. They issue of pricing and original content needs to be immensely improved in order to also win over the majority of the Indian population. Netflix is currently dominating in the US but is not doing enough just yet to globally take over the world. Once they get their pricing aligned with other competitors providing streaming in India and produce more original content for their Indian viewers they will have a solid foundation for their streaming business.
References
- Baxi, A. (2017, December 20). India’s Video Streaming Market Is Bigger Than Ever, And Here’s Who You Should Watch. Retrieved from https://www.forbes.com/sites/baxiabhishek/2017/09/30/indias-video-streaming-market-is-bigger-than-ever-and-heres-who-you-should-watch/#60a2c4217cda
- Bengali, S. (2018, March 03). Big-budget TV meets Bollywood as Amazon and Netflix do battle in India. Retrieved from https://www.latimes.com/world/asia/la-fg-india-netflix-amazon-2018-story.html
- Bhattacharya, A. (2018, July 02). A 40-year-old film company has a plan to beat Netflix and Amazon in India. Retrieved from https://qz.com/india/1319005/inside-eros-nows-plan-to-take-on-netflix-and-amazon-in-india/
- Blumenthal, E. (2019, January 15). Netflix raises monthly prices on all of its US plans; here’s how much you’ll pay. Retrieved from https://www.usatoday.com/story/tech/2019/01/15/netflix-raising-prices-all-its-plans/2578957002/
- Bradshaw, T. (2017, July 18). Netflix boosted as viewers outside the US tune in. Retrieved from https://www.ft.com/content/e8c742f2-6b34-11e7-b9c7-15af748b60d0
- Bureau, E. (2017, October 09). Film industry in India to hit $3.7 billion by 2020, says report. Retrieved from https://economictimes.indiatimes.com/industry/media/entertainment/media/film-industry-in-india-to-hit-3-7-billion-by-2020-says-report/articleshow/60998458.cms
- Cullins, A. (2019, April 09). Netflix User Sues Over Rising Subscription Fees. Retrieved from https://www.hollywoodreporter.com/thr-esq/netflix-price-increase-user-sues-907613
- Gardner, E. (2019, April 08). Netflix Hit With Copyright Lawsuit Over Classic Italian Film ‘Bicycle Thief’. Retrieved from https://www.hollywoodreporter.com/thr-esq/netflix-hit-copyright-lawsuit-classic-833908
- Lewis, D. (2016, December 11). Will the internet of things sacrifice or save the environment? Retrieved from https://www.theguardian.com/sustainable-business/2016/dec/12/will-the-internet-of-things-sacrifice-or-save-the-environment
- Madhavan, A. (2017, October 20). How Netflix Lost Big to Amazon in India | Backchannel. Retrieved from https://www.wired.com/2017/01/how-netflix-lost-big-to-amazon-in-india/
- Mitter, S. (2018, November 09). Netflix announces 9 new originals from India, brings focus on regional content. Retrieved from https://yourstory.com/2018/11/netflix-announces-9-new-originals-india-brings-focus-regional-content
- Pathak, P. (2019, January 17). Netflix increases prices in US, if India is next you may have to pay over Rs 900 per month for it here. Retrieved from https://www.indiatoday.in/technology/news/story/netflix-increases-prices-in-us-if-india-is-next-you-may-have-to-pay-over-rs-900-per-month-for-it-here-1431956-2019-01-16
- Pelts, S. (2017, April 14). A Look at Netflix’s Strategy in Developing Markets Like India. Retrieved from https://articles.marketrealist.com/2017/04/a-look-at-netflixs-strategy-in-developing-markets-like-india/
- Rahman, M. (2018, December 18). SWOT analysis of Netflix. Retrieved from https://www.howandwhat.net/swot-analysis-netflix/
- Singh, M. (2018, December 04). Netflix and Amazon are struggling to win over the world’s second-largest internet market. Retrieved from https://www.cnbc.com/2018/07/05/netflix-and-amazon-are-struggling-to-win-over-indian-viewers.html
- Weprin, A. (n.d.). Netflix Dominates Subscription Streaming Video Market. Retrieved from https://www.mediapost.com/publications/article/334116/netflix-dominates-subscription-streaming-video-mar.html
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