Netflix has become a synonymous brand with internet streaming of television content and movies. It can capitalize on this brand recognition to grow its business globally. The Netflix service is pure, as that it does not bundle streaming with other products to frustrate customers by bogging them down with unwanted product offerings.
The focused strategy gives it more resources to deliver quality improvement strategies and exceed customer expectations. The good performance of its shares gives the company an opportunity to raise more funds by selling more shares and using the funds to grow its content portfolio (Taylor par. 3-4).
Threats
The company is unable to monitor the intricate details of its service delivery. It relies on internet service providers to offer broadband speeds for streaming. Thus it cannot handle internet service disruptions. It faces a great risk and uncertainty on whether customers will understand the separation of quality obligations between Netflix and ISPs.
Content liabilities threaten Netflix’s financial future. When the company is unable to pay for the content, it will jeopardize its credit situation and miss new content from content providers (Bylund par. 3). Its competitors can, therefore, easily displace Netflix as a content leader in the streaming business (Thompson 1).
Near future trends in the marketplace and society
The growth of mobile device technologies, such as high definition displays on tablets and smartphones, presents a good opportunity for Netflix’s increased demand. Televisions are also becoming internet ready, allowing people to stream directly to their TVs, instead of relying on computers. Gadgets, such as Chromecast, which deliver internet content to televisions through HDMI connection, also increase the number of accessible avenues for Netflix to reach consumers (Netflix par. 2).
The prevalence of internet devices reduces the anxiety of taking up a service that is only available when there is internet (Wirtz, Chew, and Lovelock 34).
Future trends
Content producers who currently rely on companies like Netflix and cable providers to distribute their content will come up with their streaming services. This will not be competing against the current services, but a diversification strategy that gives them an upper hand in negotiating terms with distributors.
Netflix and other distributors like Amazon will also have a substantial investment in content production to mitigate this threat. As a result, there will be a blurring of the nature of business between the producers of content and the distributors. On the customer’s side, the substitutability of services will increase choices and reduce switching costs. It will take longer for a business like Netflix to break even, as its marketing expenditures increase amid the additional competition.
Firms will invest more in the analysis of consumer trends to find out viewing patterns and intentions. The presence of mobile phones and tablets during viewing will make them the co-creators of television experience and redefine the traditional ways of consuming movies and television programs.
Customers are becoming internet savvy, and they can find out information about products before they purchase. The number of mobile phone applications for increasing purchase-related information and product analysis information will increase. The market for streaming services is, therefore, going to be more open.
Barriers to entry will remain low. Websites that currently offer user-uploaded content will allow individuals to form dedicated channels and sell them as premium content to compete directly with services like Netflix (Neal par. 2-5). The prices of streaming services will have to tumble as competition increases.
Buyouts may become the preferred way of acquiring capacity and competitive advantages to reduce the business adaptability to the changes in consumer preferences. When users and competition increase, the segmentation of the market based on content will equally increase to match similar trends witnessed in the cable television industry a few decades ago.
The report is to provide the analysis of Netflix’s strategy from the perspective of Niccolo Machiavelli’s ideas expressed in his work The Prince. Even though Machiavelli developed his doctrine for the use in the sphere of politics, similar principles can be easily applied in business and marketing.
Considering the differences between the modern business context and the epoch contemporary to Machiavelli, the main objective of the report is to define the advantages and disadvantages of using the philosopher’s ideas for the strategic management of a modern-day company. To provide the analysis, the report is to examine the aspects of business strategy, in which Netflix adhere and eschew Machiavellian ideas.
The former include manifesting the importance of innovation, the correlation between Netflix’s customer appeal and Machiavellian understanding of keeping integrity, ad collaboration with other brands following the Machiavellian principle of avoiding neutrality. Notwithstanding the foregoing, Netflix does not share the strategic approach with Machiavelli’s doctrine in terms of strategies for entering new markets and managing the competition with the other companies.
Overall, the analysis shows that there are some pros and contras in adhering to the Machiavellian doctrine in modern circumstances. On one hand, the incorporation of the innovative strategies helped Netflix to find their niche on the market, and keeping the accurate distinction between the rival companies and the potential partners ensured the successful collaboration for Netflix with the other brands. On the other hand, the variety of customized genres that Netflix offers can be interpreted as a lack of integrity.
Introduction
The Prince is one of the most well-known works by Niccolo Machiavelli. Although it was initially written as a treatise for the governors and policymakers, Machiavelli’s doctrine can be incorporated into the other media of human activities.
While in the political context, the concept of Machiavellian strategy is associated with authoritative policies, there is room for the application of Machiavelli’s ideas in the context of the corporate environment. The reason for that is the fact that a company or a corporation acts within the business environment, in the same way as a politician governs a state.
Furthermore, if the company is perceived as a single organism, it is more likely to have an integrated structure and consistent strategy. In some ways, we can see the correlation between some of the approaches used by Netflix and the principles described by Machiavelli.
However, they are significantly adapted to the specifics of the modern environment, including the plurality of the market choice and the means of rivalry between the different companies. It is also important to point out that those Machiavellian ideas are used by Netflix to great advantage.
Conversely, because of the historical changes and different values of modern society, a number of the principles suggested by Machiavelli potentially can have negative consequences for managing the corporation. Overall, there are distinct advantages and disadvantages of Netflix’s strategy in comparison to Machiavellian doctrine.
Netflix’s adherence to the ideas of Niccolo Machiavelli
The importance of innovation
Machiavelli claims that some rules imposed on the governors restrict their potential to use the new strategies. The philosopher suggested that “innovators can rely on themselves or have to depend on others” (Machiavelli 17).
Regarding the managerial and business strategies, it would mean that those who want to introduce an entirely new concept to the market have two choices as well. They can either suggest those ideas to the other companies or incorporate them themselves. Also, according to the Machiavellian doctrine, only the latter is a worthy option.
In many ways, the original idea behind Netflix was a DVD renting serving and streaming service that only required a subscription fee. Such a concept revolutionized the industry of DVD renting per mail since the structure of the service was completely different, which corresponds to the Machiavelli’s aphorism “it much assists a prince to set unusual examples in internal affairs” (Machiavelli 57). Thus, due to the new policy that relied mainly on profits from the subscriptions, Netflix managed to obtain 25 million subscribers in the United States only (Frommer par. 3).
Nevertheless, it raised the accusations that there are 10 million online streaming-only subscribers compared to only 3 million DVD-only subscribers, which can be interpreted as a decline in the DVD per mail service popularity.
However, in total among the 25 million subscriptions, there are also 12 million of those, who subscribed for both the DVD shipments and online video streaming services (Frommer par. 5). The following Venn diagram represents the distribution of the 25 million of the US Netflix subscribers.
Figure 1. The distribution of the 25 million of the US Netflix subscribers.
The data represented in the diagram proves that Netflix’s innovative strategy of subscription-based service that did not require charges for the amount of the material streaming was successful because it was implemented within one company without external support.
One of Netflix’s main features that distinguish it from the other video streaming services is the system of the customized genres. With the help of various means of examining the customers’ preferences, Netflix developed a system of over 76,000 genres available online.
The idea of using the customers’ very specific demands agrees with Machiavellian doctrine. According to Niccolo Machiavelli, “the nature of the people is variable, and whilst it is easy to persuade them, it is difficult to fix them in that persuasion, and thus, it is necessary to take such measures that, when they believe no longer, it may be possible to make them believe by force” (Machiavelli 17). In the context of modern marketing, such an approach can be modified as the necessity to provide a wide range of choices for the customers. Netflix does not invest a lot in advertising but provides the content adequate to the customers’ demands. The main reason for that being that it can be easier to offer the customers the content they want then to persuade them to be interested in something else.
Collaboration with other brands and the Machiavellian principle of avoiding neutrality
Netflix and Marvel, Inc. started to work together to create four Netflix shows in 2013. Although Netflix did not have a lot of collaborative projects over the years, the partnership was quite successful. Hence, it would be a good strategy for Netflix to extend the approach of collaboration with the other brands to the international level and to produce the content with the consideration for the regional demands (Greer 250).
From the Machiavellian perspective, “a prince is also respected when he is either a true friend or a downright enemy, that is to say, when, without any reservation, he declares himself in favor of one party against the other; which course will always be more advantageous than standing neutral” (Machiavelli 57).
In the case of Netflix, since the company chose to establish cooperation with Marvel, they neither bought in nor produced any content related to the Marvel’s rivaling companies, or as Machiavelli suggests, “he who conquers does not want doubtful friends who will not aid him in the time of trial” (Machiavelli 57).
Since the firm does not follow strict neutrality with the cooperating companies, the competitors should not be treated neutrally either. In the industry of video streaming services, the environment is quite competitive, and Netflix reasonably avoids cooperation with the rival companies, such as Amazon.com, Inc.
The ideas of Nicollo Machiavelli eschewed by Netflix
Entering new markets and Machiavelli’s ideas on controlling principalities
In chapter V of The Prince, Machiavelli discusses the principles of how to regulate and control new territories. The philosopher suggests that “he who becomes master of a city accustomed to freedom and does not destroy it, may expect to be destroyed by it, for in rebellion, it has always the watchword of liberty and its ancient privileges as a rallying point, which neither time nor benefits will ever cause it to forget” (Machiavelli 15). In other words, the philosopher promotes the imposition of the values of the new territories.
Until recently, it could have been suggested that the approach agreed in some ways with the international marketing strategy for Netflix. However, it was proved unsuccessful, and, therefore, the company tries gradually to establish a new platform for the international market.
Competing with other companies and Machiavellian perspective of the governance in new principalities
Considering the historical context, Machiavelli’s suggestion that fortune manifests itself as the major influence of success can be valid for his time. Even when talking about political leadership, the philosopher claimed that “he who has relied least on fortune is established the strongest” (Machiavelli 16).
Some claims may seem inconsistent with Machiavelli’s support for innovative approaches. For example, he states that “a wise man ought always to follow the paths beaten by great men, and to imitate those who have been supreme” (Machiavelli 16). However, this statement mainly concerns the financial aspect. Machiavelli believed that financial resources would be a more important asset in any initiative. He compared those who compete with the opponents with more resources to the archers, who “knowing limits to which the strength of their bow attains, take aim much higher than the mark” (Machiavelli 16).
Notwithstanding the foregoing, Netflix managed to succeed in the market of the video streaming services, despite having such opponents as Amazon.com, Inc, Hulu.com, Inc, etc., whose financial assets exceeded Netflix’s resources. For that reason, it is sensible to say that the ultimate reliance on financial capital does not belong to the advantages of using the Machiavellian principle in the modern business environment.
Moreover, Machiavelli claims that “it is unnecessary to have all the good qualities, but it is very necessary to appear to have them” (Machiavelli 46). Since the customer appeal of the different video streaming companies relies on the different offers, policies, and systems of charge, it would not be reasonable to suggest that details of the service are irrelevant. Hence, insufficient quality would immediately affect the company’s performance. In the framework of Netflix’s strategy, it concerns the fact that the quality content, alongside the convenient usability, was among the first factors to ensure the company’s success (Greer 14). Therefore, Machiavellian opinion on the unimportance of the genuine quality would be disadvantageous for the business today.
Advantages and disadvantages of the manifestation of Machiavelli’s ideas
Although some of Netflix’s strategic decisions seemed unique at the time, there are some parallels with the doctrine suggested by Niccolo Machiavelli. For instance, due to the incorporation the innovative strategies, Netflix found its niche on the market. Meanwhile, keeping the accurate distinction between the rival companies and the potential partners ensured the successful collaboration for Netflix with the other brands, including the most famous cooperation with Marvel Inc. The following structural diagram represents the advantageous results of the inclusion of Machiavellian principles into Netflix’s managerial strategy.
Figure 2. The advantages of inclusion of Machiavellian principles into Netflix’s managerial strategy.
However, because of the differences between the historical and ideological context of modern society and the epoch, in which The Prince was written, there are some disadvantages of using the Machiavellian approach. Thus, the following structural diagram attempts to represent the possible disadvantages of Machiavellian principles for Netflix’s managerial strategy.
Figure 3. The potential disadvantageous results of using Machiavellian principles for Netflix’s managerial strategy.
Reliance on the financial assets and ‘conquering’ strategy overseas would hinder Netflix to enter some of the international video streaming markets, which is a prerogative for the company at the current stage. From a Machiavellian perspective, the variety of the customized genres that Netflix offers can be interpreted as the lack of integrity and unnecessary efforts. However, in reality, superficial quality and lack of the structure behind it would damage the major customer appeal of Netflix.
Conclusion
It is important to underline the fact that some of the managerial strategies suggested by Machiavelli served Netflix well. Since the company manifested itself as the alternative provider of the DVD shipping and video streaming services, it agrees with the Machiavellian understanding of innovativeness. Besides that, Netflix collaborates and competes with the other companies on the somewhat Machiavellian terms. However, the ultimate reliance on the superiority of financial capital over the other assets would be a disadvantage, which Netflix avoided. Until recently, Netflix used to tolerate the Machiavellian approach to other territories by providing the same content to different regions. However, since it was proved unsuccessful, the company tries gradually to establish the new platform for the international market by collaborating with the local TV and film studios.
The main propositions of the current marketing strategy of Netflix, Inc. (Netflix) include the fast and easy manner of subscription online, the unlimited amount of video streaming, and the concentrated attention on receiving feedback from customers. For those reasons, the company has a strong presence in the American marketplace as a leading video streaming service and occupies a unique niche because it uses over 76,000 very specific customized genres.
However, the company is smaller in terms of the revenues and profits than its main competitors, one of which is Amazon.com, Inc. In comparison to the latter, Netflix’s gross profit at the end of 2015 was just over two million dollars, whereas Amazon.com, Inc. earned $35,355,000 (“AMZN Company Financials” par.1). Hence, the position of Netflix on the international market might need some improvement.
Therefore, the objective is to present a new marketing strategy for Netflix that would allow the company to improve its strengths at the level of the worldwide marketing. The first objective of this proposal is to review the background information about the company and the business context in which it functions and to estimate the timeframe and budget for the implementation of the new strategy. Secondly, the objective is to explain how the final goal of the enhancement of the international presence can be achieved with the help of the improvement of original content and collaboration with other brands.
New strategies for improving upon the company´s strengths
The background information and context
Since the company was founded in 1997, there were some strengths and weaknesses of its marketing and business strategies, some of which still demand the attention in the modern context. The easy online subscription gives users mobility. They are directly provided with the service they pay for, and they can easily renew or terminate it online. It contributed to both managerial and marketing aspects of the company’s business model.
Another marketing appeal that Netflix originally implemented was the cooperation with various TV channels, film studios, networks, and production companies. The wider range of content options of different genres helped Netflix to achieve two goals. First of all, it helped to gain more feedback from the customers on various genres. However, the main advantage is the marketing potential that the wide spectrum of the content from different production sources can provide, which is the appeal to the customers of different social groups.
The objective of the new marketing strategy is to go even further with this approach and start to work with the production companies and studios not only in the English-speaking countries but worldwide. Currently, Netflix cooperates merely with the British BBC and with minor production studios on the smaller projects (“Netflix: Financial Statements Charts” par.1). Engaging more foreign film and video makers would raise the appeal among the people with other cultural backgrounds. The further additional improvement is introducing the multi-language content.
Estimated timeframe and budget
Considering Netflix’s add-free policy, the potential weakness lies in the financial side of the strategy. Therefore, to sustain the company’s growth, it needs to engage new subscribers, which means that Netflix needs to find them at the international market. In terms of budget and timeframe, the most important aspect is selecting the first markets in which to put the cooperation to the new level. Depending on the level of the company’s presence and the budget needed for the different regions, the first market to enter should be the West-European countries.
The time scale should be calculated on the basis of an average duration of pre-production, production, and post-production periods of the new piece of content that Netflix needs while cooperating with the studios. The budget should not exceed the company’s average for its original shows.
The top budget spend by Netflix on one show was $100 million dollars, but it is an unacceptable cost for the experimental show in the new market (Perlberg par.3). Meanwhile, the average production of the 10-13 episodes of one show is $8-25 million dollars (“Netflix: Financial Statements Charts” par. 21). Thus, the optimal budget for one show produced for the Netflix audience overseas needs to be at least $10 million dollars. The average timeline of creating one season of a Netflix show is 12-14 months, which can be followed using the new strategy.
The strengths and weaknesses (SWOT analysis) of the new strategy
Enhancement of the international presence: limitations to the strategy
At the moment, the main competitor on the global market is Amazon.com, Inc. with the gross profit of $35,355,000 (“AMZN Company Financials” par.1). However, both companies have the same weakness, which is the low level of the regional adaptation of their product. With the help of SWOT analysis of Netflix’s perspectives can be represented in the table below.
Strength
Weakness
Netflix’s customized genres that can adapt to the demands and preferences of the company
The low level of the regional adaptation of their product
The most important threat is the presence of the local streaming service providers, including the influence of the Alibaba Group video service in the Southeast Asian region. The opportunity for Netflix lies in their system of feedback from customers and collaboration with other local and international brands, as their experience of working together with Marvel Worldwide, Inc shows. In the SWOT analysis table, the main threat and the main opportunity look as follows:
Threat
Opportunity
The presence of the local streaming service providers
Using the system of feedback from customers and collaborating with other brands
Improving the original content
The production original content based on customers’ preferences is the factor that led Netflix to its success. Therefore, when entering the new market, the company should offer it something that neither local TV-channels, subscription channels, nor on-demand services can. Aside from that, people are more likely to trust the familiar brands and production companies. Therefore, an important aspect of the new marketing strategy should be the cooperation with the different studios, production companies, and channels at the local markets.
Collaboration with other brands
The results of Netflix’s more than successful cooperation with Marvel Worldwide, Inc show the effectiveness of the brand collaborating. Netflix has already launched a number of TV series based on the Marvel heroes (Perlberg par.5). The similar strategy can be applied in other markets worldwide if Netflix chooses to work with the local cultural concepts and brands that represent them.
The opportunity to implement is Netflix’s researchers of the customers’ preferences that can help to articulate the ideas for the shows aimed at the audience of a particular cultural background. In particular, at the planning stage of the project, the company will need to contact the local film and TV production studios and cooperate with them to create the new content within the estimated budget and timeline. In such a way, Netflix will be able not only to maintain its standards of production but also to benefit from the partner company’s market knowledge.
Conclusion
Creating original content in collaboration with the other brands overseas can be an efficient new marketing strategy for Netflix. The business context and background information suggest that the company is capable of carrying out the new strategy. Estimated timeframe and budget for the new markets should not exceed those of the Netflix’s US-based contents.
The main advantage of the strategy is that engaging new customers is the basis of the company’s growth. The weakness is the low level of the regional adaptation of their product. The most important threat is the presence of the local streaming service providers. However, Netflix has the unique opportunity to adapt to the preferences of the customers by means of the customized genres approach, and create the new original content based on it.
Works Cited
AMZN Company Financials 2016. Web.
Netflix: Financial Statements Charts 2016. Web.
Perlberg, Steven. “How Netflix Is Shaking Up Its Marketing Strategy.” Wall Street Journal. 2015. Web.
Netflix is an entertainment company that is mostly focused on streaming media (films, TV series), producing media, and distributing media online. According to the company, there are more than 98 million subscribers as of 2017 (Netflix 2). In this paper, the company will be analyzed using PESTEL framework. The firm performance will also be discussed.
PESTEL
The political factors that can influence the company are the following: government regulations on online content distribution and copyright regulations. Government regulations can present both opportunities and threats; if online distribution is supported and not seen as a substitute to national television, Netflix will be able to continue its functioning successfully. Nevertheless, any issues with copyright materials can lead to lawsuits that will negatively influence company’s image and operations in particular countries.
Economic factors that affect Netflix ability to function efficiently and expand include disposable income and economic stability of a state. For example, Netflix’s users in Malaysia use its services if their disposable income allows them to purchase additional subscriptions (Lobato and Meese 151). At the same time, any economic instabilities and downfalls will lead to decreased subscription rates because users will mostly spend their money on necessities.
Social factors that influence the company include the age of the population, cultural and societal changes. It is more popular among millennials and members of the generation Z but can be adversely influenced by the aging population (Matrix 122). Societal and cultural changes can lead to decreased interest in binge watching, which can also negatively affect the company.
Technological factor that presents both threats and opportunities is Netflix’s use of big data and recommendations. On the one hand, it can gather more valuable information using big data from its customers. On the other hand, big data often causes privacy concerns that negatively influence customers’ willingness to use the service (Amatriain 2).
Environmental factors are also to be considered by Netflix. The company should focus on its impact on the environment; data hubs and services can negatively influence the surroundings and lead to the increased utilization of resources (electricity). The company does not publish data about its impact on renewable energy consumption (Boboltz par. 6).
Legal factors such as changes in regulations, restrictions of online broadcasting, and high charges of streaming services can negatively influence Netflix and interfere with its expansion both in the USA and outside of it.
Firm Performance
Although the company has to compete with such serious rivals as Amazon and Hulu, its expansion continues to progress. The company ensured its success with self-produced shows such as House of Cards or streaming of cable TV shows for those users who missed the show (Monica par. 2). According to Monica, Netflix stock “has soared more than 535%” since 2011 (par. 8).
The company also decided to charge the newer users with $8.99 instead of $7.99; this innovation was expected to increase the company’s revenues (Monica par. 12). The company states that its “revenue for the international segment grew 62% year over year” (Netflix 1). Furthermore, the company’s revenues during the first, second, and third quarters of 2016 continued to grow, and in the first quarter of 2016, the company added 5 million members (Netflix 1). As it can be seen, despite competing with strong rivals in the market, Netflix continues to be a highly successful company that is able to increase its revenues and add more subscribers every year.
Boboltz, Sara. “Greenpeace Says Netflix Binge-Watching May Not Be Good For The Environment.” Huffington Post, 11 Jan. 2017,
Lobato, Ramon, and James Meese. Geoblocking and Global Video Culture. Institute of Network Cultures, 2016.
Matrix, Sidneyeve. “The Netflix Effect: Teens, Binge Watching, and On-Demand Digital Media Trends.” Jeunesse: Young People, Texts, Cultures, vol. 6, no. 1, 2014, pp. 119-138.
In the modern business environment, there are a number of challenges facing organizations in terms of compliance between different departments inside a single organization. In order to align the responsibilities of the employees with the level of their access to corporate information and prevent organizational risks of various nature, in Human Resources, there are a variety of Controls practices used (Purce, 2014).
The main purpose of such techniques is to incorporate a sustainable change in the domains of organizational architecture. Specifically, those domains may include Tools, Technology, Information Processing, and Human Resources. The sample organization used as the subject of this design inquiry is Netflix, Inc. There are a number of crucial functions that a new department dealing with Controls Testing and the Compliance Process should administer due to the company’s constant need to update its architecture and protect various aspects of insider information.
New department’s mission and objectives with respect to executing Controls Testing
One of the most rapidly growing issues in the corporations nowadays is the problem of compliance that becomes more complex with enormous speed, and “because of regulatory requirements [it] can affect a company’s business processes, and moreover, these requirements are often vague and confusing (Cannon & Byers, 2006, p. 37). However, among the regulations that are of special importance in corporate architecture, there is Sarbanes-Oxley Act that can be used in the field of IT governance in relation to such domains as processes and information (Damianides, 2005). In such a way the objective of the controls testing is to ensure that not only all the regulations are strictly followed at the level of each of the domains, but also that they are compliant with one another and not confusing for the employees and users.
Another important objective is the risk mitigation activities since the testing of various corporate controls will help in defining the most vulnerable areas in the corporate architecture, as well as the specifics of interactions between particular domains. In such a way, the overall mission of the activities associated with the controls testing and the compliance processes is to align the functioning of all the corporate domains with the organizational goals in such a way that the regulating and reporting process is clear and can be sustained on a regular basis.
Critical Controls Testing activities the department will perform
One of the key activities in terms of controls testing and the compliance process is to define the necessary regulations. Secondly, in order to manage controls testing and the compliance process, it is important to conduct the analysis to estimate “the organization’s internal environment and its congruence with the company’s overall internal environment” (Racz, Weippl, & Seufert, 2010, p. 157).
In such a way, it would be possible to improve the interaction between different domains. The third activity is the comprehensive analysis of requirement for each of the domains, that will allow identifying “derivation of IT compliance and IT compliance reporting objectives from business objectives” (Racz, Weippl, & Seufert, 2010, p. 157). As a next stage, it would be, therefore, possible to conduct the segregation of functions and duties of the employees in relation to the various process controls.
The fifth step is the incorporation of the background checks and other Human Resources management controls that mitigate the risks associated with some of the human factors. Such activities are more effective if they are compliant with the organizational goals and the rest of the security practices in the organization.
Another recommended activity is the process of event identification that will concern such domains as Technology & Tools and Human Resources. It is also important to note that event identification will contribute to the risk assessment in IT compliance by identifying compromising events. As the result of this activity, it would be possible to improve many technical solutions, including firewalls (Whitman & Mattord, 2011).
The eighth recommended activity is to deviation analysis, which includes analysis of the risk responses. Among the other recommended activities, it is important to ensure the status reporting on a regular basis and in relation to all the domains. Finally, the tenth activity is to sustain consistent status and risk response documentation in all the domains with the orientation at long-term practice and improving informing and communication.
New department interfacing with corporate governance
The status of each of the controls testing is to be reported to the corporate governance regularly. In such a way, the required independence in each domain will align with controlling practices with minimized risks. Considering the fact that all departments have their task specification, corporate governance is to align those requirements with the security standards.
Continuous monitoring of the effectiveness of the Controls Environment
Continuous monitoring can be achieved by means of the auditing and documentation activities and obtaining feedback from each of the domains (Alles, Brennan, Kogan, & Vasarhelyi, 2006). Overall, the main objective of the new controls testing and the compliance process is to conduct a long-term practice of mitigating risks of different domain and to align them in a relation to not only installed regulations but also corporate goals and objectives of the company.
References
Alles, M., Brennan, G., Kogan, A., & Vasarhelyi, M. A. (2006). Continuous monitoring of business process controls: A pilot implementation of a continuous auditing system at Siemens. International Journal of Accounting Information Systems, 7(2), 137-161.
Cannon, J. C., & Byers, M. (2006). Compliance deconstructed. Queue, 4(7), 30-37.
Damianides, M. (2005). Sarbanes-Oxley and IT governance: New guidance on IT control and compliance. Information Systems Management, 22(1), 77-85.
Purce, J. (2014). The impact of corporate strategy on human resource management. In New Perspectives on Human Resource Management (pp. 67-80). London: Routledge Revivals.
Racz, N., Weippl, E., & Seufert, A. (2010). A process model for integrated IT governance, risk, and compliance management. In Proceedings of the Ninth Baltic Conference on Databases and Information Systems (pp. 155-170). Berlin: Steinbeis Hochschule.
Whitman, M., & Mattord, H. (2011). Roadmap to Information Security: For IT and Infosec Managers. New York: Cengage Learning.
Different companies incorporate various business interactions with the third-party providers to a different extent. In such a way, depending on the level, at which a particular company functions, the scope of its projects, and the area or industry, in which it is involved, there are different nuances regarding the cooperation with the third-party providers. In the modern business environment, there is a growing need for a new institution in the corporate architecture that would provide a service of constant monitoring and control over the cooperation with the third-party providers (Fowler, 2002).
It is important to note that for larger organizations, such as Netflix, Inc. which is the subject of this design inquiry, there are a number of crucial functions that a new department dealing with interactions with the third-party providers should administer. First of all, it would enhance the effectiveness of “customer service function, where customers with warranted or defective products would return them to their supplier” (Meade & Sarkis, 2002, p. 283).
The mission is that the commercial value of a particular service should not be largely affected by the third-party providers since the company “will want to recover the cost of setting up the service from their customers” (Jefferies, Mitchell, & Walker, 1996, p. 99). Overall, the main objective of the new department is to oversee the third-party providers both in terms of the quality of goods and services they offer and in relation to the cost-effectiveness of their services to the company.
Critical activities to ensure the continuous monitoring of risks
One of the key activities that the new department will implement is to incorporate CobIT Framework that would help to maintain the regulatory aspect of risks monitoring at the level of the entire company (Whitman & Mattord, 2011). The second activity is to align the third-party oversight program with all the other major company’s objectives and goals. The third activity is to improve the overall data warehousing and information exchange at the corporate level.
In addition to that, it is also important to make an account of all the risks that may be associated with the respective technology that is used in data warehousing, which is the fourth critical activity. The fifth step concerns the intermediate stage of the governance implementations, at which the goals of the department are already aligned with those of the organization on the whole. It relates to monitoring the response of the users and customers to the new modes of services, namely user testing (Abelson et al., 1997).
The sixth activity also attends to the response of the users, and it is the pilot and parallel deployment activities that ensure monitoring of the working processes related to the third-party oversight program. Another important stage is to use all the necessary resources for preventing data loss and eschewing security within inner departments. The eighth step is to conduct a validation of all the monitoring processes, as well as users, personnel, and everyone who has access to data.
Finally, the last two activities that the new department should incorporate are to make sure that the ownership of oversight responsibilities internal is internal but also to be able to cooperate with other external agents as well, including various auditors and consultants. In such a way, the required outsourced practices and services will be obtained with minimized risks.
Suggestions for three additional metrics
One of the metrics that should be considered in order to ensure a safer cooperation with third-party providers is the assessment of their liability and volatility in the context of overall performance (Ale & Piers, 2000). According to Ale and Piers (2000), such metric should be based on the quantitative analysis of the financial performance of a particular third-party provider (p. 10). Another metric that can improve and widen the perspective is the estimation of to how many other partners a particular third-party provider offers its services.
The more companies are involved in cooperation with such provider, and the bigger are the risks. Finally, in relation to the second metric, it is important to consider the level and periods of how often and how professional each third-party provider estimates its risks and the safety of its systems. In such a way, the more frequent the evaluation is, the safer it is to interact with such third-party provider.
Corporate governance functions, including the periodic reporting of status
The new department will control the quality of the service the customers receive through various regional providers, namely, in the case of Netflix, Inc., the department is to make sure that the quality of video streaming and other online services is not negatively affected by the regional partners. Another important function of the new department is to monitor whether third-party partners and their resources, as well as the outsourced services, are cost-effective. The new department is to report to the corporate governance regularly on those two aspects. However, regarding the other specifications, the new department is to align its policies with the major corporate goals.
References
Abelson, H., Anderson, R. N., Bellovin, S. M., Benaloh, J., Blaze, M., Diffie, W.,… & Schneier, B. (1997). The risks of key recovery, key escrow, and trusted third-party encryption. New York: Columbia University Press.
Ale, B. J. M., & Piers, M. (2000). The assessment and management of third-party risk around a major airport. Journal of Hazardous Materials, 71(1), 1-16.
Fowler, M. (2002). Patterns of enterprise application architecture. New York: Addison-Wesley Longman Publishing Co.
Jefferies, N., Mitchell, C., & Walker, M. (1996). A proposed architecture for trusted third-party services. In Cryptography: Policy and Algorithms (pp. 98-104). Berlin: Springer.
Meade, L., & Sarkis, J. (2002). A conceptual model for selecting and evaluating third-party reverse logistics providers. Supply Chain Management: An International Journal, 7(5), 283-295.
Whitman, M., & Mattord, H. (2011). Roadmap to Information Security: For IT and Infosec Managers. New York: Cengage Learning.
Porter’s Five Forces model provides a framework for a company to perform an analysis framework of an industry in a foreign country before it chooses to enter that market. The elements to be studied within the framework include industry competitors, suppliers, buyers, potential entrants, and substitutes. The overall competitive advantages of the US movie rental business revolve around the quality of products transacted. However, Netflix needs to choose a proper entry mode to capture other markets at a faster pace than the world’s average growth rates. These involve a selection of entry mode, ranging from exporting, licensing, franchising, joint venture, and direct investment.
Key Success Factors in the movie rental business
These include technological innovation and strategic management. The main strategic recommendation for the company is to focus on producing luxurious DVDs of premium quality at a relatively lower cost to attract prospective buyers who are only limited by their level of income. This would be a sure way of achieving success in the company. Therefore, in cases where the external environment posed a great threat to the internal affairs and strategies of the company, especially in the DVD production industry and market, the management should adopt competitive policies, which would help in fighting off the competition in the market. Certainly, this would lead to the advancement of innovative products and the use of effective marketing strategies to minimize such effects.
SWOT Analysis of the Netflix Company
The Strengths, Weakness, Opportunity, and Threats (SWOT) analysis of the Netflix Company can be presented in the following table.
SWOT
Discussion
Strength
The company is characterized by high-quality business services that many customers want to identify with.
Netflix is also capable of attracting and retaining a large pool of clientele base through the use of its online services.
It is capable of attracting many customers from different social backgrounds and lifestyles through its promotional movements as well as rewards.
Weakness
Their business services suffer comparative enlargement difficulties, which are not identifiable with many consumers.
Netflix has failed to watch on the technological pace of its micro as well as the macro business environment, which impacted negatively on the sale of its online business services.
The company was not swift to grasp information on its online technology and move swiftly to the market.
Netflix failed to diversify its products and move swiftly in other foreign markets.
Opportunity
The other dealers in the market are fairly weak to organize for strong market forces.
The company has wide consultancy services, and this puts in it a better position to predict imminent competition in this market.
The company is still capable of standing ahead of other competitors in this kind of market.
The Netflix company can still get market for its digital products in the eastern block, specifically in Asia, which has not been fully explored.
Threats
The effect of entertainment technology is a threat to this industry since many consumers opt for online business services.
The rapidly changing market that is almost replacing the customary business services.
Skilled and technological advancements associated with entertainment might soon render the customary business services irrelevant.
Netflix’s Strategy
To achieve cost and differential competitive advantages, Netflix Company positions itself strategically to reap from the growing world market in other places. This could be realized from the global market recovery. Though this strategy focuses on the emerging markets, Canada and the United States remain the primary targeted market for Netflix’s products. The management of the company understood the fact that the global market would develop and that the company needed to be innovative and develop strategic policies to remain viable in the market. This is justifiable by the positive feedback that the product’s users have shown over a long time as well as the company’s strategic and development policies.
Notably, the proliferation of cheap models in the market affected the strategic operations of Netflix, yet, the company still commands a large number of potential high-class buyers. Netflix’s DVD products were comfortable for people in the top market, thus the company maintained this market by changing the operation strategies that allowed it to reduce their cost considerably, without affecting its profitability. Therefore, the strategic planning that the company has employed is instrumental in maintaining the brand’s name and success around the globe.
The strategic operations of the company have targeted the United Kingdom, Ireland, and Denmark, markets have become a priority for the company because of the purchasing power of the people in such areas, leaving the majority in developing countries to opt for relatively cheaper DVDs from other companies. This approach, although important, threatened the strategic operations of the company since the middle and low-income population forms the majority, thus Netflix could not attract them to buy its DVDs.
Netflix found it difficult to shift its strategic policies to manufacture DVDs that could be affordable to the masses. This was a result of its strategic planning continued to focus on improving the quality of the DVDs, thus translating to a higher cost of acquiring the DVDs. With the upcoming Toyota and cheap models, the strategy and priority of Netflix’s management will be to develop quality DVDs, which are relatively affordable to a large number of people from the UK, the United States, and other parts of the world.
One of the strategic capabilities lies in the company’s stability that has enabled it to get financial assistance from global financial institutions. This has become possible due to the increasing favorable capital conditions. Since the company was able to come out of the global crisis and regain its position to even a much better level, it created a reputation among the public, thus showing the organization’s capability.
The second strategic capability of the organization is its focus on premium brands, which attract more customers. This creates a special preference for brands across the world, especially between the middle and high-income class. Notably, these groups of consumers prefer durable products that the company is capable of producing. Certainly, the company looks into the future with confidence because its premium models present an excellent growth projection in the US market zones and other parts of the globe. As a result of their quality, premium DVDs have a great demand because they present individuality and a sign of affluence.
The other strategic capability of the company is its ability to use modern and appropriate technology in producing DVDs. As a result of technological applications, the company produces state-of-the-art DVDs that appealing to potential users. Moreover, the company employs the finest engineering techniques in its production and most of the workers are of top quality and with relevant experience in DVDs making. This is a strategic capability that the company uses for its progress and further success.
Being among the most successful corporations in the digital media industry, Netflix presents a model to emulate in the world of business. To better understand the corporation’s current position in the market, it is necessary to analyze Netflix in the context of technological advancement and globalization and envision its opportunities to increase revenues. Furthermore, the paper is aimed at explaining the company’s success with reference to vision/mission statements and stakeholders’ contributions.
Globalization
Globalization belongs to the number of trends that impact the most popular business practices, the state of knowledge, and companies’ approaches to marketing. According to Hitt, Ireland, and Hoskisson (2013), all companies that decide to increase their competitive advantage by going global are expected to design new decision-making strategies that are culturally sensitive. This tendency is manifested in the case of Netflix – in 2016, the company’s executive management announced the decision to enter the global market by adding over a hundred new countries to the service map (Steel, 2017).
Due to the new service provision strategy, the corporation increased the number of subscribers by more than seven million people in 2017 (Steel, 2017). To gain benefits from the decision, it was necessary to research new clients’ interests to make predictions about the products that they would like the most.
Globalization also impacts Netflix since it constantly changes the industry’s competitive environment and leads to the growth of the company’s key business rivals. For instance, the company’s management decided to initiate the global expansion of telestreaming services due to the success of Amazon and YouTube that gained revenues from service globalization (Steel, 2017). The corporation’s need to go global and avoid losing its positions in the market helps understand the key consequences of the discussed trend such as rising performance standards and risks associated with entering new markets.
Technology
As a provider of media products, Netflix manages to use a variety of new approaches to streaming to increase its competitive advantage. Judging from the corporation’s history timeline, Netflix has changed approaches to customer service many times since 1997 (Netflix Media Center, n.d.). Twenty-two years ago, Netflix was a kind of a video rental shop offering online services; given that the Internet was just gaining momentum, the company managed to implement the most promising technology of the time (Netflix Media Center, n.d.).
The introduction of streaming media technology predetermined the next historical turn in Netflix’s development. In 2007, the company’s clients received an opportunity to watch movies and TV shows on their personal devices, which was a significant strategic move helping Netflix to create value and implement innovation (Netflix Media Center, n.d.). To some extent, streaming was a disruptive technology that diffused rapidly and impacted demand for TV sets, but Netflix only benefited from such innovations (Hitt et al., 2013; Netflix Media Center, n.d.).
Unlike many companies that lost revenues due to disruptive technologies such as iPad, iPod, and iPhone, Netflix established steady partnerships with the key innovators and made its products available on such devices (Netflix Media Center, n.d.). Thus, new technology impacted the chosen corporation in a positive way and provided it with new opportunities for development.
Industrial Organization Model
There are many theoretical approaches to increasing business profitability, and the industrial organization model is one of them. The IO model suggests that companies need to implement five steps in order to earn high profits. As for the first step, Netflix is required to thoroughly study its external environment and focus on actual and potential competitors (Hitt et al., 2013). Netflix will have to analyze the financial position of Amazon, YouTube, and other industry giants to define any needs of target customers that are still unmet (Steel, 2017).
The next step should involve the analysis of the industry’s attractiveness. Given that the digital media industry threatens the popularity of radio and TV, Netflix seems to have chosen a promising path of development (Hitt et al., 2013; Steel, 2017). Based on such findings, the corporation can design several new strategies, including, for example, purchasing exclusive rights to distribute some movies or launching new referral programs. To implement the next step and develop strengths, the corporation can redistribute its incomes and devote funds to research activities and necessary employee education. Finally, using the results of research justifying the profitability of planned interventions, Netflix will be able to determine the key strategic actions and initiate strategy implementation.
Resource-Based Model
To apply the resource-based model, Netflix will need to focus on its products’ uniqueness. The corporation’s resources and capabilities that make it different from other industry giants may include experience with different technological solutions, success in building partnerships with device manufacturing companies, product accessibility, and Netflix’s worldwide reputation (Netflix, Inc., 2019; Netflix Media Center, n.d.).
Applying the model in question, Netflix can further analyze the listed findings to determine their implications to competitive advantage. For instance, its partnerships with other companies can be used to make media products even more accessible in different parts of the world to increase Netflix’s competitive advantage. Using the knowledge of its strong sides together with the analysis of the industry, Netflix will be able to select the best development strategy transforming its unique capabilities into new revenues.
Vision
Along with other components of development strategies, vision statements help companies to generalize on their future goals. Netflix is willing to “continue being one of the leading firms of the Internet entertainment era” (Netflix Investors, n.d., para. 2). Such statements reflect companies’ aspirations and key values, thus helping stakeholders to make informed decisions about collaboration (Hitt et al., 2013). This vision encourages the corporation to search for new ways to improve customer experience and make its services more attractive, which is related to Netflix’s financial success.
Mission
The corporation does not provide an official mission statement, but Netflix’s mission can be retrieved from the presentations of its CEO. Netflix makes business decisions based on the following principles: “we promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact” (Farfan, 2018, para. 8). This statement is quite effective since it helps to understand the corporation’s values in relation to the key interested groups. However, it is unlikely to be a significant factor in Netflix’s success since, on its own, the statement is not unique enough to attract new stakeholders.
Stakeholders
The capital market stakeholders of Netflix include a large number of shareholders or investors whose financial support provides the corporation with an opportunity to expand globally and launch new products (Hitt et al., 2013; Steel, 2017). The next category of individuals and groups supporting the company’s success is presented by product market stakeholders, for instance, service subscribers and non-employees or external companies participating in the creation of digital content produced by Netflix. Without these stakeholders, Netflix would not be able to create any products and gain profits.
Finally, there is a large group of organizational stakeholders; it involves Netflix’s employees at different organizational levels, the members of the executive management team, and middle-ranking managers. These people’s concerted efforts help to properly organize the dissimilar activities of Netflix and ensure service quality, which makes their work central to the corporation’s success.
References
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management: Concepts and cases: Competitiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning.
A new phenomenon emerged recently in which companies like Netflix and Blockbuster give DVDs on rentals to their customer on a monthly subscription basis. It seems quite appropriate to use the SWOT model for analyzing the potential of Netflix, Blockbuster, and Video-on-demand. Developing proprietary software technology by Netflix called Cinematic, enabling consumers to personalized movie recommendations.
The marketing of DIRECTV system equipment by Blockbuster in its U.S. stores poses a threat to the market share of Netflix.
Netflix has changed the video store rental industry forever and has shown no signs of slowing. Recently, Blockbuster has been in liquidation mode, they closed 131 stores. It helps bring online customers back into the store and offers Blockbuster an opportunity for their online subscribers. If Netflix wants to raise prices, Blockbuster would like to follow, but Netflix has hinted that they might go the other direction. Freeberg (2006) notes that Blockbuster had begun mailing DVDs from their retail stores, but Netflix also began work on their secret strategy. Netflix did indeed compete successfully on price. Blockbuster’s overhead is twice this amount, but the difference between Blockbuster’s overhead (around 50% of sales) and Netflix’s (around 35%) isn’t that great. If Blockbuster can increase store efficiency (smaller footprint), it becomes more competitive.
Background
The introduction of sound and color were two important technological developments for the film industry. Recent developments in technology – Imax, satellite transmission, fiber optic cable, VCRs, DVDs, pay-per-view systems, digital signal transmission and compression, interactive multimedia systems, Internet delivery, and high-definition television add alternative distribution mechanisms. These developments are lengthening the post-release earnings profile of a film while encouraging more varied production. The DVD represents a quantum leap over video technology in portability, capacity, robustness, and cost, and has resulted in a sequence of vertically differentiated releases. The DVD makes the alternative of marketing some films directly to the public even more attractive.
Situations Analysis
Organizations and contracts adapt to technology. As video rentals and sales increased in value, the video release window was split into two – a video rental window and then a video sell-through window. To encourage video rental stores to offer more copies during the rental window, a sharing contract was developed. Before these changes could be fully absorbed and exploited, aggressive DVD pricing increased the importance of sell-through and decreased the attraction of sharing for rental outlets. New developments may facilitate separating sell-through and rental audiences.
A new phenomenon emerged recently in which companies like Netflix and Blockbuster give DVDs on rentals to their customer on a monthly subscription basis. It has become one of the most popular subscription entertainment choices ever. In the past, DVD consumers seemed willing to spend more money for buying movies than they ever did rent them. But the rental subscription option changed the whole scenario. The rental subscription method was initially dismissed by market gurus, but when Netflix started it in 1998, it became very popular soon.
Environment Analysis
The dynamic and rapidly growing DVDs market greatly owes its rapid growth to the enormous production of movies. Increasing interests of consumers to watch movies and cultural norms of our society to watch movies frequently provided an impetus to this DVDs rental business.
Various models and methods have been evolved by scholars of management and the corporate field for analyzing the external and internal environment of the company. It seems quite appropriate to use the SWOT model for analyzing the potential of Netflix, Blockbuster, and Video-on-demand.
SWOT analysis
It is important to employ a SWOT analysis model for comprehensive evaluation. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It broadens the perspective and gives the complete picture. Every organization has some strength to depend upon, certain weaknesses to overcome, certain opportunities to be utilized, and certain threats to be careful of.
Strengths & Opportunities
Developing proprietary software technology by Netflix called Cinematic, enabling consumers to personalized movie recommendations.
A wide range of Netflix 37 regional shipping centers across the United States.
Total Access, the reason behind this success, is a program that lets online customers exchange their online movies for free in Blockbuster stores.
Introduction of sophisticated software to track its inventory and minimize delivery times.
Investment in R&D provided opportunities to appeal to changing consumer mindsets.
The idea Video rentals were successful because consumer disliked going to the video store frequently.
The opportunity to shop for their rentals online and have them delivered by mail proved very attractive. It offered convenience compared to traditional rentals. Netflix was quite successful in its strategy and by offering a monthly subscription plan.
Weaknesses & Threats
Trends in societies are continuously changing. Changing technologies and the social attitude of consumers have shortened the life cycle of a product in the consumer market.
The marketing of DIRECTV system equipment by Blockbuster in its U.S. stores poses a threat to the market share of Netflix.
Blockbuster customers can choose from 25,000 titles, ranging from classics to new releases.
Video-on-Demand can kill the market by its internet access to a wide range of movie collections.
It can be if materialized as TV companies and major movie studios were considering strategies to release movies through VOD cable services the same day that the DVDs were available in retail stores and rental outlets.
Core competence
Netflix has changed the video store rental industry forever and has shown no signs of slowing. Video on demand will be an issue for the company, but Blockbuster will not be immune to the same issues. Netflix’s management team has allowed them the flexibility to move very quickly in an emerging market, but this not the case with Blockbuster. Recently, Blockbuster has been in liquidation mode, they closed 131 stores. For every store that goes out of business, it creates a tremendous opportunity for Netflix to expand into their market. It helps bring online customers back into the store and offers Blockbuster an opportunity for their online subscribers. Blockbuster Online has become an essential strategy for the company, but Blockbuster is running out of time, if they closed every store it would take millions of subscribers to replace the shrinking in revenue that they make each year. The video store business model will fail because of simple economics. They have a high fixed cost and Netflix and VOD have a flexible cost to their business. Since the launch of Blockbuster’s online DVD rental program in August 2004, they have added 1.3 million customers, but over the last 6 months alone, Netflix was able to add almost as many subscribers.
Evaluation of the strategy
Success Criteria – Suitability, Acceptability, and Feasibility
It is the responsibility of planners to identify success criteria that may be used to develop goals, objectives. It is acknowledged that there are many fundamental types of commercial success standards that may be used to set goals and objectives: financial and competitive. A method using suitability, acceptability, and feasibility as criteria is used here for assessing the success of Netflix.
Suitability
Now Netflix has taken a great step to reinvent itself as an online delivery service. All Netflix customers will have access to the service now. As mainstream consumer adoption of online movie watching will take many years due to content and technology hurdles, the time is right for Netflix to move on.
Acceptability
If Netflix wants to raise prices, Blockbuster would like to follow, but Netflix has hinted that they might go the other direction. With Blockbuster is not able to compete on price, Netflix’s brand name gives them a huge advantage over the negative long-term image that consumers associate with Blockbuster’s brand.
Feasibility
Freeberg (2006) notes that Blockbuster had begun mailing DVDs from their retail stores, but Netflix also began work on their secret strategy. As video store margins continue to deteriorate, Blockbuster will have no option but to continue to close their stores. Each store closing will reduce Blockbuster’s revenue and will make their debt payments more and more difficult to make. The only way that I can see Blockbuster expands revenue, but increases store closings would be for them to negotiate the rights to do burn on-demand DVDs at kiosk locations nationwide. Blockbuster has explored kiosk relationships in the past but has never committed to a strategy.
Freeberg (2006) observes that Netflix is a subscriber-based business, and analysts tend to value subscriber-based businesses according to their number of subscribers, and a measure of “churning”. Here we have two definitions of churning to keep track of: the first churning is related to the behavior of investment bankers. The other churning definition is related to the rate of customer turnover in subscription-based accounts. In the case of Netflix, it seems that both definitions of churning are relevant.
Future strategy options and Recommendation
According to Freeberg (2006), the online DVD rental market is a growing market and Netflix will gain customers regardless of what Blockbuster tries, but Blockbuster, on the other hand, is sitting on a one billion dollar time bomb that will have to be dealt with further down the road. Netflix did indeed compete successfully on price. If Blockbuster revenues fell, they would face a credit crisis. As to one-year price targets, you’re right. Netflix has a cost of delivery (postage and fulfillment), and that cost is quite high. Blockbuster’s overhead is twice this amount, but the difference between Blockbuster’s overhead (around 50% of sales) and Netflix’s (around 35%) isn’t that great. If Blockbuster can increase store efficiency (smaller footprint), it becomes more competitive.
If Blockbuster could implement BOD at their retail stores, it could still be a powerful force. Right now Blockbuster has to make important purchasing decisions and if they misread demand it impacts them directly. I would also use the technology as a way for Blockbuster to increase the prices they charge for rentals. If customers want to come into the store and get one of 2,000 DVDs, they can do that but for $1 more you could let them burn any TV show or movie. It will be a big threat for Netflix, but because of Blockbuster’s fixed costs, they have less flexibility than Burn on-demand technology exists today. If Blockbuster can figure out a way to bring all 60,000 movies that Netflix has to every single video store, it would go a long way in preserving their sales (if not increasing them.) If it buys the company time to solve their debt problems and to come up with a long-term VOD solution, then it would be a good investment on Blockbuster’s part.
According to Freeberg (2006), Netflix comes faster for the newer releases, but not as fast as using the free in-store coupons at Blockbuster that you get once a week with Blockbuster Online. When comparing Netflix with Blockbuster Online, there are so many similarities that it may seem like a toss-up. Both programs allow us to pay a monthly fee, for which we receive DVD movies sent through the mail. Netflix used to have the clear edge here, but expansion to include more distribution stores has brought Blockbuster up to par. Still, for those who rent less, Netflix “ramps” the movies to these higher priority customers, pushing the heavier renters further down the list.
Netflix has more experience with online DVD renting, both in regards to time and sheer mass of customers. Blockbuster, as mentioned before, has superior and more responsive customer service. The more human aspect of Blockbuster makes it the choice.
Conclusion
According to Freeberg (2006) Hellweg also notes that Netflix CEO Reed Hastings indicated the company’s willingness to forgo profits in the next five years to grow market share. Hastings later claimed he was misquoted. Nevertheless, the targets a goal of 20 million subscribers in the next five years. That won’t happen without stealing a large number of customers away from Blockbuster.
Freeberg (2006) notes that there is at least one major weakness in the Netflix model: executive compensation. In the fiscal year ending 2004, the top four Netflix officers received a combined total of approximately $7,910,000 (in pay and exercised options). I’d say that’s out of line with living wage standards, even in the Bay Area. Sure they have a popular product, and they need to retain talented leadership, but there are other ways to promote loyalty at the top.
Freeberg (2006) notes that Netflix stands to benefit by taking a proactive stance on issues related to recycling. Netflix does reuse a portion of their packaging, and I’m convinced that they could do more. There is no reason why Netflix shouldn’t be able to offer a durable and 100% reusable and biodegradable form of packaging for their hundreds of millions of shipments every year. In the short term, they could offer this premium option to households that value having an environmentally responsible choice. The net result would be less paper expense to Netflix, and increased revenues related to the premium packaging option.
Bibliography/Reference
Ansoff, H. I. (1988). The New Corporate Strategy. New York: Wiley.
Eden, C. and Ackermann, F. (1998), Making Strategy: The Journey of Strategic Management. London: Sage.
Freeberg Davis (2006) Netflix vs. Blockbuster. Web.
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Mintzberg, H., Ahlstrand, B., and Lampel, J. (1998), Strategy Safari: A Guided Tour through the Wilds of Strategic Management. London: Prentice-Hall.
Moore, J.I. (2001), Writers on Strategy and Strategic Management. 2nd Edition. London: Penguin.
Pettigrew, A. and Whipp, R. (1991), Managing Change for Competitive Success. Oxford: Blackwell.
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Thompson, Arthur A. Jr., A.J. Strickland III, and John E. Gamble (2007), Crafting and Executing Strategy. 15th Edition Netflix versus Blockbuster versus Video−on−Demand 736 Case. McGraw-Hill Higher Education, New York.
The past decade has been characterized by an increment in demand for internet television and film entertainment. The demand has been enhanced by growth in internet technology. To stimulate economic growth most countries are investing in internet technology. Consequently, firms in the Information and Communication Technology industry are increasingly investing in research and development. This presents a unique opportunity for Netflix Incorporation to increase its profitability both locally and internationally. In 2012, total spending on television and film amongst the US population increased to $ 18 billion from $17.96 billion in 2011.
Netflix performance during the 4th quarter in 2012
During its 4th quarter in 2012, Netflix experienced significant growth in its customer base. The growth emanated from an increment in demand within its domestic and international streaming. Approximately 10 million customers were added to the firm’s global customer base during the 4th quarter. More than 2 million customers were added within the domestic market while international streaming accounted for 6 million additional members within the same quarter. As a result, the firm’s global membership increased to over 33 million individuals. One of the factors contributing to the firm’s growth is its investment in the international market.
The firm’s total loss during the 4th quarter of 2012 amounted to $ 105 million. The loss was a result of the high cost of launching that it experienced when venturing into the Nordic countries.
Netflix’s projection during 2013
Despite the loss incurred by Netflix’s projects that the demand in the Nordic countries reflects the prevailing market opportunity in the international market. The firm intends to lower its losses within the international market significantly by increasing international membership. During the 1st half of 2013, Netflix does not plan to venture into additional international markets. On the contrary, the firm intends to evaluate several potential markets that it can venture into in late 2013 or 2014.
The firm projects that the growth in content spending in the international market will contribute towards an increment in its sales revenue. To exploit the ever-growing demand for internet television, Netflix is committed to developing new products that satisfy market demand. In 2012, the firm introduced several major original series.
Challenges faced by the firm
Despite the firm’s success in its international and domestic markets, some challenges might limit its future success. One of these challenges relates to increment in the intensity of competition. Netflix is currently experiencing intense rivalry between local broadcasters and other distributors who offer TV Everywhere-type products. Because the firm deals with the provision of digital products, piracy presents a major challenge. Some of the firm’s major competitors include Clarovideo, Amazon Lovefilm, Sky Now, HBO Nordics, and Viaplay.
Recommendations
To deal with changes in the external business environment, Netflix needs to consider investing in research and development. Consequently, the firm will be required to allocate a substantial amount in its budget to ensure the programming of great content. Additionally, Netflix will also be required to improve its member streaming experience. This will contribute to the development of a high level of customer loyalty. The resultant effect is that the firm’s competitive advantage will increase significantly hence promoting its survival in an industry that is becoming very competitive.
