Category: Netflix

Netflix is one of the Silicon Valley giants and one of the most successful entertainment companies in the world. It rose to prominence by 2010 but in 2011 faced serious problems. Netflix lost 800,000 subscribers (Wingfield and Stelter par. 5), which was the first decline in membership in years. The reason was the decision to separate two primary services the company provided, DVD rental and video streaming. Unsatisfied with the new model, subscribers all over the United States heavily criticized Netflix, causing its stock rating to go down significantly. This case provides a valuable example of decision-making and strategic planning in the business world. To learn from this case, it is important to identify the problems the company faced, analyze the situation, and come up with possible solutions and recommendations.

First of all, the problems that Netflix had in 2011 have to be identified. The company introduced a new business model that was initiated by the co-founder and CEO Reed Hastings. It implied dividing the services that Netflix provided into two separate parts. Previously Netflix services had come with a single subscription, but since 2011 users had to acquire two different subscriptions, one for streaming and one for ordering DVDs by mail. Additionally, the right to both receive an unlimited amount of DVDs by mail and watch an unlimited amount of movies and TV shows over the Internet, which had cost most users 9.99 USD per month, became over 60 percent more expensive, 15.98 USD per month. The result was that Netflix received a lot of criticism from subscribers, analysts, and the market (Thompson 127). Over 800,000 members terminated their subscriptions. The stock price lost 43 percent.

Analyzing why Netflix faced such trouble should focus on the companys internal decision-making as well as its response to new circumstances. First of all, it is important to understand why Netflix decided to separate DVD by mail service from streaming service. Hastings explained that, after 12 years in the DVD rental and delivery business, the company had wanted to focus on the new and rapidly developing sphere, namely streaming, so it decided to separate the two businesses. However, this explanation appeared online two months after the change had been introduced. Hastings admitted that he should have provided this information earlier (Thompson 128). Another thing that Netflix was criticized for is that they were separating their services at the time when the general direction of the market was to integrate services. Many other high technology companies were trying to make things easier and more accessible to customers, while Netflix introduced something that was ultimately less convenient to their subscribers.

Therefore, the recommendations for the case lie in the areas of communication and integration. Netflix should have communicated its reasoning behind the separation of services before the change was introduced. The company also should have explained what was being modified in terms of its services on the users end before facing extensive criticism. The analysis shows that much of the users dissatisfaction was caused by a misunderstanding of the new business model. Therefore, the negative response could have been mitigated through more elaborate communication. Another issue is that the business model itself was not successful from the very beginning. Splitting its business, Netflix made its subscribers deal with two accounts instead of one for the same services. Instead, the company should have followed the experience of other corporations that succeeded through integrating their services and creating more convenient conditions for their customers.

The Netflix case demonstrated interesting issues of the modern business world. Preoccupied with its organizational development, the company adopted a new business model that ultimately made its services less convenient and more expensive to the users. It also failed to communicate the reasons behind adopting the model, which caused users dissatisfaction and a decrease in the stock price. Lessons that can be learned from analyzing the case are to give priority to ultimate users convenience and to communicate extensively the essence and reasons of every change introduced.

Works Cited

Thompson, Arthur. Crafting & Executing Strategy 19/e: The Quest for Competitive Advantage: Concepts and Cases, New York, NY: McGraw-Hill Education, 2013. Print.

Wingfield, Nick, and Brian Stelter. How Netflix Lost 800,000 Members and Good Will.The New York Times. 2011. Web.

The modern world can be characterized by a continuous contest between various enterprises, including streaming services. Netflix is a leader in the subscription video-on-demand industry and has been rivaling such major brands as Amazon Prime Video, Disney+, and Hulu (Kweon & Kweon, 2021). Consequently, one can hypothesize that Netflixs primary competitive advantage lies in being different from others. Netflix faces substantial opponents and challenges but remains one of the primary players in providing access to movies and TV shows.

Netflix has a long history of being a streaming service and has managed to determine ways of outperforming others. The corporation pioneered the market in 2007 and has gathered millions of users (Kweon & Kweon, 2021; Varadarajan, 2020). However, Netflix has fronted certain obstacles that may decrease its popularity. In particular, research suggests that Netflix recently lost subscribers and even resolved its fees (Kweon & Kweon, 2021). Such a decision is doubted to benefit the firm because Netflixs affordability has always been questioned. Compared to its rivals, Netflix does not have the lowest prices (Kweon & Kweon, 2021). Nonetheless, Netflixs competitive differentiation advantage helps the company keep its leading position (Kweon & Kweon, 2021; Varadarajan, 2020). Netflix surpasses other businesses due to constantly developing unique content, which is not discerned based on subscription status, and being ad-free, which is a vital part of the brands identity (Kweon & Kweon, 2021). Since the corporation does not depend on using commercials, utilizing Netflix is distinguishable from interacting with other streaming services and traditional TV channels. Throughout its existence, Netflix has been working on improving its visual products.

Despite encountering downfalls, Netflix appears to know how to stand out among other partakers in the industry. The brands main strength is being unlike its rivals in prioritizing the users access to unique content. Netflix allows people to watch TV shows and movies regardless of subscription level and without commercial interruptions. The corporation greatly values its individuality which seems to be the reason for Netflix being a leader and the longest player in the market.

References

Kweon, H. J., & Kweon, S. H. (2021). Pricing strategy within the US streaming services market: A focus on Netflixs price plans.International Journal of Contents, 17(2), 1-8. Web.

Varadarajan, R. (2020). Customer information resources advantage, marketing strategy and business performance: A market resources based view. Industrial Marketing Management, 89, 89-97. Web.

Introduction

Netflix, a popular subscription-based online movie rental service, was founded by Reed Hastings in the late 1990s. Originally based in the U.S., it utilized postal services to deliver DVDs directly to its subscribers homes. In 2011, Netflix decided to migrate from its business model of delivering DVDs by mail to streaming media content and movies directly to its subscribers televisions. To secure its profits, the company started to charge more for receiving DVDs, which should have been perceived as a minor add-on to the existing customers original subscription arrangement. However, this move led to a big problem as a number of subscribers defected and Netflixs stock price dropped. The company faced the dilemma of how to remain profitable in the video streaming business while dealing with competition and paying much more for content (Chatterjee, Barry, & Hopkins, 2016). This paper discusses the key marketing strategy issues in Netflixs business model and suggests recommendations on how those issues should be handled.

Main body

Netflixs business model has been considered highly successful. However, one may notice several strategic issues that existed in the process of the companys development. First, Netflix decided to follow the path of famous internet brands like Amazon, choosing a similar business model. Unfortunately, the company did not realize it because of competitive advantages with other retailers until discovering that the customers would not return after having their first negative experience. Second, Netflix is completely dependent on other studios content, which provides the suppliers with extreme power over the company. Third, Netflix did not take into account the bargaining power of its customers who, if left unsatisfied, might choose to decide to spend their money on alternative products or services. All these issues have led to the most critical and urgent problem in Netflixs business, which is customer loss (Chatterjee et al., 2016). Also, the company currently faces increasing competition, with Disney being the most significant threat, and has to deal with rising content costs (Lobato, 2019). Hence, customer acquisition, along with the creation of its own content, price increases, and separation of Netflixs services, can be suggested as the main strategies to improve the companys business performance.

First and foremost, it is vital to take into account that Netflix depends on its customers disposable income, meaning that the slow growth of economic rates would immediately impact the customers purchasing power and the company as a whole (Chatterjee et al., 2016). In such conditions, it becomes essential for Netflix to price competitively against its rivals to maintain its competitive advantage. Though low price, no late fee policy, large selection, and free shipping are among the companys strengths, price increases will allow this streaming video giant to show more flexibility in managing its costs. Second, Netflix should invest more in the production of its own content targeted at a broad audience. Seeing as the company might be influenced by copyright law changes, creating large-budget mass films and shows will allow Netflix to compete with such streaming services as Disney, WarnerMedia, and Apple. In addition, it will give the company an opportunity to maintain attractiveness, thus developing new customers and retaining old ones, as well as sustaining its market share.

Obviously, maintaining new subscriber growth is the main issue for Netflix. Currently, Video on Demand has a significant impact on the companys performance as this service is more convenient than DVD rental. Given the fact that the Internet and technology have changed peoples daily lives, it becomes evident that the company working in the context of online business should keep up with this continually evolving and developing sector to sustain its success. However, although the world slowly progresses from physical DVD systems to digital streaming, evidence shows that the DVD rental industry grosses every year (Lobato, 2019; Sadq, 2015). This suggests that Netflix might tap into this growing business and expand into markets, even though the decision to migrate from its old business model in 2011 has led to negative consequences. Based on this information, separating its services instead of combining them will be a wise decision for Netflix that will allow the company to expand internationally and remain the leader due to its scale, advanced technologies, and original content.

Conclusion

To conclude, Netflix is a popular subscription-based online movie rental service that decided to respond to the continually changing society and science technology sector and migrate from delivering DVDs to streaming media content and movies directly to its subscribers televisions. However, the companys decision to charge for receiving DVDs led to customer loss, leaving Netflix at a crossroads and with questions about whether it should return to combining its services or continue with two separate services and live with the negative consequences. Analyzing current evidence and key strategic issues in Netflixs business model has generated recommendations that customer acquisition, along with the creation of its own content, price increases, and separation of Netflixs services, can be suggested as the main strategies to improve the companys business performance. As suggested, such an approach will allow the company to maintain its competitive advantage and compete with such streaming services as Disney, WarnerMedia, and Apple. In addition, it will expand into international markets, thus maintaining new subscriber growth, as well as sustaining its market share.

References

1. Chatterjee, S., Barry, W., & Hopkins, A. (2016). Netflix Inc.: The second act  moving into streaming. London, Canada: Ivey Publishing.
2. Lobato, R. (2019). Netflix nations: The geography of digital distribution. New York, NY: NYU Press.
3. Sadq, Z.M. (2015). Analyzing Netflixs strategy. International Journal of Science and Research, 4(3), 2271-2273.

Introduction

COVID-19 has significantly changed the social lives and hobbies of millions of people worldwide who had to stay at home during mandatory restrictions. During these troubling times, individuals needed to find new ways of entertainment, and Netflix provided these opportunities. Netflix is the leading streaming platform that presents thousands of movies and TV series for viewers for an accessible price. As a result, Netflix became the primary source of entertainment in many households globally and helped people cope with pandemic restrictions and isolation. The current essay argues that Netflix has been a saving grace for many people during COVID-19, making people feel less lonely and concerned about the pandemic.

Netflix Growth and Barriers

The first argument that supports the essays thesis is the number of people who subscribed to Netflix during the pandemic restrictions. According to the statistics, Netflix gained approximately 16 million new subscribers during the second half of 2020, resulting in nearly 195 million overall subscribers by the end of the year (Ponciano). This growth was astonishing for the companys standards and expectations, and it occurred mainly because of the pandemic restrictions. Additionally, the organizations shares have increased by almost 60%, and the market capitalization reached $235 billion (Ponciano). As a result, COVID-19 has undoubtedly had a positive impact on Netflixs growth.

There were several additional factors that contributed to Netflixs success during the pandemic. For instance, the U.S. dollar got stronger in 2020, and it allowed Netflix to implement clever marketing strategies globally (Bursztynsky). The company reduced the subscription price in Brazil from $8.50 to $6.50 and obtained many new subscribers due to this flexible pricing (Bursztynsky). Moreover, Netflix could implement the same policies in any country that is dependent on the U.S. dollar currency exchange rate. In summary, it allowed the company to expand its international presence and increase its subscriber base.

However, there were also several barriers that prevented Netflix from reaching even higher revenue growth. The major drawback was the pause in movie and TV series production due to restrictions (Bursztynsky). The company had to cancel or delay some of its projects that fans eagerly awaited. It slightly damaged Netflixs reputation, but the company still had a large variety of shows for its viewers. Additionally, Netflix reported an expected decrease in user growth by the end of the pandemic restrictions (Ha). This tendency was inevitable because people started to spend more time outside of their homes, and daily life was returning to normal. In summary, Netflix significantly grew its subscriber base during the pandemic restrictions, and there were nearly 200 million subscribers by the end of the quarantine.

Guilty Pleasure or Self-Care

Consequently, it is essential to understand the direct effects of Netflix on peoples mental health during the pandemic restrictions. After all, even if everyone is watching Netflix, it does not necessarily mean that it is good for their health. For instance, one could perceive this behavior as a mind-numbing opiate for the masses to distract people from real troubles. While the media can achieve this objective as well, the current paper argues that watching Netflix during quarantine is better described as self-care rather than a guilty pleasure.

Hence, the second argument that supports the essays position is the positive impact of watching Netflix on peoples mental health during COVID-19. The research proves this position and states that binge-watching is an effective method of feeling better during the quarantine (Swartvagher). For instance, a recent poll revealed that more than 50% of people agreed that watching TV shows had a positive impact on their mental health during the pandemic restrictions (Swartvagher). For comparison, the same people listed socializing (48%) and eating/drinking (43%) as slightly less effective methods of self-care (Swartvagher). These findings show that watching Netflix positively affected a lot of people during the pandemic.

Some of the benefits for mental health include a lesser degree of anxiety, isolation, and uncertainty. Moreover, the pandemic significantly affected the level of mental health globally. The research suggests that the average rates of depression increased by 24%, anxiety by 26%, and worsened sleep quality by 34% (Boursier et al.). The same study found that binge-watching of Netflix and other TV series significantly reduced these numbers (Boursier et al.). As a result, the authors concluded that this behavior is an effective adapting coping strategy that improves peoples overall mental health (Boursier et al.). However, it is critical to note that not every show has the same positive impact on viewers.

Relevant Topics and Enrichment Movies on Netflix

Lastly, the third argument for Netflix as a saving grace is the large number of socially relevant shows and enrichment movies on the platform. As mentioned in the previous paragraph, not every TV series is equally beneficial for viewers. For instance, Boursier et al. found that enrichment movies that are thought-provoking and emotionally pleasing have a much more beneficial effect on viewers. On the other hand, binge-watching reality TV shows can have a detrimental impact on peoples mental health due to their addictiveness and emphasis on social drama (Boursier et al.). It means that although watching TV during the quarantine generally has a positive effect on mental health, viewers should carefully choose what they will watch.

Netflix is a good option for binge-watching and improving peoples mental health because it promotes relevant TV series and enrichment movies. Moreover, it presents many projects and documentaries that provide valuable information about history, geography, and politics. In addition to enrichment movies, Tanya Horeck notes that Netflix is openly broadcasting socially relevant films. For instance, when George Floyd was murdered in early 2020, Netflix aired documentaries about this case showing how systematic racism can lead to disastrous consequences (Horeck). In this sense, Netflix helps people follow socially relevant news and understand more about the world. Although some of the issues might be more relevant to the United States, Netflix has a large variety of shows that people from other parts of the world might find enriching and fascinating.

Conclusion

COVID-19 has significantly decreased the quality of life for millions of people due to health risks and associated restrictions. As a result, many people had to stay at home, with TV being one of the main forms of entertainment. In this sense, Netflix was a saving grace for many individuals who might have felt lonely and depressed during the quarantine. The current essay has presented three arguments to prove this position: Netflixs growth, positive impact on mental health, and a large variety of enrichment TV series and movies. In summary, Netflix not only presents an accessible form of entertainment but also provides multiple benefits. It was the primary communication instrument between many people in the quarantine and the world around them. In summary, Netflix provided entertainment, psychological help, and education for millions of people who had to stay at home during COVID-19.

Works Cited

Boursier, Valentina, et al. Is Watching TV Series an Adaptive Coping Strategy During the COVID-19 Pandemic? Insights From an Italian Community Sample. Frontiers in Psychiatry, vol. 12, 2021. Web.

Bursztynsky, Jessica. Netflix Says These Three Effects of the Coronavirus Crisis Are Impacting Its Business. CNBC, Web.

Ha, Anthony. Netflix User Growth Slows as Production Ramps Up Again. Tech Crunch, Web.

Horeck, Tanya. Netflix and Heal: The Shifting Meanings of Binge-Watching During the COVID-19 Crisis. Film Quarterly, vol. 75, no. 1, 2021, pp. 35-40. Web.

Swartvagher, Jennifer. Study Shows Streaming Services Help Improve Mental Health. Tinybeans, Web.

Ponciano, Jonathan. 5 Big Numbers That Show Netflixs Massive Growth Continues During the Coronavirus Pandemic. Forbes, Web.

If we analyze then we come to know that Netflix is the worlds major online movie leasing service, providing other than six million subscribers access to in excess of 70,000 DVD titles. The corporation offers a diversity of subscription plans, preliminary at $5.99 a month. There are no outstanding dates, no late cost and no delivery fees. DVDs are distribute for gratis by the USPS from provincial shipping centers situated all throughout the United States. Moreover, Netflix present personalized movie proposal to its members and has additional than one billion movie ratings. No doubt, Netflix also allows members to split and advocate movies to one a different throughout its Friends characteristic.

Based on Netflixs chronological monetary statements and our activist statements, we will do economics study for the company.

What is the value of a new subscriber to Netflix? Assume a discount rate of 20%. Should Netflix be acquiring new subscribers?

No doubt, Netflix is the ground-breaking Web-based DVD-rental organization. For a smooth monthly fee, subscribers can order as lots of movies as they desire, up to four at an occasion, and stay them as long as they desire. Netflix doesnt have outstanding dates, late fees, or titles out of accumulation; and movies typically arrive by mail in a day. As well, the Netflix service is additional superior to in-store rentals. In 2004, subscribers produce from 1.5 million to 2.6 million.

Balance SheetsThe above said Income Statements for NetFlix.com, Inc. shows that how company was generating revenue, profit, sales marketing and interest in other assets during the period of 1998 to 1999.

The above said statement shows the quarterly operating results.

Furthermore, the $500 million market is mounting 100% per year. Any market that large and mounting that fast will pull towards you competitors. As a consequence, Netflix is abruptly facing disturbing competitor such as Blockbuster, Wal-Mart, and Amazon.com. Netflixs opponents are the largest leasing company  Blockbuster, the main e-commerce corporation, Amazon.com, and the major group, period , Wal-Mart. If moderator by the excellence of its entrant, Netflix have to be doing well. Moreover, the first to take on Netflix was Wal-Mart, which start contribution online DVD rentals in June 2003. Then, came Blockbuster plummeting a huge $100 million into its service. Now, lastly, comes Amazon testing U.K. market and American service will start midyear. Probable, the competitors are going to connect in a cost conflict. In November, Netflix cut the cost of its main subscription graph by $4 to $17.99. A few weeks following, Blockbuster slashed the cost of its major plan by $2.50 to $14.99, and eradicate in-store late cost that drove lots of consumers to Netflix in the first place. Moreover, Netflix doesnt like cost wars by means of better and improved capitalized companies. Its opponents have size but Netflix has spotlight, and the asset at the back that benefit is the Netflix subscriber base, and word-of-mouth-driven manufacturing. The more satisfied clientele Netflix has the further new ones it will get, and the extra cost-effective it is to spend in new features. The mainly Netflix doubts Blockbuster, since renting videos is the center of their permit. At present, Netflix has 30 distribution centers, which permit it to reach 85% of its clientele while sleeping. Blockbuster has 23 centers and tactics to build more. If Amazon is grave they have to do the similar otherwise, they will not be spirited. Besides, after two years Wal-Mart hasnt been imposing in the Web-based DVD-rental market. In addition, the model company for Netflix is Dell, which creates money on prices that no one else in the manufacturing can profit from. Netflix is expecting to cultivate quickly aiming 4 million subscribers by the end of the year, and 20 million by 2010. Perhaps Netflix will be compressed or, more probable, bought by Amazon.

Assuming that Netflix does not change its current business model, what is the value of Netflix?

Netflixs past growth results from its ability to maintain high market share and its efficient business model. Our analysis of its future growth based on its past performance in terms of market share and financial ratios from our projected financial statements over the next five years.

First of all, our estimation of the growth rate of Netflix begins with analysis of the past five years growth rate of online subscribers because Netflix revenue substantially comes from monthly subscription fees. As shown in Figure 1, the total market has grown from 0.9 million subscribers in 2002 to 8.8 million at the end of 2006.

Table 4 shows that Netflix market share from 2002 to 2006. Although Netflix has enjoyed rapid subscriber growth for the 5 years, its market share has decreased from 95% to 75 %. The decrease of market share can be explained by increasing competition. For example, Blockbuster started online service in 2004, and try to eat shares from Netflix announcing their full Access program, which permit online customers to make a selection among returning their DVDs during mail and swap over them at more than 5,000 stores for liberated in-store movie rentals. The fast enlargement of Netflix whips companies through big financial resources into the online rental market, such as Apple, Amazon, Wal-Mart, Google and Yahoo!

Table 4. Netflix Market Share

Although the online rental market is expected to experience increasingly intense competition in the next five years, we assume that Netflix maintains 75% market share. The reason for this assumption is Netflix has successfully gained its reputation for high quality services such as a next-day delivery and its catalog 75,000 titles. It also has proprietary software that swiftly sorts DVDs and a strong relationship with various filmed entertainment providers and the U.S. Postal service. Moreover, it responded quickly to a rapid change of the market by launching a downloading service Watch Now. Therefore, we estimated that Netflix would maintain 75 % market share for the next five years.

However, Netflix may need to decrease its subscription price due to intense competition. It currently offers price packages ranged from $4.99 to $23.99 and the average subscription revenue from a subscriber is $13.60 per month. We approximation the standard price will be decrease to $10 per month.

The following table shows estimated subscribers which Netflix will hold each year and estimated revenue from subscription for the next five years.

Table 5. Estimated Revenues and Growth Rate

Estimated Netflix Subscribers is strong-minded based on a market analysis by professional researchers. According to Adams Media Research and Netflix interior estimates, the entirety market will have additional than 20 million online subscribers in the after that four to six years. We predictable the entirety market would have 20 million subscribers in 2010 and 75 % of the entirety market would be keep by Netflix. Revenue for each year is resolute by increase a price that a subscriber will pay each year and the standard number of subscribers for the year. So our estimated enlargement rates for the after that five years are 46%, 25%, 17%, 13 % and 9% correspondingly.

Subsequently, financial ratios from our predictable monetary statements over the after that five years ought to be examined to see how a financial system of scale is realized by the corporation.

The results are as follows:

Table 6. Projected Key Ratios

Table 6 demonstrates that Netflix productively achieves financial system of scale with its well-organized operation as Netflix claims Scalable Business Model. Fixed and sum assets turnover is rising each year, which point to Netflix efficiently manages its assets. Augment in profit margin demonstrate that cost declines family member to revenue. Some of operating costs do not require to produce as revenue augment. Marketing expenses will even reduce in near future when the corporation will have had wide brand recognition. As a consequence, Basic earning authority ratio, ROA, and ROE all add to every year. The corporation may have a trouble since of reduce in current ratio due to large augment in account payable. It has also a unenthusiastic sign in debt ratio; though, its debt consist of all occur from its usual course of business. So, its interest expenditure is kept small.

Based on our supposition discussed above, we forecast that net profits would have full-fledged from $40 million to $126 million in the subsequently five years.

What changes, if any, would you suggest Netflix make to its business model? What are the value implications of those changes?

Since 1999, DVDs have been greatly adopted as a medium for home entertainment. Netflix has grasped this opportunity and finally has established its leadership position in this market. Now Netflix is the largest online movie rental corporation. Its outstanding performance in the market is indicated in its financial statements in the past 5 years. First, we examine its 5 years trend of financial ratios, and secondly, we compare those ratios to its competitors. Table 1 is key ratios for the past five years.

Table 1

Above ratios show Netflixs successful performance just right after the inception of business. Profit margin, basic earning control ratio, return on assets and return on impartiality are all unenthusiastic in the first two years. These negative numbers are typically present in start-up companies such as Netflix. Though, Netflix becomes gainful since 2003, shortly after its inception, which turns all these rations into optimistic. Moreover, they are rising quickly. The decrease in basic earning power ratio in 2005 is not a cause for concern because it is merely the result of the tax credit. Indeed, return on assets and return on equity is 11.52% and 18.58% respectively, increasing by 3.5% from those of 2004.

We also evaluate the standard of these ratios to those of its competitors. The market of film entertainment is full of competition and these companies are subject to the change such as the technology to process deliveries and the price of DVDS. Netflix has a huge range of potential competitors including video rental outlets such as Blockbuster and Movie Gallery, online DVD subscription leasing sites such as smash hit Online, pay-per-view and VOD services plus optional content release methods such as Apples video iPod and Movie Beam, movie trade stores such as Beat Buy, Wal-Mart and Amazon.com, subscription activity services, such as HBO and Showtime, Internet movie supplier such as Movie relation, Internet corporations such as Yahoo! and Google, Cable supplier such as AOL Time and straight broadcast satellite supplier such as DirecTV and Echostar. Here we make a contrast among Netflix and its major rivals who confront Netflix straight. from side to side the Table 2 below, we can have a improved idea how it positions in the home activity market.

Table 2

Netflix has a advanced present ratio than the average of its manufacturing and it shows Netflix could liquidate existing assets at only 53 percent of book value and still pay off present creditors. Netflixs fixed assets income ration of 6.1, much higher than the manufacturing average of 3.5, indicates Netflix uses its place and equipment more efficiently than the industrys average performance. Netflixs whole assets turnover ratio is fairly above the industry average, but not as far exceeding as the fixed assets turnover. This is due to Netflix has less flat assets in relation to its total assets than the conservative movie leasing companies such as Movie balcony and smash hit. Netflix does not own real estate; instead, it leases the property. It gives Netflix some degree of flexibility because it can reduce or increase the property depends on its needs.

Since its inception, Netflix has established its reputation, attracting more consumers. It has provided more service and these activities greatly improved the revenue, resulting in a positive operating income in 2003. It did even better in 2004 and 2005. Since Netflix has just launched its business, we had better to use the data after 2003 as index to compare with its rivals. Netflixs profit margin on sales; basic earning power ration; return on total assets are all positive while the industry average level is negative, which indicates Netflix got a higher return as a result of its ability to use its assets effectively. The Price/earnings ratio of 50.3, which is much higher than the manufacturing average of 12.9, indicates Netflix is less risky than its contestant and has a brighter enlargement prospects.

Should netflix go public at this time? What are the costs and benefits?

We assume Netflixs dividend policy is to maximize a shareholders wealth by distributing steady dividends from its residual earning instead of repurchasing stock.

The dividend decision is made in hope of a reduction of investor uncertainty of future free cash flow. We assume that Netflixs shareholder relatively prefers returns as dividend yield to capital gains. furthermore, Netflix presently does not require to repurchase shares to use for Employee Stock Purchase Plan and Stock Option Plans since it has reserved sufficient shares to cover those plans. Target payout ratio is strong-minded based on Residual Distribution Model exposed in Table 7. Netflix does not have any debt apart from debt arise from its process as of December 31, 2005. It is predictable to preserve its capital structure for the subsequently five years.

Table 7. Distribution Schedule based on Residual Distribution Model (in thousands)

According to the predictable agenda listed above, the average of sharing ratio from 2006 to 2010 is 95.67%. We set a aim payout ratio somewhat lower than the average for prospect indecision: 90%. Table 8 shows predictable bonus payments of 2006-2010 using our predictable monetary statements and that of 2011  2020 based on the goal payout ratio.

Table 8. Estimated Dividend payments

Free cash flow can be used to pay interest to debt holders, pay off a few of the debt, pay bonus, repurchase stock, or buy marketable securities. Paying attention and paying off debt are roughly immaterial to Netflix, because it does not have any note owed and long-term debt. Since free cash flow ought to not be keep by management unless it can produce privileged returns than shareholder could earn by devote that money in equivalent risk investments, paying dividends or repurchasing stock is the majority effectual way to maximize a shareholders riches. Following Netflix bonus policy talk about in the question 5, we take for granted that paying dividends to its shareholders would be the most excellent way to exploit its stockholder value.

Conclusion

To sum up this discussion we may say that Netflix is operating in the oligopoly since a few large producers of a homogeneous service control the market. It is a all the same oligopoly since the Big Four companies produce consistent Web-based DVD-rental service. Due to a small number of competitors, Netflix has a substantial control over its prices; however, Netflix must consider how each contestant will react to any change in price, production, service individuality, and publicity. Furthermore, economies of scale cause the entry fence in the Web-based DVD-rental marketplace.

Reference

Financial Forecast Center. Financial Forecast Center. 2007. Web.

Netflix Corporate Fact Sheet Netflix. 2007. Web.

Netflix, Inc. Yahoo! Finance.2007. Ratios. Returns. Web.

Credits Netflix. Online Website. Homepage. (2006). Cashing in on business. Boston: Little, Brown and Company. Web.

Rosenberg, Y. (2000). Successful internet business. Boston: Harvard Business School Press.

Introduction

Netflix is a company that provides streaming media to people in USA, Caribbean and some parts of Europe. It was established in 1997 and headquartered in California where it started distributing digital products using email addresses (Villarroel & Taylor 2013). Within a period of 12 years, the company was capable of having ten million subscribers and distributing one hundred thousand DVD titles (Zeng & Gualdi 2013).

In fact, it is among the most successful companies in terms of revenue, development and market share. This paper will discuss the companys business model, identify the impacts of internet technologies on its business, and analyse opportunities alongside the challenges of the venture.

Business Model

A business model refers to the architecture that shows the framework of production, flow of information, and a description of various business players. It is described using its key elements which include value proposition, market, revenue models, competition, value chain, organisational structure, and management. When discussing the business model used by Netflix, the individual elements will be discussed in particularity.

Value Proposition

Netflix provides customers with streaming media, such as videos and songs, through online platform especially email addresses. Particularly, they use a Permit Reply Mail system that allows customers to give feedback, report problems, and make complements. The channel creates an interactive environment where customers can communicate with the providers easily. In essence, this is one of the ways that the company adds value to their services bearing in mind that communication is as important as the quality of products.

For the customers to receive Netflix services, they must secure a subscription with the company. This implies that members can surf in the companys website without worrying about the cost. This has been portrayed in one of their latest service provided under a model known as All You Can Read.

The company allows subscribers to access e-books that have put in their bookstore. Since it works under their subscription platform, members are capable of reading the books without the fear of cost. Subscribers thus prefer using Netflix rather than getting those books from typical bookstores. This approach enables the company to compete effectively with its competitors.

Target Market

Netflix targets the nationals of various countries, including North and South America, Caribbean and European countries. Its paradigms include business-to-customers, business-to-customers and also profitable. Importantly, Netflix dwells on business-to-customer strategy since the services are consumed by individuals.

However, it also targets other companies by coalescing with them to promote products such as e-books and others. Since the company provides these services to make money, it is evident that it is a profitable business. Another crucial aspect of the market is communication channels that are used to reach customers. In this regard, Netflix uses an emailing system to send media and also get feedback from subscribers.

Cost Base and Revenue Model

One of the most conspicuous costs incurred by Netflix, is the licensing expenditure since the copyright law requires it to pay for the streaming media and DVDs. The cost of establishing online streaming channels and mailing DVDs had been demanding to its stakeholders in 2003. The high cost of had destabilised the companys solvency to a point where its shares went to five-fold. This triggered pricing changes that forced customers to refrain from the company massively.

In order to reduce this expenditure and reduce cost of licensing, Netflix explored beyond its capabilities of innovations and developed skills that enabled it to make its own content. Instead of distributing content from other developers, it was capable of providing customers with products developed internally.

They adopted this self-production ideology that helps them to manage cost and compete with major competitors such as HBO. This system became very special since it led to reduced expenditure and a concurrent rise in the revenue. This condition was based on the premises that the income, which was obtained from subscribers, was not cut by licensing cost since they distributed their own content. This ideology has been working for the company since 2004 to the present time.

Competitive Environment

Netflix works in an environment of competition which includes business rivals such as HBO Go, Amazon Instant Video and Vudu. In fact, these are the three main competitors of Netflix. In this environment, Netflix is positioned a large-scale operator, HBO Go is seen as centre that provides limitless access of media through cable subscription, and Amazon makes free shipping of the products once they are purchased.

HBO Go has been posing great challenges and threats to Netflix by forging tactical alliances with companies such as universal. Netflix has been capable of meeting this challenge due to the combination of various aspects such as authenticity and ability to adapt to rising demand.

This has enabled them to maintain a position of conquering monarch in the industry. Additionally, the competition arena is also characterised by new entrants in the business. Although there are many companies that have started offering online media services, some of the notable ones include Hulu and Hulu Plus.

Value Chain and Marketing Position

Netflix services are placed favourably on the basis of convenient delivery within the value chain. In this regard, the company has managed to shield the impact of its competitors by choosing convenient mail delivery system (Ransohoff 2010). In comparison, with the three competitors, it has an extremely efficient way of delivering services since the customers receive media products through emails (Roebuck 2012).

On the contrary, Amazon ships the products to customers taking a lot of time for delivery. This becomes a crucial gain to the Netflix due to the affliction of its competitors. Subscription platform is another factor that has put the company at a better position than its competitors (Lusted 2013). In this regard, members are allowed to access services without any additional cost.

Physical and Virtual World Representation

Essentially, the company exists as an exclusive online platform where customers receive and access products through emails and streaming (Linden & Conover 2009). These customers are influenced by a constant subscription rate which enables them to access unlimited content (Healy 2010). This has been the force behind the successful creation of massive membership as compared to other companies.

Organisational Structure

The company has partnered and forged alliances with other organisation including Scribd. This alliance impedes customers to access unlimited e-books written by Smash-words authors (Harris 2010). Most of their members prefer using the companys website since they read the books without worrying about additional cost that could be charged in a typical bookstore (Harmon 2007).

Management

The management of Netflix has a firm, visionary, and experienced leadership of their CEO known as Hastings. He has been coming up with innovative ways of coping with financial depression and stiff competitions (Goldfayn 2011). For example, he has sent a clear message to the competitors where he stated that they must be afraid about Netflix. Particularly, he pointed out that they will be forging new alliances with other companies like HBO Go has done. This implies that he does not allow competitors to have an additional advantage over them.

Internet Technology and Netflix

Availability of Internet

The access of Netflix products depends on the availability of internet to customers. If customers do not access internet connection, it is very difficult to seek the companys products (Gallaugher 2010). On the other hand, people with efficient connection to the internet are capable of them subscribing and accessing services from the company (Feuerverger & He 2012).

As a result, it could be concluded that internet availability determines the companys income. In fact, this could affect the expansion of the business and its globalisation. This condition arises because the company cannot seek to provide services to people living in areas without efficient internet connection.

Security Issues

The use of internet connection comes with issues regarding security and privacy (Feher & Towell 1997). Customers must have assurance that using Netflix and its products does not pose security issues. This is one of the factors that could affect the number of customers who are willing to play streaming videos.

In the modern world, people are concerned about the possibility of receiving malware that could be used to obtain private information (Delimitrou & Kozyrakis 2013). As a result, people could be afraid of joining the company due to that fear. This affects the development of Netflix negatively as an online based company.

Database Storage and Management

Netflix requires a database with a large memory to facilitate the storage of online products needed by customers. This is conjoined with the fact that the company keeps on receiving and creating new media content leading to increased memory (Rettie 2001). It requires the company to have highly qualified technicians who can handle the systems. This increases the cost of services and demands for human resource, as opposed to selling them manually.

Creating Large Audience

Internet is a better advertisement platform than any other advertisement methods. A considerably large number of people visit the internet at any given time.

This implies that Netflix can get more subscribers easily through the internet contrary to physical environments that operate in fixed locations (Bransley 2010). This could be accomplished by sponsoring online adverts and links that redirect to the companys website. This is one of the reasons explaining why the company has obtained about 10 million members over a very short period.

Analysing Opportunities

Globalisation

The idea of internet streaming has not taken root in all parts of the world including places like Africa. This implies that there is a huge part of the world with potential customers, but it has not been exposed to this technology (Barr 2011). In addition, the company has not ventured into these areas where the technology has not been adopted profoundly. This presents a good opportunity for Netflix since it has the chance of introducing their products to these parts of the world.

Gaming Market

In the past, Netflix had emphasised on streaming videos and sending them through email addresses. However, the games have become a central point of concern especially when it comes to children. Since this has become a crucial and marketable product, Netflix should harness the opportunity to earn more customers (Bell & Koren 2007). In fact, targeting the youth could provide a new dawn for the company since they comprise a large part of the worlds population.

Challenges of the Company

Customers Inability to Adjust to Price Increase

Netflix customers have portrayed a conservative behaviour in regard to price fluctuations. When this company increases prices, it experiences a severe backlash due to customers mentalities. In 2004, the company increased the price of services, but customers refrained from continued subscription (Bell & Koren 2010). In fact, this led to a severe financial deterioration due to lack of enough sales that could maintain it.

Increasing Cost of Licence

The copyright law requires Netflix to pay for a license in order to sell content developed by other people. Over the past years, this cost has been rising gradually and leading to increased expenditure. This has forced the company to develop content internally and satisfy the customers. It enables the company to avoid the licensing cost when distributing other peoples media products (Berry & Fazzio 2010).

Cost of Internet

The cost of internet bandwidth has increased drastically in Europe and USA. As a result, Netflix has incurred a profound affliction since it has to use the internet connection when distributing media product to customers. This has also posed great challenges to customers since they use the internet connection when surfing and accessing services.

Competition

Young and major companies are posing stiff competition to Netflixting segment (Tuzhilin & Koren 2008). This implies that the company must use a lot of money to keep their standard beyond others leading to high expenditure.

Conclusion

It is evident that Netflix has a strong business model which elevates it beyond the level of other companies (Vickers & Fearn 2010). In addition, the internet has profound impacts on the functionalities and prosperity of the company since it is entirely online. It cannot also be disputed that the company has various challenges and opportunities.

References

Feher, A & Towell, E 1997, Business Use of the Internet, Internet Research, vol. 7, no. 3, pp. 195-200.

Rettie, R 2001, An Exploration of Flow during Internet Use, Internet Research, vol. 11, no. 2, pp. 103-113.

Barr, T 2011, Television Newcomers: Netflix, Apple, Google and Facebook, Telecommunications Journal of Australia, vol. 61, no. 4, pp. 45.

Bell, R & Koren, Y 2007, Lessons from the Netflix Prize Challenge, ACM Explorations Newsletter, vol. 9, no. 2, pp. 75.

Bell, R & Koren, Y 2010, All Together Now: A Perspective on the Netflix Prize, Chance, vol. 23, no. 1, pp. 24.

Berry, S & Fazzio, S 2010, Netflix Recommendations for Groups,. Proceedings of the American Society for Information Science and Technology, vol. 47, no. 1, pp. 1-3.

Bransley, T 2010, Netflix Cancels Contest Sequel, Computer Fraud & Security, vol. 4, no. 3, pp. 2-3.

Delimitrou, C & Kozyrakis, C 2013, The Netflix Challenge: Datacenter Edition, IEEE Computer Architecture Letters, vol. 12, no. 1, pp. 29-32.

Feuerverger, A & He, Y 2012, Statistical Significance of the Netflix Challenge, Statistical Science, vol. 27, no. 2, pp. 202-231.

Gallaugher, J 2010, Information Systems: A managers Guide to Harnessing Technology, Flat World Knowledge, Nyack.

Goldfayn, A 2011, Evangelist Marketing what Apple, Amazon, and Netflix Understand about their Customers, BenBella Books, Dallas.

Harmon, J 2007, Let Them Use the Internet: Why College Instructors should Encourage Student Internet Use, College Teaching, vol. 55, no. 1, pp. 2-4.

Harris, C 2010, Terms of service, cramped budgets, and good library citizenship: the Netflix dilemma, The Bottom Line: Managing Library Finances, vol. 23, no. 4, pp. 212-214.

Healy, C 2010, Netflix in an Academic Library: A Personal Case Study, Library Trends, vol. 58, no. 3, pp. 402-411.

Linden, G & Conover, M 2009, The Netflix prize, computer science outreach, and Japanese mobile phones, Communications of the ACM, vol. 52, no.10, pp. 47.

Lusted, M 2013, Netflix: The Company and its Founders, ABDO Publishers, Minneapolis.

Ransohoff, D 2010, Proteomics Research to Discover Markers: What Can We Learn from Netflix?, Clinical Chemistry, vol. 56, no. 2, pp. 172-176.

Roebuck, K 2012, Netflix High-impact Strategies  What You Need to Know: Definitions, Adoptions, Impact, Benefits, Maturity, Vendors, Emereo Publishers,Dayboro.

Tuzhilin, A & Koren, Y 2008, Proceedings of the Second KDD Workshop on Large-Scale Recommender Systems and the Netflix Prize Competition 2008, ACM Press, New York.

Vickers, A & Fearn, P 2010, Why Cant Nomograms Be More Like Netflix?, Urology, vol. 75, no. 3, pp. 511-513.

Villarroel, A & Taylor, J 2013, Innovation and learning performance implications of free revealing and knowledge brokering in competing communities: insights from the Netflix Prize challenge, Computational and Mathematical Organization Theory, vol. 19, no. 1, pp. 42-77.

Zeng, A & Gualdi, S 2013, Trend Prediction in Temporal Bipartite Networks: The Case of Movies Lens, Netflix, and Digg, Advances in Complex Systems, vol. 16, no. 4, pp. 4.

Introduction

Netflix is a U.S.-based corporation that provides customers with access to licensed video content through video rentals and online streaming. Having been founded in 1997 to take advantage of the improvements in the availability of Internet services, it has consistently introduced innovative approaches to the industry. As a result, it was able to become a market leader, but some issues accompanied its rise. Competing services were able to take advantage of these weaknesses and become viable alternatives to Netflixs services. This case study will analyze Netflixs past and current situation and provide suggestions for future actions and choices. It will also provide a scenario where the same variety of analyses can be applied in the authors life to a familiar company or the family business.

Netflix Strategy

Netflix relies on shows from content producers as well as its originals to attract and retain customers. In the VRIO model, both resources are valuable due to their ability to attract large audiences and interest them in other shows. They are rare because it is challenging and expensive to obtain the rights to a show (Rothaermel, 2016). They are costly to imitate because the famous actors involved tend to favor offers from existing large companies. Lastly, Netflix has been able to organize itself to take advantage of the resource. The development of original shows works well with this approach because competitors cannot obtain rights to these shows without negotiating with Netflix. However, the companys fast growth may be outpacing the capabilities of the Internet, and some people cannot use its services to their full capacity.

Netflix and Innovation

Netflixs innovations have consistently been focusing on the customers, increasing convenience for them and undercutting the competition. As a result, it introduced mail-based subscription services and then moved to Internet-based streaming. As a result, its innovations have been able to keep up with the advances in technology and capitalize on them ahead of the competition.

Core Competencies

Primary Activities

• Inbound Logistics: Suppliers provide finished shows to Netflix directly.
• Operations: Netflix produces original shows and compresses the provided ones for online delivery.
• Outbound Logistics: Netflix relies on ISPs to deliver its shows.
• Marketing and Sales: Netflix presents itself as a superior alternative to traditional television and uses a subscription model.
• Services: Netflix provides customers with suggestions for shows that may interest them.

Support Activities

• Firm Infrastructure: Netflix has extensive management, financial, and legal systems.
• Human Resource Management: Netflix is renowned for its excellent approach to HR.
• Technology Development: Netflix relies on its technological capability to obtain a competitive advantage.
• Procurement: Most shows will only have one possible supplier.

Netflixs core competencies are its resources and its subscriber base. They help the company procure shows, produce originals, and ensure that enough viewers watch them to justify the costs and attract more people. Most of its competitors lack either the resources or the customer base. To hone and modify these competencies, Netflix has to ensure that it keeps providing popular, high-quality content to people.

Growth Maturation

Porters Five Forces

• Threat of Entry: low due to the expensive deals and extensive infrastructure required.
• Power of Suppliers: high, as they have near-complete control over their shows.
• Power of Buyers: medium, as they can find the products elsewhere at the cost of a higher price and possibly worse convenience.
• Threat of Substitutes: low, as Netflix is phasing out most of its substitutes as a superior alternative.
• Competitor Rivalry: low, as most competitors rely on highly popular exclusives and do not offer most of the shows on Netflix.

Netflix can increase demand for its services by introducing high-quality shows and drawing public attention to them. To ensure future growth, it can try to capitalize on its current capabilities to offer a platform to independent content creators.

International Expansion

PESTEL Analysis

• Political: Medium importance; countries can ban Netflix over specific shows and ideologies, but most will not;
• Economic: Low importance; Netflix costs less than traditional TV, which most people can afford;
• Sociocultural: Low importance; Netflix mostly appeals to young people, who tend to appreciate innovation;
• Technological: High importance; a country needs widespread and fast Internet speeds to accommodate Netflix;
• Ecological: Low importance; Netflix does not harm the environment directly;
• Legal: Medium importance; licensing issues can arise in some countries;

Markets outside of the U.S. will have different cultures and may not be interested in its shows. The service can try to secure popular local shows to answer this issue pre-emptively, but the lack of suitable originals will hurt it. Netflix should focus on English-speaking, technologically advanced countries such as the United Kingdom as well as other Western nations such as the European Union first due to the similarity of their cultures.

Conclusion

Netflixs strategy has enabled it to stay ahead of the market in the past and become an undisputable leader. Other services that emerge usually do not compete with it directly but aim to exist alongside it, offering a different product selection. However, the company is reaching market saturation in the U.S. and should consider expanding internationally. The tools used in this analysis can be applied to any company at any time. A likely scenario for their application to a family business would be when its sales would stall at a specific level or begin declining. The analysis would help the owners understand the reasons for this change and possibly offer ways to address it.

References

Collins, K. (2018). Net neutrality has officially been repealed. Heres how that could affect you.The New York Times. Web.

Maheshwari, S., & Koblin, J. (2018). Why traditional TV is in trouble.The New York Times. Web.

Rothaermel, F. T. (2016). Strategic management (3rd ed.). New York, NY: McGraw-Hill.

Talbot, P. (2018). How to succeed in the new world of subscription-model marketing.Forbes. Web.

Introduction

The modern world is profoundly influenced by capitalism. One of its core characteristics is the presence of competitive markets: every economic realm is supposed to have multiple agents that enter into rivalry with each other in order to attract customers and gain benefits. However, this model does not always correlate with practice. In this context, the phenomena of monopoly and oligopoly seem to be challenging. Monopoly and oligopoly can be considered the opposite end of the market structure spectrum from perfect competition.¹ The USA is not an exception since some spheres tend to be controlled by one or a few companies.

In this regard, the example of online television and streaming media is illustrative. Recently, it has been discussed whether this market may be described in terms of monopoly and oligopoly and what position Netflix, one of the most successful and big companies associated with this field, holds. Although the majority of the nowadays studies that pertain to monopolies in digital media cover Google, Microsoft, Amazon, and Apple, Netflix has also become the object of growing interest among researchers.² As a rule, the materials containing information about the current state of affairs, ups and downs, and management strategies are found in different web sources.

The purpose of the present paper is to examine if the Netflixs tendencies to monopoly are increasing. The characteristics of monopoly and oligopoly in the modern setting are given. Further, the American audiences preferences and the Netflixs key competitors in the TV market are explored. Later on, the brief history of the company under consideration is described. Finally, monopoly tendencies and up-to-date situations are investigated.

Monopoly and Oligopoly in the Modern Age

The small number of sellers or goods in an industry may be described in relation to three key theories. One of them is the theory of monopoly. The term monopoly refers to the market situation when there is a single market entity that is the only provider of a product within a certain industry. Another assumption is that this firm produces goods that have no close substitutes; as a result, there is little, if any, competition.³ Finally, as the sole firm controls the production branch, it installs barriers to entry. Legal barriers, economies of scale, and a firms exclusive possession of some scarce resources account for the impossibility of entering the market.⁴ Because the barriers are high, new firms, the potential competitors, are unable to enter the industry and develop.

Apart from the theory of monopoly, there is also the theory of monopolistic competition built, again, on several assumptions.⁵ First and foremost, multiple sellers and clients are involved. Then, the offered goods and services are almost the same: they differ a little in terms of trade names, decoration, advertising, salespersons attitude, and so on. The quality and function of the products are similar. As for the entry process, there are no hindrances to start acting in a particular sphere or quit.

The third theory that should be mentioned touches upon oligopoly. Although the universally accepted theory has not been developed yet, it is possible to describe three assumptions. There are few interdependent sellers: in this case, each marketeers actions make an impact on the other. The firms produce and put up for sale either homogeneous or differentiated products; finally, the barriers to entry are significant.⁶ As the cartel theory predicts, sometimes oligopolistic companies may act as if they were one firm.⁷

Speaking of the present-day situation in the USA market, one can state that pure monopolies are quite rare, for instance, public utilities and amenities area and the U.S. Postal service. Monopolistic competition is much more frequent: various services, such as restaurants and cafes, clothing store business, and computer programs, demonstrate it. Oligopolies are also common, for example, airlines or movie studios spheres. In terms of the whole economy, there is a consistent tendency for monopolistic competition in America.⁸ At the same time, mass media communication and entertainment providers are inclined to oligopolies.

The Present-Day TV Market

In the age of the Internet, peoples love of TV content has not decreased. Television remains one of the most popular media in the United States. However, traditional linear television is becoming less popular. Nowadays, the constant interest takes the new form of Internet television, and the TV market tries to correspond to the needs of customers.

Linear and Internet Television

As the term implies, linear TV provides programs at a scheduled time on non-portable devices. In other words, programs follow each other, and a viewer is de facto chained to their TV screen. Obviously, such immobility cannot satisfy them now when people need the liberty of movement and flexible services assessable at the proper time.

Responding to these requirements, the biggest linear TV companies provide their programs via devices of different kinds. Internet television becomes ubiquitous. There are several reasons for this trend:

• Nowadays, the Internet has become faster and more trustworthy; besides, smart TVs and other gadgets are more widespread;
• A user enjoys the opportunity to watch programs on demand and choose what suits their tastes;
• TV equipment and applications are frequently improved and updated;
• One can access a program as many times as necessary; consequently, the experience is more individual and bright;
• In general, there are few advertisements, and they are targeted;
• There is a transition from a passive process of watching to more active content producing and content sharing.

Linear and Online TV Consumers in America

In spite of the fact that the Internet is becoming more popular, the Americans love of television lingers. In 2016, it was estimated that an average American person spends more than ten hours consuming media daily, and watching TV adds up to five hours; approximately half of the audience has subscription services, such as Netflix.⁹ Still, in comparison with previous years, these figures are lower.

What type of television is preferred depends on the characteristics of people who watch it. In this respect, there is nothing surprising. Persons aged 50 and older predominantly use linear TV services.¹⁰ The younger generation, as expected, is drawn to online TV. Apart from the advantages of this form described above, it is challenging because one should have enough skills to orientate themselves in thousands of channels, programs, episodes, and so on. Younger people are usually more advanced in this respect.

Finally, a typical TV consumer in America, similar to viewers all over the globe, is subject to binge-watching: an individual watches a new season of a TV show very quickly. On average, it takes five days: two hours of watching per day.¹¹ All in all, TV plays a significant role in peoples lives regardless of their form.

Online TV Market in the USA and Netflixs Competitors

At the present-day moment, Netflix remains the biggest subscription services provider in the online TV area. However, it does not mean that there are no other similar companies. In light of the previous information, one may argue that either a monopolistic competition or oligopoly model may be applied to the sphere of Internet television. There is no consensus among researchers; still, most of them consider Netflix to be the biggest monopolistic competition company.¹² From time to time, one may encounter newspaper articles that use the term monopoly in relation to Netflix¹³. Strictly speaking, it is a misuse. Technically, one may discuss the monopolistic tendencies that take place in the online TV market because some other marketeers are present.

Amazon and Hulu Plus are two biggest companies that are notable for providing almost the same services. Still, there are slight differences. Amazon has a more direct overlap in contents with Netflix; Hulu concentrates on TV content, provides TV shows the next day after they are broadcast and sets aside some other shows and movies.¹⁴ One can state that Netflix has the most diverse contents. Moreover, Netflix also leaves its competitors behind in terms of market share. In the U.S. households, these indexes are 36%, 13%, and 6.5% for Netflix, Amazon, and Hulu correspondingly.¹⁵ While these data and figures show that Netflix is powerful, its present-day position is not, to some extent, favorable. The reasons for concerns will be described below in the context of the current situation assessment.

The Development of Netflix

The History and Strategies of the Company

Netflixs history began in 1997 when CEO Reed Hastings got the idea for the DVD-by-mail service after paying a $40 late fee for Apollo 13.¹⁶ In those times, VHS format was predominant, but Hastings and his friend Marc Randolph realized that DVDs were going to oust it. At the early stage, the company did not offer subscription: it was launched only in 1999. The first profit was made in 2003 when Netflix reached one million subscribers; in 2007, after the company had reached more than 6.3 million customers, Netflix introduced streaming services.¹⁷

Sometimes, Netflix managed to achieve its goals sooner than expected: for example, the number of subscribers was to be increased to 20 million by 2012, but it happened earlier since the services were brought to Canada. Later on, quarterly sales topped $320 million by the end of 2008, followed by $394 million during the first quarter of 2009.¹⁸ These results are especially impressive because the company gained success when the whole movie rental sphere met with an 8% sales decrease. Stage by stage, Netflix managed to attract many clients from Ireland, Great Britain, the Caribbean, and other countries.

The key factor that endured Netflixs early success is the accurate evaluation of the future technological development: when the company chose to work with DVDs, the majority of the American households did not own DVD players. Because of DVDs space effective size, the U.S. Postal service became a feasible way to send movies to customers. Netflix formed strategic relationships in the expanding DVD market: for instance, cross-promotional agreements with DVD hardware manufacturers and studios were reached, and the company offered free rentals with purchases of DVD players from Toshiba, Hewlett-Packard, Pioneer, Sony, and Apple.¹⁹ This agreement was equally beneficial for DVD players manufacturers and Netflix since it provided people with the new equipment and turned them into potential clients. Other actions taken by Netflix were teaming with studios in order to promote high profile films and collaboration with online movie information providers to funnel movie-interested Internet traffic directly to Netflix.²⁰

The companys well-handled optimizing distribution was also the advantage. In 2002, ten additional warehouses throughout the country were open: the location for each of them was chosen to cover as many customers as possible.²¹ What is more, the location of these warehouses was secret: the company workers even had to sign nondisclosure agreements if they wanted to be employed.

In the course of time, rental services have lost its significance. At this moment, Netflix concentrates on digital services. However, this sphere is characterized by the presence of similar companies. Consequently, Netflix finds itself in a new position.

The Current Situation Assessment and Recommendations

One of the presumably advantageous strategies is offering original products. The exclusive programs and shows are supposed to raise peoples interest: Netflix invests large sums of money in content. It is unknown whether this strategy will work. If the best happens, people will not only have to subscribe because they wish to watch a certain show but also do it eagerly since the offered programs will be to their liking.

Some researchers assume that Netflix will eventually climb down, and it will happen relatively soon. The orientation towards subscribers statistics is considered to be the strangest feature of the companys strategy. If subscriber growth does not match investors expectations, the stock will take a tumble.²² Still, the number of customers is not changing upward. According to the up-to-date information, the additions within the USA have dropped by nearly half.²³ Some reasons are connected with domestic and foreign policy, historical events, and culture, such as Brexit, restrictive European regulations, and the Olympic Games in Rio de Janeiro; however, apart from short-run or external factors, there are also inner prerequisites that help identify the current status of the company.

What usually is not discussed is the Netflixs debt load: free cash flow falls, but the debt remains the same.²⁴ Despite the unfortunate tendencies, the company is reportedly planning to raise even more debt. It is highly probable that the debt-to-equity will easily climb from its current 1.33 to 1.50 at the end of 2017; these intentions are not praised because a company that has found its capacity to hasten growth crippled is not raising capital to leverage its low efficiency.²⁵ Netflix faces not only the expansion challenge but also management problems: while it is obvious that the company urgently needs to concentrate on organizing its balance sheet, the management ignores it.

Under these circumstances, the task of paramount importance is to realize that Netflix is not the growth stock anymore. There are several reasons that prove this statement:

• According to the statistics given above, the number of new customers is declining not only in the U.S. but also all over the world now;
• Netflixs technologies used to be disruptive innovations, but nowadays one perceives them as something familiar. The company used to demonstrate that people need to be in step with the times and choose Netflix. However, since these innovations have become a part of the routine, the attention is drawn to the market share.
• The company has probably reached its optimal level of scalability because those who needed online TV services have already subscribed to Netflix or one of its competitors.

In this context, Netflix needs to revise their policy and goals. Subscriber growth should become less important. Several concepts, such as lifetime customer value, operating margins, and customer retention, are more significant for the company.²⁶ To succeed, it is vital to shift from quantity to quality commitment.

Conclusion

To sum it up, capitalist setting theoretically implies the existence of competitive markets where all market entities regard each other as opponents. However, theory and practice sometimes differ. In the USA, one may find examples of monopoly, monopolistic competition, and oligopoly. In general, monopolies marked by the presence of one seller are scarce: they pertain to public utilities and services and the U.S. Postal service. Unlike monopolies, monopolistic competition companies and oligopolies are of frequent occurrence, and sometimes it is not easy to tell them apart. Speaking of entertainment and mass media, oligopolies are more common.

An American consumer is known for their passion about watching television regardless of their age, gender, ethnicity, and other characteristics. In the era of digital devices and rapidly changing technologies, this habit reshapes. While linear TV has begun to take a backseat, online television services are currently needed. Such tendencies are not surprising since the modern world requires freedom of movement, fastness, and on-demand services.

In this context, Netflix is one of the most successful companies that provide access to the Internet television. While the company initially concentrated on DVD rental services, it eventually developed the modern approach and met the expectations of consumers. Nevertheless, it cannot be considered a monopoly: one should discuss the monopolistic tendencies that, indeed, take place. In comparison with the key competitors, Amazon and Hulu Plus, Netflix is more prevalent and covers about 36% of all American households. However, as it has been examined, the present-day management is far from being perfect: instead of improving the quality of its services, Netflix focuses on market share and attracting new consumers. Because the market demand is lower now due to the external factors, this strategy is unlikely to bring profit.

Overall, Netflix has never been a monopoly in the strict sense of the term. The companys past is marked with monopolistic tendencies, but on the present stage of its development, Netflix is becoming one of the equal companies that provide consumers with online television services. Unless Netflix takes action and changes its administration, it is most likely to continue to lose ground.

Bibliography

Arnold, Roger A. Microeconomics. San Marcos: Cengage Learning, 2013.

Ferrel, O. C., and Michael Hartline. Marketing Strategy, Text and Cases. Mason: Cengage Learning, 2013.

Koblin, John. How Much Do We Love TV? Let Us Count the Ways.The New York Times. Web.

Verial, Damon. Netflix Has Lost Its Monopoly. Seeking Alpha. Web.

Footnotes

1. Roger A. Arnold, Microeconomics. (San Marcos: Cengage Learning, 2013), 242.
2. O. C. Ferrel and Michael Hartline. Marketing Strategy, Text, and Cases. (Mason: Cengage Learning, 2013), 151.
3. Arnold, Microeconomics, 242.
4. Ibid.
5. Ibid., 264.
6. Ibid., 268.
7. Ibid., 269.
8. Ibid., 277.
9. John Koblin, How Much Do We Love TV? Let Us Count the Ways, The New York Times.
10. Ibid.
11. Ibid.
12. Ferrel and Hartline, Marketing Strategy, Text and Cases, 479.
13. Damon Verial, Netflix Has Lost Its Monopoly, Seeking Alpha.
14. Ferrel and Hartline, Marketing Strategy, Text and Cases, 476.
15. Ibid., 477.
16. Ibid., 471.
17. Ibid., 472.
18. Ibid.
19. Ibid.
20. Ibid.
21. Ibid., 473.
22. Verial, Netflix Has Lost Its Monopoly.
23. Ibid.
24. Ibid.
25. Ibid.
26. Ibid.

Introduction

In a business environment where companies always experience competition from their rivals who manufacture and sell similar products, change is not only an inevitable undertaking, but also a necessary aspect of driving innovation and attaining a competitive advantage (Goffin, Lemke & Koners 2010). Since it is considered as an imperative aspect of innovation, a company cannot let change to happen without managing it in a manner that will fit the organizations structure and achieve the desired results (Willard 2009; Wysocki 2011).

As a result, managers must adopt suitable models of change management in order to ensure that all stakeholders embrace the change without much or any resistance (Ball 2010). This paper will discuss the various models used to manage change, define a case study of a company in regard to the Netflix organizational change, identify problems that appear in the case study, and provide solutions for them.

Literature Review

Practically, the various steps included in the models of change cannot take place completely in the real-life situations (Bernoff & Schadler 2010; Blood 2013). As a result, most of the change models that are evident in Netflix are not necessarily complete in accordance to the theoretical stipulations (Berry & Fazzio 2010). In some instances, the agents of change skip some steps or undertake several stages at the same time so that it becomes difficult to isolate the distinctive levels (Cooper 2012; Deshmukh & Naik 2010.

Lewis Three Step Model

Lewis proposed a model that introduces a change in three steps, including unfreezing, moving and freezing. Following the struggles that Netflix has undergone in an attempt to introduce price plans in correspondence to the cost of the Internet and licensing fee, the company adopted strategies that envisage the Lewis Three Step Model.

The CEO first expressed dissatisfaction of customers with one price plan. He stated that all customers are not satisfied with one price plan bearing in mind that the customers have different need (Barr 2011; Bell & Koren 2010). In essence, this was a tactic of unfreezing the existing price plan to prepare customers for change. Second, the company has expressed their intention to introduce the proposed model. This implies that the company is prepared to make the change (Bransley 2010; Bell & Koren 2007; Delimitrou & Kozyrakis 2013). However, they have not accomplished the last stage of freezing back to normalcy.

The Process of Transition

There are various aspects of the process of transition that have been shown in the Netflixs attempt to introduce three tiers of price plan. In regard to the process of transition, there are three steps that have been portrayed including anxiety, fear and threat. In this case, it is important to understand that the company is in the process of introducing the new price plan, but it has not implemented it at this point. When the CEO announced their intention to change the prices in January, 2014, the customer expressed fear and anxiety that the plan might lead to a situation such as the one experienced in 2011. In addition, the change has been challenged by investors because they seem to have little confidence in regard to the ability of Reed Hastings to introduce the change successfully.

Kotters-8-Steps Model.

In regard to Kotters eight steps, it is evident that the company has already implemented the first step of this model. In this case, the CEO has successfully convinced the customers about the importance of making changes in the price plan. When he was announcing about the companys intention to introduce the plan, Hastings said that one price was not fit for all customers. This argument seeks to capture the attention of the customers since it portrays the companys commitment to their welfare.

Additionally, the CEO has shown diligence in regard to creating a strong coalition. In this case, he has included his co-founders when making this decision in contrast to what he had done in 2011 where one of the executives had opposed the decision publicly. In addition, he has created a strong vision with the help of his coalition members. In essence, this implies that they have implemented the third step of Kotters model. Besides the creation, the CEO and his co-founders have accomplished the fourth step of this model by communicating their vision to the customers and investors.

According to their report, they aim at introducing a price plan that caters for all customers in accordance to their preferences and financial capabilities. Accordingly, the company has implemented the first four stages of Kotters-8-step model.

The Technology of Leading Sustainable Change

Another model of change management that is essentially evident in the companys attempt is the technology of leading sustainable change (Durrant, J & Holden 2009; Erskine 2013; Feher & Towell 2010).

The technology of leading this change incorporates three aspects that include the mind-set, emotional conviction, and capability. The CEO has been capable of harmonizing the three aspects considering the difficulties he experienced in 2011 when he introduced price hikes (Feuerverger & He 2012; Gallaugher 2010). First, the CEO has facilitated the collection of factual data in order to support the importance of introducing new price plan. In this case, he stated that the company needed a different price plan based on the fact that customers are not satisfied with one service provision.

Importantly, this step has occurred simultaneously with that one of the motivational conviction. In this case, the reason that was provided shows the urgent necessity of changing the old price plan which is both conservative and insufficient. He has also formed a strong team stating with his co-founders. This implies that the CEO has implemented the three steps of this model. Essentially, these are the models that the company has employed in its quest of introducing a new price plan.

Successful Netflix Change Management

When focusing on how Netflix is planning to introduce the new price plans, Gallaugher (2010) stated that the company is seeking for a breakthrough rather than incremental change. Incremental change refers to situation where success is achieved gradually due to undertakings that build on the members skills and commitment. On the other hand, breakthrough refers to profound success that is realized over a short period of time. Bransley (2010) stated that a company realizes breakthrough when it changes the paradigms of the organization.

On the hand, he revealed that if it needs incremental changes, it must concentrate on the behaviors and attitudes of the various stakeholders (Bransley 2010). In the case of Netflix, the CEO is concentrating on changing the organizational structure by splitting the company and introducing two additional price plans. This implies that the company is seeking to achieve a breakthrough rather than incremental change that needs a lot of time to give real results.

Role of Sponsor Change Agent

Bransley (2010) stated that change can be introduced successfully if the agents sponsoring it are involved actively in the process of implementation. Reed Hastings, who is the CEO and the sponsor of price changes, has been involved in the process of implementing the proposed plans. In this regard, he has been involved in making critical decisions, communicating them to the public, and defending the company against criticisms that arise in relation to the proposed changes. The active involvement has been a crucial force in regard to implementing the new price plans.

Netflix Change Management: Case study

Netflix is known as one of the most successful companies in the technological field where it has been providing streaming services and selling DVDs by sending them through email. These services are provided to the customers on a constant subscription that warrants them the opportunity to access unlimited materials such as movies and e-books. The companies have been struggling to introduce changes in its organizational structure and pricing plans. The most important attempts of introducing such changes were experienced in 2011 where the company entered into severe crises owing to the introduced changes.

In 2011, Reed Hastings, who is the CEO of the company, announced that the company had sought to split the DVD-by-mail form the streaming services. In this case, he stated that DVD services could operate as a different company known as Qwikster. According to his report, he explained that the name of the new company was chosen to portray the companys intention of quick delivery. He stated that the two services were based on the premises that the two businesses had different benefits (Villarroel & Taylor 2013).

As a result, the management felt that the two services needed distinct marketing strategies and cost structures. During the announcement, it was made stated clearly that this plan could start applying to new subscribers immediately while the existing subscribers were affected after one month. However, the company reversed their decision whereby Qwikster was dissolved so that the two services were provided from the same company (Tuzhilin & Koren 2008).

Besides splitting the company, Netflix changed its price plan where it abandoned the original one that required customers to pay a monthly subscription of $7.99 for unlimited access of DVDs and streaming. In the updated price plan, they split the DVD and streaming provisions where the customers were required to pay $7.99 for each of those services (Vickers, A & Fearn 2010). This implied that the customer could either choose to subscribe to one of the services at $7.99 or both at $15.98.

This plan was introduced amidst sustained criticisms claiming that the access for DVDs was not satisfactory since the company had limited stock. According to business analysts in USA, the company experienced a shortage of DVDs supply due to the increased licensing fee charged by DVD owners in order to distribute their content. In fact, this shortage forced the company to start developing its own content despite the lack of the required human resources. This undertaking also led to the overloading of the employees due to the added job description.

Analysis

Introduction of Drastic Changes

In this case study, it is evident that the company sought to introduce two critical changes in regard to their structure and pricing plan. Pricing and organizational structures are sensitive areas that can lead to insolvency if they are not changes carefully and strategically (Ghimire 2011; Gilbreath 2010; Girard & Parsons 2012).

In essence, when the company split the services into streaming provision and DVD-by-mail service, it meant that most of them had to quit one of the services and maintain the other. Practically, splitting the company implied that the customers would be forced to visit the two websites in order to find for a movie (Harmon 2007).

Whereas the change presented customers with operational difficulties, the company announced their plan and implemented it immediately. Expectedly, the introduction of Qwikster, could come with other provisions that customers needed some time to learn (Goldfayn 2011; Harmon 2007; Harris 2010). As a result, immediate split was a completely doomed decision that could only see customers abandon the company and subscribe with their competitors (Goffin, Lemke & Koners 2010).

Additionally, the decision to split the company into two sections was followed by a new price plan that presented another challenge to the customers. In this case, the provision of DVD and streaming services separately led to division of price subscription. After these changes, the customers were needed to pay twice the original amount in order to access the two services since they were provided under different protocols.

Also, the customers were notified about one month prior to the implementation thus leading to drastic change of budget besides the operational difficulties. As a result, they did not have enough time to conceptualize and understand the necessity of those changes as explained by the CEO. This implies that the two changes were implemented drastically rendering them risky, destructive and financially invalid.

Changes Insensitive to Companys Credibility

When making any changes in an organization or a business, it is extremely important to consider the credibility of the company in the face of its stakeholders (Hamada 2010; Harmon 2007; Ingwer 2012). It is fundamentally necessary to maintain their trust towards the company by ensuring that the companys principles are upheld (Hastrup 2013; Hernaez 2011; Holgersen 2011).

It was clear that Netflix has made severe mistakes in regard to securing their credibility in the face of their customers (Healy 2010; Linden & Conover 2009; Lusted 2013). For example, it was evident that the company reversed the decision of splitting their services whereby they re-integrated the two services and continued with the original business model in which DVDs and streaming services were provided under the same company.

The re-integration took place after few weeks of lamentation and criticisms from various quarters. This portrayed lack confidence and raised critical questions on the companys foresight and research. It also implied that the company did not have a well-defined plan of implementing their original plan of splitting their services. In addition, their attempts to regain respect and credibility have been impeded by strong resistance from stockholders and consumers.

In addition, the investors put pressure on the CEO since they almost lost their holdings during the splitting. In this case, splitting the company meant that the returns for the investors could reduce drastically since they had invested under the Netflix Company rather than Qwikster (Ransohoff 2010). In response to the investors complaints, Reed Hastings mocked them stating that he needed a food taster, and that is why he could not blame them for their criticisms.

This was an additional insult that resulted from poor implementation of change. In essence, change should be introduced in a manner that does not disparage the dignity of the company since it needs to maintain the trust and loyalty of the customers.

Lack of Proactive Approach to Change

In light of introducing and managing change managers are required to exhibit a proactive approach when handling the process (Komives & Wagner 2012; Lawes & Rider 2010). In this regard, they are required to anticipate and foresee problems and risks that could necessitate a change (Legutko 2012; Martin & Fellenz 2010). This implies that the company could be prepared to initiate the process of change gradually in order to avoid afflictions that could paralyze the organization (Marquardt 2011; Paul 2011).

However, the case study portrayed lack of proactive approaches in various instances. In the first instance, the company should have anticipated the increase in licensing fees bearing in mind that the company did not have its own content. In this case, the management should have anticipated such risks since the company did not develop its content, but practiced brokerage between the DVD developers and consumers (Rettie 2001; Roebuck 2012).

This implied that at the long-run, the DVD developers could have sought to sell their content directly and discourage brokerage by putting measures such as increasing licensing fee. If they had anticipated such eventualities, they could have been prepared to make changes in a manageable manner rather than take drastic measures that could paralyze the company.

In addition, the case study shows that the company decided to introduce price plans despite the criticism regarding the limited availability of DVDs. This undertaking showed that the management did not foresee the possible backlash of customers owing to increased prices without improvement of services quality or fixation of sustained problems. This problem is intensified by the insensitivity of the CEO towards the companys investors, although they play an important role to determine the success of a company. In fact, it is regrettable that the CEO could afford to mock the investors claiming that he did not blame them because he needed food tasters.

Change Insensitive to Stakeholders Needs

Changes that are introduced to an organization should not be implemented for the sake of the management and the financial prosperity without considering the welfare of the customers as well as other stakeholders (Ryle 2011; Sarin 2010; Tihanyi 2012). In response to the question of the price changes, the company spokesman explained that the DVD and streaming services were split since the company felt that the two were different businesses.

Further, he stated that the splitting was necessitated by the need of the company to market the two services differently. However, they did not explain how they considered the operational and financial need in light of making their decision. In addition, the CEO mocked the investors showing his insensitivity towards the needs and concerns of stakeholders in the process of inducing change (Zeng & Gualdi 2013).

Conclusion

In regard to the problems identified in the case study, the company should apply the Kotter-8-steps model. First, it should create urgency such that all stakeholders want the pricing plan to change and the company to split. In this case, the executive must come up with idealistic proposals explaining the reasons as to why splitting and changing the price plan is important to all stakeholders (Weinberg, Sutherland & Cooper 2010).

Second, the executive must form a strong coalition with people who have influence in terms of politics, expertise and job status. This will call for identification of true leaders within the organization such that the coalition is capable of leading change. Thirdly, the CEO must harmonize all the identified opportunities, threats, and concepts in order to come up with a vision for the process. The vision should be easily understood by all the stakeholders so that they can embrace the process.

In the fourth stage, the CEO should communicate this vision to the stakeholders and make sure that he repeats it often bearing in mind that it will face competition from many people daily. After communicating the vision to people and establishing buy-in, the CEO should identify the obstacle that could be inhibiting change, including employees and companys structure. Having streamlined the organizational structure, then he should create short-terms wins to give the company members an early taste of success in order to motivate them.

Then, Mr. Reed Hastings should go a step ahead to build change and incorporate the attained change in the companys structure so that it becomes a part of the organizational culture. This will help the company to cope with the existing pricing conflict since the process is gradual and inclusive contrary to the one introduced in 2011 that was not only drastic, but also unilateral.

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Introduction

Net neutrality refers to a concept in which the Internet Service Providers (ISPs) offer their services equally to all users. Traditionally, the ISPs would require users to pay a certain sum of money to enjoy speedy Internet. Then, users who paid such fees would receive priority in terms of the traffic, bandwidth, and accessibility (Bid & Chatterjee, 2013). Those who did not pay for the service, on the other hand, would experience slowed Internet speeds, a situation that gave their clients a poor customer experience.

In Canada, net neutrality policies were enacted in 2009 requiring ISPs to adopt a nondiscriminatory approach when serving their customers. Consequently, the procurers of the Internet services from the ISPs in Canada have been enjoying equal Internet speeds. Netflix is one of the online enterprises, which rely on the Internet provided by the Canadian ISPs. It largely benefited from the passing of the net neutrality laws.

The removal of the fees meant that the companys customers would enjoy high Internet speeds for streaming its favorite TV channels without having to pay for the services (Olumhense, 2017). However, numerous scholars have questioned the effectiveness of the net neutrality concept to the extent of raising the need to research the topic. Consequently, this paper explores the concept with reference to Canada to determine its importance and effectiveness in achieving its primary goals.

The Working of Net Neutrality in Canada

Netflix is a US-based company, which offers streaming services to its customers in the country. Customers have the ability to stream award-winning TV show, movies, and documentaries using any Internet-supported device. Essentially, the company partners with the ISPs to facilitate video and TV streaming for its customers (Geist, 2015). The nature of the partnership varies from one state to the other based on the legislation present in the concerned state.

In most states in the US, Netflix is obliged to pay a certain sum of money to the Internet providers for its customers to be allowed to stream TV shows and videos. However, in Canada, companies that offer streaming services do not have to pay anything to the ISPs in exchange for the use of the Internet. The waiver of the fee in Canada is facilitated by the net neutrality regulation, which is operational in the mentioned state.

As stated previously in this paper, net neutrality refers to a concept, which requires ISPs to refrain from charging fees to customers in exchange for the Internet services. Under the policy, ISPs must embrace equality in supplying Internet services to customers (Van der Wee, Vandevelde, Verbrugge, & Pickavet, 2015). In other words, all customers must enjoy the same quality and speed of the internet services, irrespective of their financial status.

Prior to 2009 when Canada adopted the net neutrality concept, Netflix and other streaming service providers in the country would pay some fees to ISPs to enjoy high Internet speeds (Geist, 2015). Such ISPs would cut off Internet connection or slow down the streaming speed for companies that failed to pay the fee. However, after 2009, the net neutrality regulation changed the face of the Internet-based TV and video streaming since it removed all barriers to Internet access.

Today, Netflix does not pay anything to access Internet services. It is also immune to either access denial or reduced Internet speed. The Canadian Radio-Television and Telecommunications Commission (CRTC) agency is charged with the responsibility of ensuring that the ISPs offer their services universally to all media companies (Van der Wee et al., 2015). The body receives complaints from Internet users regarding any form of access denial or any other manner of discrimination by the ISPs. Upon the receipt of such complaints, the body scrutinizes them and conducts independent investigations to ascertain the truth of the allegations. If such investigations are confirmed to be true, the body is empowered to impose fines on the concerned ISP or force it to comply with the net neutrality provision.

The net neutrality provision has had both positive and negative effects on Netflix. One of the positive impacts of the regulation is that it caused an increase in the level of the companys profits. Before it was adopted in Canada, Netflix would pay some fees to the ISPs. Such payment would be set off against the companys annual profits, hence increasing its operations costs while, in turn, reducing its profitability.

With the abolishment of such fees, the company achieved savings, which were converted into profits. Another positive impact of the regulation on Netflix is that it helps to improve customers experience all year round. In the period when the streaming service companies were required to pay a fee for the Internet services, discrimination was still evident. Companies would still experience slowed Internet, despite having paid the fee.

For example, in 2008, Netflix paid an annual fee to its ISP providers. However, it still experienced speedy throttles for the last four months immediately following the lapse of the period, which the fee covered (Olumhense, 2017). Therefore, the adoption of the net neutrality policy brought with it major benefits to the company. However, as much as the regulation was a major gain to Netflix, it also presented some challenges to the company.

Netflix and other industry players of the time were big enough. They had already established sufficient market shares to generate satisfactory profits. Therefore, the fee payable to the ISPs could not affect the companys profits. However, new entrants would feel the pinch that would bar them from penetrating the industry. This situation reduced competition, hence favoring the existing firms. The removal of the fees paved the way for the penetration of new firms into the industry, a move that heightened competition.

Why Net Neutrality Regulation was Created

One of the reasons why the net neutrality concept was adopted in Canada is to make the Internet a public utility. As it stands now, the Internet forms the basis of modern communication, commerce, and knowledge management. Additionally, the Internet has proved to be a good tool for accessing public services and promoting education and self-care (Van der Wee et al., 2015). This observation underscores the need to ensure that it is affordable and accessible to the entire Canadian population.

Aware of the importance of the Internet in the contemporary world, Canada had to look for ways to make it (the Internet) accessible to its populace. Consequently, the Canadian government, through the CRTC, abolished discrimination against any Internet user. If the ISPs were allowed to freely regulate the Internet, perhaps some people would not be able to access it. Besides, Canada being a democratic state appreciates the need for its citizens to have access to a free media.

However, low-income earners may not afford TVs, despite having portable Internet-supported devices from which they can stream their favorite channels. This situation underscores the need to make the Internet affordable and accessible to allow the population to access media platforms. Instead of subsidizing the internet, just as many nations have done, it would be much easier to ban discrimination from ISPs.

The other possible reason why the Canadian government decided to adopt the regulation is to alleviate monopoly among online streaming companies. Before the regulation came into force, the small and medium-sized streaming service providers would face stiff competition from well-developed companies. Competition was heightened by the fact that they were required to pay some fee in exchange for the Internet usage.

The fee would reduce their profits while at the same time forcing some companies into liquidation on the grounds of unprofitability. Additionally, small companies that could not raise the fees would face discrimination in terms of low-speed Internet, which drove away their customers (Quartet Service Inc., 2017). In contrast, large firms would manage to pay the fee to enjoy high-speed Internet, a situation that led to better customer experience. This state of affairs translated into enhanced competitive advantage, which empowered them to suppress their rivals, hence creating a monopoly among the big streaming businesses. This situation is harmful in any industry. To break the monopoly, the Canadian government had to ban the fee to enable small businesses to thrive.

The other reason why the Canadian government adopted the regulation was the presence of TV and video streaming apps owned by ISPs. Initially, ISPs did not operate any TV and video streaming apps. Their operations were restricted to providing Internet services. However, as time went by, ISPs developed apps, which would compete with those offered by other companies in the industry such as Netflix (Olumhense, 2017). Given the high competition in the industry, ISPs being new entrants had to use every tool at their disposal to outsmart their rivals that included well-established firms. Such advantage would only be acquired by offering customer-centered services to improve buyers experience.

Consequently, the ISP companies resulted in discriminatory tactics in which their apps would receive priority over those of their rivals in terms of traffic, bandwidth, and accessibility. Perceptibly, customers are attracted to businesses that adequately satisfy their needs, regardless of the tactics used to achieve such satisfaction. In light of this view, ISPs managed to snatch customers from their rivals, owing to their ability to satisfy the prevailing streaming needs. This situation prompted firms such as Netflix to lobby for the adoption of the net neutrality policy to retain its market share against the backdrop of the heightening competition in the highly profitable industry.

Effectiveness of Net Neutrality in Canada

The effectiveness of net neutrality in Canada has sparked a heated debate among scholars who argue either for or against its efficacy. Proponents of the regulation argue that the policy is highly effective and that it will even be more effective in the future. The argument is grounded on the view that the requirement by CRTC for the abolition of discrimination will increase the number of companies in the industry.

The increase in the number of such companies will not only increase the revenues collected by the government in the long run but will also offer the citizens a wide choice of channels. It is important to note that the government taxes the income of all businesses based on their profits. An increase in the number of online streaming companies will mean a rise in taxes, a benefit that the government cannot ignore (Zelnick & Zelnick, 2013).

Therefore, the Canadian administration will fully support the regulation to maximize the annual taxes that it collects from online businesses. Besides, customers will have an increased access to the Internet and any Internet-based media at a reduced cost. As stated previously in this paper, companies had to pay a fee to the ISPs, a situation that created a monopoly.

However, as much as the net neutrality regulation brings substantial benefits to the government and its citizens, it faces numerous challenges. The first challenge that may cause its downfall is the opposition from other American states. The national government through the Federal Communications Commission (FCC) has opposed the universal adoption of the regulation in all states (Quartet Service Inc., 2017).

Given that Canada gets much of its Internet from the US, the reluctance by the FCC to embrace the regulation may lead to its failure in Canada. However, although this reluctance is seen as a major threat to the future of the regulation in Canada, the FCC adopted the net neutrality legislation in 2017 (Quartet Service Inc., 2017). If it is implemented, it will be a major boost to Canadas Internet regulation.

Another argument against the effectiveness of the regulation in Canada is that it deprives ISPs of their income, a situation that may drive away investors. Before the regulation was adopted, ISPs derived much income from the fees charged to users (Bid & Chatterjee, 2013). The elimination of such fees will mean that the ISPs revenues will be drastically reduced, hence making the business less attractive. Given that ISPs heavily rely on investors for capital, low profits will mean few depositors and hence minimal capital for the existing businesses in the TV and video streaming industry (Zelnick & Zelnick, 2013). This situation may cause monopoly in the industry, hence reversing the benefits accruing from the adoption of the regulation.

Lastly, skeptics of the view that the regulation is not effective assert that CRTC is not fully empowered to deal with net neutrality violations, which motivate ISPs to continue with such contraventions without facing the law (Olumhense, 2017). Since the regulation was adopted in 2009, CRTC has never prosecuted or fined any ISP. This situation raises the question about its effectiveness. Instead, the body insists on dialogue to solve the disputes, which arise in the course of its implementation.

Conclusion

Canada was the first country in the world to adopt the net neutrality regulations. The journey of enacting the legislations started in 2007 following the need to ensure that every Internet user was accorded an equal right of accessing the corresponding web-based services. The adoption of the regulation was a major boost to the TV and Video streaming industry. Before the regulation was approved, companies in the industry had to pay a certain sum of money to the ISPs to access high Internet speeds. The requirement caused a reduction in profits for businesses in the industry. It also caused some companies undergo liquidation.

Therefore, the decision to abolish the fees was a major relief to companies such as Netflix. This company relies heavily on the Internet to make money. However, the effectiveness of the regulation has attracted mixed reactions whereby some people argue that the laws are effective while others dispute the view. The supporting and opposing arguments have been discussed in details in this paper.

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