Category: Netflix

Introduction

Netflix is a leading international online movie and TV services provider. It is a USA based company, founded in 1997 with its headquarters in Los Gatos. Currently, the firm operates in America, Canada and Ireland. The firm’s core business activity involves providing internet based entertainment products, such as movies and TV programs, through various internet enabled devices.

Netflix’s entertainment products are accessed through monthly subscriptions. The company’s mission is to increase its “streaming subscription business domestically and globally”. In order to achieve this mission, Netflix began joining international markets in 2010. Currently, the firm plans to join the UK market with its two main products, streaming content and DVD-by-mail.

The rationale for the global strategy is based on the fact that the US online entertainment industry is mature and, thus, has little opportunities for growth. Additionally, the UK market is not fully exploited. Thus, joining it will enable the firm to increase its market share and revenues. Through internal and external environmental analysis, this paper seeks to identify the best entry mode for Netflix.

PESTEL Analysis

Political

Political factors refer to the government policies that affect the operation of businesses in a given country. The political stability in UK promotes investments since it lowers political risks such as wars that might affect businesses negatively. In order to promote rapid economic growth, the government of UK remains committed to open trade. The government aims at eliminating trade barriers so that foreign firms can invest in UK.

Additionally, the government intervenes in the economy by supporting UK-based firms in times of distress. For instance, the taxes charged on firms were reduced in 2010 to a single corporate tax in order to promote growth of local firms. Besides, bureaucracy has been reduced significantly, especially, in licensing new firms.

Economic

UK is the world sixth largest economy according to nominal GDP measures. It is also the world seventh largest economy according to purchasing power parity measures. UK is one of the few countries that have successfully recovered from the effects of the 2008/2009 financial crisis. In particular, UK recovered from recession in January 2010. In 2011, UK’s GDP grew by 0.8% and is expected to expand by 1.2% in 2012.

This means that UK’s business cycle is at the recovery stage. GDP per capita was estimated at $39,604 in 2011. Approximately, 60% of the population consists of median income earners. However, 14% of the population still leaves below the poverty line.

Inflation rate has since reduced from 4.2% in December 2011 to 3.6% in January 2012. In a bid to stimulate economic growth, the Bank of England reduced its interest rate to 0.5% in 2011. The economic recovery efforts have enabled the country to reduce unemployment rate from 11.9% in 2009 to 8.1% in 2011. Currently, UK’s labor force is estimated at 31.45 million, with an average salary of 2,749 Euros per month.

These statistics show that UK has a large market with a high purchasing power. Thus, demand for entertainment services is likely to be high (Backman, 2007, p. 97). Besides, the low interest rate is an opportunity for accessing cheap capital for expansion. Additionally, human capital is in high supply.

Social

Leisure time in UK is spent in activities such as sports, going for holidays and watching movies. Given the high purchasing power in UK, nearly every home has a TV, and a computer. Additionally, the penetration of mobile phones and other internet enabled devices continues to grow in UK (Elliot and Simmers, 2011, pp. 4461-4468). The movie-watching habits have also changed, with more citizens preferring movies on demand.

Since most citizens spend more time at work, they prefer to watch movies and TV programs over the internet at their workplaces. Consequently, demand for internet based movie and TV services continues to grow. For instance, in 2010 Google’s movie sites grew by 17% with over 2.5 billion movies watched per month. Movie quality and subscription fees are the main factors that determine expenditure on online entertainment.

Technology

As an industrialized country, UK leads in research and development (R&D) in Europe. The telecommunication industry leads in R&D with expenditure growing by 11% in the last five years. Research and development initiatives are promoted by the government through incentives such as direct funding, as well as, R&D tax credits. Technological transfer is also very high in UK.

Over the last five years, access to technology developed by UK universities has increased in terms of “invention disclosures, patents issued and licenses executed”. Additionally, the Technology Strategy Board (TSB) has established the Knowledge Transfer Network (KTN) to enhance innovation through sharing of knowledge.

Access to emerging technologies such as broadband and fiber optic internet connection continues to grow in UK. Thus, Netflix has the opportunity to access new technologies in order to develop and distribute new products at relatively low costs.

Environment

Environmental factors such as weather patterns impact leisure activities. The Eastern part of UK is characterized by a cool, dry but less windy weather. The Northern part is, however, wetter and cooler than other parts of the country.

Citizens are more likely to watch movies at home during the wet and cool weather. UK is also less susceptible to natural disasters such as earthquakes which can severely affect supply of internet based entertainment services.

Legal

The business environment in UK is based on an effective legal framework and judicial system. The competition law ensures that competitors do not engage in any anti-competition practices such as predatory pricing and cartels. The competition laws also oversee mergers, acquisitions and joint ventures to ensure success and mutual benefits for all parties.

The consumer laws are aimed at protecting consumer rights (Micheli and Manzoni, 2010, pp. 477-497). Thus, there is high regulation on streaming content. Access to internet and the TV industry, however, is liberalized. Effective copyright and intellectual laws help TV and movie industries to protect their products from piracy. However, high patent and license costs for movies may limit Netflix’s access to desired content.

Competitive Environment

The threat attributed to competitive rivalry is high in UK’s video entertainment market. The high competition is mainly attributed to the large number of movie entertainment providers, and the slow growth of the market. The low cost of joining the industry makes it attractive for new entrants. Hence, competition is likely to increase in future.

The suppliers of movies have a high bargaining power. There is a small number of movie producers compared to movie buyers. Besides, patents and copyright fees make it expensive to purchase movies. The buyers in the industry (TV and online entertainment companies) have a low bargaining power due to their large number (Kottler and Kelle, 2009, p. 89).

Additionally, license contracts between suppliers and buyers increase the switching costs of the later. The threat attributed to substitute products also increases competition in the industry. Demand for traditional TV services and theater based entertainment continues to rise. Finally, high competition is attributed to the fact that subscribers have low switching costs, and thus, can easily change from one provider to the other.

Currently, Netflix’s main competitors include MVPDs who provide free TV. BBC iPlayer is likely to be the main competitor in UK. In the internet movie segment, the leading competitors include Apple’s iTune, Google’s YouTube, as well as, Amazon.com’s Prime Video. Most of these competitors boast of longer operating history and high proprietary knowledge. Firms such as Google and Amazon already have larger customer bases.

The strong brand image associated with these firms makes it difficult to attract their customers (Gamble and Thompson, 2010, p.70). The lager firms such as Apple have great financial and marketing resources which they use to hold significant market shares. Additionally, the large firms can use their resources to obtain better business terms from supplies and invest in superior products.

SWOT Analysis

Strength

Netflix’s main strengths include the following. First, the firm has built a strong brand known for outstanding value. This has enabled the firm to ensure high levels of customer satisfaction. The satisfied customers have become advocates of Netflix’s products. Second, Netflix has a robust selection of content that reflects the subscribers’ preferences.

The right selection of movies or content has enabled Netflix to enhance customer loyalty. Third, Netflix’s large subscriber base has enabled it to achieve high operating efficiency. Finally, the firm has developed a “personalized and adaptive user interface that enables its customers to find their preferred movies”.

Weaknesses

Netflix has the following weaknesses. First, it is engaged in legal suites with its suppliers and employees. Legal suites facing the company over patent infringement continues to rise, thereby increasing operating expenses. Second, Netflix has a high debt-equity ratio.

Thus, most of its revenues go into payment of debts rather than investments. Third, the agreements governing Netflix’s debts restrict its operations. Such restrictions include, disposal of assets, borrowing funds, entering new markets and investing in unrelated businesses. Finally, Netflix’s move to rebrand its DVD-by-Mail product has resulted into significant lose of customers.

Opportunities

The opportunities available to Netflix include a stable political environment which encourages investment in UK. The large and wealthy population in UK represents a large market for Netflix’s products (Brandet and Rawski, 2008, p. 67).

The rising preference for online videos in UK is also an opportunity for Netflix to realize high sales. Ease of accessing technology in UK will enhance Netflix’s product development and distribution initiatives.

Threats

The main threat in the UK market is the intense competition associated with it. If Netflix is not able to compete effectively, it will not be able to penetrate the market (Dunning and Lundan, 2008, p. 89).

Market Entry Mode

Given the threats and opportunities identified in UK’s market, as well as, the strengths and weaknesses of Netflix, a joint venture will be the most suitable entry mode.

A joint venture refers to “an enterprise in which two or more investors share ownership and control over property rights and operation”. Thus, Netflix will enter the UK market by partnering with an already operating firm. A joint venture will benefit Netflix in the following ways.

First, a joint venture requires little investment or less financial resources as compared to foreign direct investment. Currently, Netflix has a weak financial position and, thus, can not afford to make significant investments on its own. Besides, the agreements governing Netflix’s debts restrict it from borrowing additional funds. Thus, a joint venture will enable the firm to benefit from the financial resources of its partner.

Second, a joint venture promotes quick market penetration (Kyle and Nyland, 2011, pp. 143-154). Given the intense competition in the UK market, it will not be easy for Netflix to penetrate the market on its own. A joint venture, however, will enable Netflix to have immediate access to a large customer base.

Besides, it will benefit from proprietary knowledge and market information held by its partner (Brooks, Weatherston and Wilkinson, 2004, p. 78). This will enable Netflix to increase its market share in UK over a relatively short period of time (Bryson, 2004, p. 88).

Third, unlike licensing and franchise, a joint venture will enable Netflix to have greater control over its operations and products in UK (Dess, 2010, p. 67). Control over activities such as marketing is needed in UK in order to overcome competition.

Fourth, a joint venture will enable Netflix to share risks with its partner. This will help investors to avoid losing significant capital in the event of an unforeseeable risk. Finally, a joint venture will enable Netflix and its partner to achieve financial strength (Sitkin and Bowen, 2010, p. 65). By pooling resources, the venture partners will be able to effectively finance their expansion and product development initiatives.

Risks Associated with a Joint Venture

First, a joint venture brings together two firms. Consequently, there are high chances of cultural clashes (Adekola and Sergi, 2007, p. 90). This is attributed to the fact that Netflix and its partner might have different organizational cultures. Second, joint ventures, some times, exist for a limited period of time.

In such cases, a legal tussle might arise if the agreement between the venture partners does not clearly specify when and how to terminate the venture. Third, a joint venture can lead to performance ambiguity. The partners might disagree on the strategy to follow, the markets to join and how to share profits. Such disagreements can adversely affect the performance of Netflix.

Fourth, each partner in the venture agreement will have limited control over the business. Thus, Netflix might not have the authority to implement some decisions which it considers beneficial for its growth and profitability. Finally, “mistrust over proprietary knowledge” may limit the two firms’ ability to share knowledge and technology.

How to avoid the Risks

Netflix and its partner must set common objectives for the venture. Besides, the objectives must be clearly communicated to both parties, especially, the management team. This will help in avoiding disagreements concerning strategy, investment and expansion plans. The terms and conditions of the venture must be negotiated before commencement of operations.

The negotiations will define the rules for sharing the benefits, the responsibilities of each partner and how to terminate the venture. A conflict resolution party can be appointed to facilitate non-partisan settlement of disputes. Such a party can be the industry regulator.

Finally, Netflix should consider partnering with a firm whose organizational culture is comparable to its own. Additionally, the two firms should make a commitment to build a common organizational culture in order to promote cooperation and integration.

Conclusion

Netflix is a leading US based online entertainment service provider. The firm is, currently, considering joining the UK market with its internet based movie and TV products. This move is meant to help the firm achieve its strategic goal of increasing its market share and profitability.

The opportunities in UK include a large market size, a rising preference for online videos, ease of access to new technology and a stable political environment. The intense competition in UK is the main threat facing Netflix. Netflix’s main strengths include a strong brand identity and a large customer base.

A weak financial position characterized with a high debt-equity ratio is the firm’s main weakness. Given these conditions, a joint venture would be the best strategy for joining the UK market.

References

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Introduction

Netflix, Inc. (Netflix) is an American company whose area of specialization includes providing on-demand film, video, and TV shows streaming, as well as renting DVDs and Blue-Ray discs per mail. The video service was created by Marc Randolph and the current CEO Reed Hastings back in 1997. A year later the company’s website was launched, and soon the traditional video rental system was exchanged for the subscription model.

Another typical feature of the service is the highly detailed system of genre division of the content that facilitates the recommendation for the users based on their personal ratings. Apart from providing film content, in the recent decade Netflix, Inc. signed contracts with some major TV networks to show their original TV shows at the Netflix website. The company also started to produce their own original content, including film, video and TV series of different genres.

The objective of this report is to evaluate the Netflix, Inc. from the perspective of its business strategies, presence in the general marketplace, and financial standings. In order to analyze the specifics of the business strategies, we are to evaluate the expanded business model that includes the policy of advertisement-free content, flat-rate mailing service, and the system of genres based on the algorithm of customer recommendations. The evaluation of the product presence in the general marketplace is to include discussing the topics of the market of on-demand entertainment and the company’s global presence. Finally, the financial standings of the Netflix, Inc. are to be assessed on the basis of the company’s profitability and operating margin.

Business strategies

The development of the business model

Today Netflix operates on the classical business model due to the fact that Netflix users are directly provided with the service they pay for without any third parties. It facilitates the process of subscribing and gives users amount of mobility and opportunity to stop or renew their subscription to the service.

The company started with the flat rate model of renting and mailing DVDs and Blue-Ray discs. Such approach to the rental service presupposes that the users only pay for the subscription in this case as well, and they do not have any due date for the discs return. Such policies guaranteed Netflix a certain advantage comparing to the other video rental companies. However, there were doubts, whether they would be able to preserve that advantage when they decided to establish the online video streaming website with the similar policy and the same content.

Despite, the skepticism, the video streaming service proved itself to be an even bigger success. Given the facilitated access and subscription process, there are now 40 millions of subscribers for the entertainment content. In order, to appeal to the wider audience, Netflix, Inc. constantly establishes new partnerships with different television networks in the US and worldwide. Among the networks that signed licensing contracts with Netflix between 2010 and 2016, there are British BBC, CBS Corporation, NBC, AMC, Disney’s ABC and many other smaller networks (“Netflix: Financial Statements Charts” par.1).

Thus, the content that Netflix provides to customers consists of the materials from American and worldwide television studios, cable and broadcast networks and of the database of films that the company managed to obtain during its early years as the video rental service. Apart from that, Netflix in the last years invests in the production of original content based on the preferences of the subscribers and rating. The on-demand nature of the service guarantees both more freedom for the filmmakers and wider range of choice for the users.

Policy of advertisement-free content

The variety of content provided by Netflix is their main appeal to the audience. However, another significant aspect is that the service has positioned itself as advertisement-free. Therefore, the main source of the company’s revenues is the subscription fee. The main strength of such business model is the control both for the managers and for the customers. The customer appeal is that users feel less committed since they can cancel the subscription anytime or oppositely set up the system to renew it automatically. Meanwhile, the subscription model is easier to manage because it can be operated online, and provides an opportunity to respond immediately to the users’ actions.

However, the potential weakness lies in the financial side of the strategy. The advertisement is the most certain way to guarantee the financial flow, whereas in the Netflix’s model, in order to grow, the company needs to engage new subscribers. Netflix’s policy stays firm on the issue of advertisement-free content; that is why to increase the willingness of the users to renew their subscriptions and appeal to new users, the company created an advanced algorithm of content recommendation.

Customized genres

The genres Netflix offers on its website are very specific and detailed. In fact, the Netflix algorithm created over 76,000 customized genres. This strategy is a combination of customer-based approach (since there is an account for the analysis of the customers’ preferences) and databased approach. In order to create all the micro-genres, every piece of content in the Netflix database was analyzed and tagged. Given the fact that amount of both TV shows and films produced is constantly increasing, this knowledge gives the company an advantage in creating their original content and in satisfying the customers’ demand for some specific category.

Product presence in the general marketplace

The market of on-demand entertainment

The major appeal of the Internet streaming services is, of course, the fact that the content can be accessed on demand. The company keeps on improving the platforms on which the website operates in order to keep it accessible from all devices, and at the same time, to refine the algorithms for genres and recommendations. Nevertheless, it leaves the door open for other companies to use Netflix’s experience for creating their own platforms.

On the other hand, it is convenient to manage the service online as well. These two factors create an environment for the highly competitive market. The first aspect of the competition is the sphere of on-demand video streaming itself; however, the second characteristic of Netflix’s competitors is that the majority of them is US-based as well. Thus, with the database as large as Netflix possesses the advantages of winning the audience over the other services, including Amazon.com, Inc., and cable and subscription-based channels like HBO and Showtime. However, it has to be achieved due to, first of all, producing original content based on customers’ preferences, and secondly, improving the international presence of the company.

Global presence: counterargument

The counterargument is that some of the Netflix’s competitors, at the moment, are geographically more widespread than Netflix itself. The reason for that is that companies, such as Amazon.com, Inc, started as the retailers. Therefore, they have a bigger operational capacity and geographical diversification. Video streaming services are the secondary source of their revenues. However, the international presence is the major option of how to increase the company’s profits. For now, the service is available almost worldwide, excluding the mainland of China, North Korea, and the zones of international conflicts. Also, Netflix’s database should permit to access the more geographically accurate picture of the users’ preferences.

Financial standings

Profitability

Netflix’s gross profit at the end of 2015 was $2,188,035, comparing with the number of $957,224 at the end of 2012 (“NTFL Company Financials” par.1). Its main market rival Amazon.com, Inc. finished 2015 with the gross profit of $35,355,000 (“AMZN Company Financials” par.1). Table 1 shows the profitability of Netflix compared to its main competitor.

Table 1 Compared gross profit of Netflix and Amazon.com, Inc.

Thus, according to the table, the data suggest that the main competitors of Netflix in the industry of video streaming are much larger companies that proved its place on the international market through the retail services. However, another consideration should concern the fact that retail companies on a par with Amazon.com, Inc, develop their streaming services as the secondary resources of revenue, often inspired by the Netflix’s success. Meanwhile, Netflix’s own increase in the gross profits can only be attributed to the revenues from the video streaming, DVDs, and Blue-Ray discs rental services.

Financial performance

The revenue reported by the company was $6,779,511 during the 2015 fiscal year. In comparison to the $3,609,282 revenue in 2012, the number almost doubled. The operating income was $305,826 at the end of 2015, which is 61% more than $49,992 revenue reported in 2012 (“NTFL Company Financials” par.1).

The data suggest the significant increase in operating income between 2012 and 2015, which can be attributed to the Netflix engagement in producing their own content. However, the indicators of reported revenues show the slower pace of growth, especially when compared to Netflix’s industry competitors.

The current liquidity ratio increased from 134% in 2012 to 154% at the end of 2015. The 20%-increase suggests a stable development. The net income reported in 2012 was $17,152, whereas, at the end of the previous fiscal year, it increased to $122,641. However, there is no evidence suggesting that Netflix, Inc pays any cash dividends to the shareholders, which may be an obstacle for potential investment (“NTFL Company Financials” par.3).

Conclusion

As the result of the evaluation of the business strategies, product presence in the general marketplace, and financial standings of Netflix, Inc, the company may be considered for the investment. The business strategies used by the company, which include flat-rate rental service, advertisement-free content and customized genres, were proved to be one of its strength. One of the company’s weaknesses is the disadvantage in the global presence in comparison to the Netflix’s competitors. However, the possible solution to that can be drawn from using algorithms of micro-genres for developing the new original content based on the geographically accurate preferences of the subscribers.

From the perspective of financial standings, the company was proved to have financial viability, and growth in terms of the revenues, gross profit and net income over the last three fiscal years. However, the potential weakness of investing into Netflix is that the company has a policy of not paying cash dividends to the shareholders. Therefore, the potential investment in Netflix should be considered as obtaining an asset in a growing video streaming industry rather than a solid profit source.

Works Cited

AMZN Company Financials 2016. Web.

Netflix: Financial Statements Charts 2016. Web.

NTFL Company Financials 2016. Web.

Background

Netflix is a United States’ based company that provides internet streaming media to a wide range of customers in over 40 countries across the world. The company provides on-demand internet television programs to its customers. The company was established out of the increase in the digitalization of technology and the press towards quality broadcast of television.

The company has majored in the delivery of original television shows and movies to its customers. Internet-enabled television enables the customers of the company to be in total control of the services that they receive depending on the package that they have subscribed to (Netflix, 2013).

The company has operated for 13 years. The headquarters of the company are in California where the company first staged its business. It took the company two years to begin the digital distribution of television and movies based on the subscription packages that had been established. The two years were used by Netflix to strategize and develop a firm operational ground on which its services are founded.

The company has grown through the gradual expansion of its products and services in different countries. The customer base of the company had grown to approximately 30 million subscribers as at the end of 2012, with the total revenue of the company expanding to 945 million dollars. The company has also managed to expand its market to forty countries (Netflix, 2013).

Marketing Mix

Netflix has greatly enhanced the way in which people watch movies and television shows. The company developed its product and services range through the demand for revolutionizing entertainment through the use of information and communication technology.

The other critical thing that has helped Netflix is its ability to stream original series of television programs and movies, thereby attracting a wide range of customers. The company has kept tailoring its products to an extent that its services can now be received on portable technology products like the iPhones and iPads. This is part of widening the market and taking full advantage of the diversity of digital technology to enhance business.

The company has been expanding its operations in different countries. The United States still forms part of the most productive markets for the company because of the advanced capacity of technology availability and adoption in the US.

However, the pace at which technology is adopted in other countries, patterned with the increasing demand for the products are the main enabling factors in the successful thriving of the company in the forty countries in which it has managed to stage its operations (Netflix, 2013).

Pricing is one of the main differentiating factors for the products that are offered by the company. It should be noted that the company uses low pricing as a factor for market entry. The company offers a wide range of services for its customers for a single low priced subscription that is done once per month by the customers (Netflix Website, 2013).

The company also caters for the income abilities of customers by availing contents at different prices. This is a marketing strategy that is deployed by most firms in the information technology industry (Kannan, 2013).

Netflix promotes its products through teaming with a number of well established companies that deal in the production and distribution of technology products. These companies include Samsung and Apple (Bedigian, 2013).

The main reason for utilizing such companies is that they are known in the market and their products are used as a platform on which Netflix’s products can be purchased and consumed. This backs the fact that Netflix’s products can be consumed with a wide range of digital technology products (Netflix, 2013).

References

Bedigian, L. (2013). Apple and Netflix team up for unofficial product placement. Forbes. Web.

Kannan, P. K. (2013). Designing and pricing digital content products and services: a research review. Review of Marketing Research, 10, 97-114.

Netflix Website (2013). Netflix revolutionizes the way people watch TV shows and movies. Web.

Netflix. (2013). Company timeline. Web.

Interest Expense

The interest rate is given by $50,000,000 X 0.05, which gives 2,500,000 per year. Every month, the interest rate is 2,500,000/12, which is $208,333.33. For the balance sheet, the loan will be entered as long-term debt and filled annually, increasing the value of the long-term and total liabilities. In the income statement, the loan will increase the value of the interest expense every year by an amount equal to $208,333.

Recommendation for Loan Approval

Having gone through the annual reports provided by Netflix over a period of 7 years (2012-2019), it is possible to decide on whether to approve the loan they are requesting of $50,000,000 over a period of 30% at an interest rate of 8%. It has been established that Netflix has made profits, which continue to grow from one fiscal year to the next. Secondly, the company’s liabilities jumped from $5.6 million in 2012 to about $7.6 million in 2019, as it experienced positive growth of 8% per annum.

However, the most significant percentage of the liabilities are long-term, meaning that the company has other loans it is still servicing. It should be noted that the company does not have different long-term liabilities, which means it can meet its obligations to pay its debts every fiscal year (Gitman et al., 2018). The company’s total assets exceed the total liabilities throughout the seven years, implying that its liquidity is credible and has good financial health. It was found that the company would be paying $208,333 monthly or $2.5 million per year. Judging by the company’s liquidity, it is evident that Netflix is positioned to meet this amount. The company’s profitability also supports its ability to meet the interest rate and loan obligations.

For the bank, the loan is worth it because it will fetch about $2.5 million every year in addition to the amount that the company will be paying back. At the end of the 30 years, the bank will have made a profit of $75 million in interest on the loan. This amount is worth and will improve the bank’s earnings yearly for the next 3 decades.

Advice About the Line of Credit (LOC) Request

The line of credit that Netflix requests imply that the company will have the ability to borrow credit from the bank as long as continuously as the limit is not reached. As it continues to repay the loan, it can borrow again when the bank accepts an open LOC. If the bank decides to consider a closed LOC, the company will borrow once it has repaid the previous interest and amount due, which means it cannot borrow money on top of the previous debt (Gitman et al., 2018). To decide on the amount and type of LOC the bank needs to consider for the case of Netflix, it is essential to look at several factors.

First, the company’s profitability is high, as provided in the balance sheet. It has been making profits for the last 7 years, growing from one trading period to the other. Secondly, the company’s net worth is acceptable, as shown by the income statement. In this case, the value of both short-term and long-term assets exceeds the value of short-term and long-term liabilities. At any trading period, the company can quickly convert its assets into cash that can be used to offset its debts (Gitman et al., 2018). Furthermore, Netflix does not have deferred loans and liabilities, and it meets its obligations using the amount earned from its business.

After considering these factors, the best decision would be to grant Netflix an open LOC with a limit of $1 million per year with an interest rate of 6% per annum. This is based on the view that the company makes more than five times this amount in profits. Thus, the assumption is that the company can easily reach this value and pay it back using its earnings from business rather than using its assets to meet its obligations.

Reference

Gitman, L., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. (2018). Introduction to business. OpenStax publishers.

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 company’s 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 company’s 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 company’s 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 company’s 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 company’s 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 company’s 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 company’s 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 world’s 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 people’s 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 manager’s 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 Can’t 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 Netflix’s services. This case study will analyze Netflix’s 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 author’s 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 company’s fast growth may be outpacing the capabilities of the Internet, and some people cannot use its services to their full capacity.

Netflix and Innovation

Netflix’s 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.

Netflix’s 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

Porter’s 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

Netflix’s 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. Here’s 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.

This document is a strategic analysis of Netflix, a digital-based entertainment company, using Porter’s five-force analysis, which highlights the threat of new entrants, buyers’ bargaining power, the threat of substitute products, and suppliers’ bargaining power, as the industry-specific main factors affecting the company’s operations (Perera, 2020). Key sections of this report will explain how the aforementioned forces influence the company’s performance and improve its overall positioning by adopting a set of key recommendations highlighting the need to align the company’s internal processes with relevant market needs.

Strategy Framework Analysis

Using Porter’s five-force framework, table 1 below highlights industry-specific factors that affect Netflix’s operations.

Table 1. Porter’s Five Force Analysis (Source: Developed by Author).

Recommendations

Based on the multiplicity of factors affecting Netflix’s operations in the entertainment and media industry, its managers must allow employees to make independent decisions that would better adapt to the market environment. This recommendation is in line with the views of Park and Park (2019), which encourage companies to adapt to their environments by allowing employees to acclimatize to their workplace dynamics freely. This strategy should be supported by the adoption of open and transparent communication between employees and their bosses.

Netflix should also streamline its human resource practices to maintain an effective workforce that could better adapt to changing market conditions. This strategy will minimize the possibility that employees avoid responsibility for failing to adapt to the market forces outlined above and instead take responsivity for their actions. Adopting this strategy will ensure that Netflix’s management only maintains a reliable workforce.

Lastly, Netflix should avoid using conventional rules to react to environmental stimuli because the organization needs to be versatile when responding to market forces. This plan will allow the organization to be both strategic and operational. Although Park and Park (2019) point out the difficulty in achieving such a high level of adaptability to external environmental stimuli, Netflix could be both forceful and enabling in the manner it manages the effects of industry changes on its operations if it discards old rules and adopts new ones that are more adaptable to change. These recommendations are designed to address the threat of new substitutes and competitive rivalry in the industry, which is the most impactful forces in the industry based on Porter’s theory.

Limitations of Theory

Porter’s five-force theory has helped many companies to gain valuable information that would help them to better adapt to prevailing market conditions. This view is consistent with studies that have investigated how companies should innovate to stay relevant in a fast-paced market environment (YuSheng and Ibrahim, 2020; de Vries, Tummers and Bekkers, 2018; Bock et al., 2015). These benefits are transferable to the data collection process undertaken in this report because it confers the same advantages to Netflix’s case. However, Porter’s five-force model is limited in terms of scope because it only takes into account conditions that exist in a perfect market structure. Stated differently, the theory assumes that the media and entertainment industry is relatively static, which is not the case. Therefore, there is a need to undertake a broader and more consultative review of industry forces affecting the firm to get a more detailed understanding of factors that affect performance.

How Does Theory Impact Recommendations?

Porter’s five-force analysis theory could affect how Netflix adopts the above-mentioned recommendations by streamlining the company’s internal operational strategies with prevailing market needs and requirements. Therefore, the firm would realize improved synergy levels between its operational plans and overall corporate strategy. The link between the theory and recommendations highlighted in this report is an indicator of how successful Netflix would be in selling its products to potential customers in the future. It is feasible to implement the recommendations outlined in this document because they require internal management approval as opposed to external authorization from third parties. Therefore, the company’s management could easily ratify some of these proposals within a short time and implement them effectively.

Most of the recommendations highlighted in this document touch on the need to streamline people’s processes with industry dynamics. This statement is consistent with the views of Botha et al. (2017), Barton, Berger-Walliser, and Haapio (2016), which mention people as the key driver of successful strategic implementation processes in an organization. Already, technology plays a key role in driving change at Netflix based on its ability to expand access to entertainment content across different audiences around the world. The recommendations highlighted in this report complement this ongoing change because they update the company’s internal procedures with market opportunities that exist in the business environment.

One of the major barriers to implementing the aforementioned recommendations in the organization is the lack of employee buy-in. Consequently, employees need to be consulted at every stage of decision-making to account for their input in the implementation process (Iddagoda and Opatha, 2020; Ugargol and Patrick, 2018; Littlewood and Holt, 2018). In the end, Netflix would benefit from a high level of employee buy-in during the change implementation process. In this regard, there would be a low risk of opposition from members of staff regarding the adoption of the above changes.

Summary

In this strategic analysis, porter’s five-force model has been used as a useful tool for corporate analysis. It has helped to streamline Netflix’s internal organizational processes with market needs and requirements by highlighting the main factors that the company should focus on. The recommendations outlined in this document point to the need to embrace change by dismantling old ways of thinking that are inconsistent with current market developments. To this end, Netflix will be better adapted to the industry if it sticks to continuous innovation through the adoption of progressive corporate policies that align technological changes that continue to shape the media and entertainment industry with the company’s internal processes.

Reference List

Barton, T. D., Berger-Walliser, G. and Haapio, H. (2016) ‘Contracting for innovation and innovating contracts: an overview and introduction to the special issue’, Journal of Strategic Contracting and Negotiation, 2(2), pp. 3-9.

Bock, A. J. et al. (2015) ‘Innovation and leadership: when does CMO leadership improve performance from innovation?’, SAGE Open, 7(2), pp. 1-10.

Botha, N. et al. (2017) ‘Using a co-innovation approach to support innovation and learning: cross-cutting observations from different settings and emergent issues’, Outlook on Agriculture, 46(2), pp. 87-91.

de Vries, H., Tummers, L. and Bekkers, V. (2018) ‘A stakeholder perspective on public sector innovation: why position matters’, International Review of Administrative Sciences, 84(2), pp. 269-287.

Green, S. (2017) Netflix. London: Bellwether Media.

Iddagoda, Y. A. and Opatha, H. (2020) ‘Relationships and mediating effects of employee engagement: an empirical study of managerial employees of Sri Lankan listed companies’, SAGE Open, 4(1), pp. 1-10.

Littlewood, D. and Holt, D. (2018) ‘Social entrepreneurship in South Africa: exploring the influence of environment’, Business and Society, 57(3), pp. 525-561.

Park, S. and Park, S. (2019) ‘Employee adaptive performance and its antecedents: review and synthesis’, Human Resource Development Review, 18(3), pp. 294-324.

Perera, R. (2020) Understanding Porter’s five forces analysis. London: Nerdynaut.

Ugargol, J. D. and Patrick, H. A. (2018) ‘The relationship of workplace flexibility to employee engagement among information technology employees in India’, South Asian Journal of Human Resources Management, 5(1), pp. 40-55.

YuSheng, K. and Ibrahim, M. (2020) ‘Innovation capabilities, innovation types, and firm performance: evidence from the banking sector of Ghana’, SAGE Open, 5(2), pp. 1-10.

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 essay’s 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 company’s standards and expectations, and it occurred mainly because of the pandemic restrictions. Additionally, the organization’s 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 Netflix’s growth.

There were several additional factors that contributed to Netflix’s 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 Netflix’s 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 people’s 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 essay’s position is the positive impact of watching Netflix on people’s 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 people’s 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 people’s 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 people’s 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: Netflix’s 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 Netflix’s Massive Growth Continues During the Coronavirus Pandemic.” Forbes, Web.

Although Netflix is still the leading online movie DVD rental firm, it faces numerous challenges, both internal and external. Internally, the firm has to deal with high operational costs, customer relationship issues and high costs of revenue sharing agreements, among others (Reidenbach and Goeke 111).

Externally, the firm’s most critical challenge is the emergence of numerous competitors offering cheap, convenient and fast services. The competitors also offer a wide range of services that threaten to reduce the market share that Netflix currently controls. The recommendations provided in the case will certainly play a critical role in ensuring that Netflix retains its leading position in the online movie DVD rental industry.

One of the recommendations for Netflix is to invest in contract negotiators. Although Netflix has exclusive rights of many TV shows, the costs associated with the newly released movies and TV shows are quite high, making it a double-edged sword. Therefore, investing in contract negotiators is an appropriate move that would enable the firm to leverage the high costs associated with the special revenue sharing agreements.

The contract negotiators would certainly help in ensuring that the firm secures contracts at the lowest costs possible, thus translating into significant savings for the firm (Reading 327). Such costs are justifiable because the availabilities of such newly released items would help to increase customer satisfaction and market share.

Making significant investments in research and development is an indispensable move that would help to fight competition, particularly from Redbox, which offers its customers cheaper, convenient, and express services (Reading 13). Netflix has to invest in new technology that promises new and innovative customer viewing experiences to remain competitive.

Other companies in the market are offering new forms of viewing through televisions and the internet, which means that Netflix should be at the forefront in ensuring that it makes noteworthy advancements that would offer its customers superior services that guarantee customer satisfaction.

This move is critical because it will guarantee its customers a wide range of movie services at affordable costs. At the same time, Netflix must improve its customer service to ensure that it does not lose any of its customers to its competitors.

The move to minimize the use of the distribution centers is highly feasible because it would help to reduce operational costs for the firm. A movie that returns to the headquarters does not generate revenue through rentals; instead, it becomes a liability because it requires administrative and warehousing costs.

Therefore, offering customers sufficient incentives to ship DVD’s directly to other customers would not only help to reduce costs for the firm, but would also help in increasing revenues. Attractive discount rates and credits would motivate customers to rent more movies, as well as ensure safe deliveries (Reading 10).

Although Netflix would have to assume the liability involved during shipping, the returns expected would exceed the costs involved, thus translating in increased profitability for the firm. Most significantly, this move is likely to increase customer satisfaction rates.

In addition, the move by Netflix to use the services of US Postal Service (USPS) would facilitate accurate, punctual and proper deliveries, thus helping to promote customer satisfaction. With the increase in competition in the movie rental industry, only companies that offer superior services are bound to remain competitive.

This move might be helpful in reducing overall distribution costs for the firm because these costs account for a significant proportion of expenses for Netflix. Use of third party distribution services would help to reduce the turnaround time appreciably, thus increasing revenues and enhancing competitiveness (Reading 87).

Works Cited

Reading, Clive. Strategic Business Planning: A Dynamic System for Improving Performance & Competitive Advantage. Sterling: Kogan Page Publishers, 2004. Print.

Reidenbach, R. Eric, and Goeke, Reginald W. Strategic Six Sigma for Champions: Keys to Sustainable Competitive Advantage. Wisconsin: ASQ Quality Press, 2006. Print.

Introduction

Business competition is a conditional outlier that prominently impacts the quality and quantity along the margin of growth and development. Netflix is one of the companies that profoundly incorporates strategies to enhance the global market acquisition (Türkmen, 2020). Over the decades, technological advancement steered the paradigm shift on the segmentation of the international market attributing to an emergence of a niche. Transcendentally, Netflix structures its competitive advantage based on the contributory effect on understanding the niche consumer needs (Steck et al., 2021). It is the core responsibility of managerial teams to incorporate frameworks that optimally render significant performance on product and service delivery system. Corporate strategy and differentiation approaches proficiently influence the structural component on Netflix’s marginal capacity to attain a larger market share.

Netflix Strategy Process

Netflix follows a profoundly functional mainframe on enhancing its strategy process encompassing product differentiation and cost leadership. According to Rothaermel (2021), one of the critical components in strategic management entails customizing products and services for ultimate customer satisfaction. The paradigm shifts on the informational flow of products and services among consumers fostered a dynamic context on behavioral code. In this case, clients irreproachably exploit the attained knowledge during purchase decision-making. Reed Hastings, Netflix CEO indicates the motivational outlier for the foundation of the company engulfed solving an imminent problem on consumer behavioral quotient within the entertainment industry (Steck et al., 2021). He recalls paying an expensive penalty for losing a DVD borrowed from a library. As a result, Hasting focused on developing a differentiating factor to intensify the competent baseline on consumption rate. Ideally, the foundational pillar of Netflix’s competitive advantage is the advancement of product and service differentiation initiative.

Apart from incorporating product uniqueness, Hasting motivation further encapsulated fostering a diversified portfolio on pricing gumption. Cost leadership encapsulates the strategic exploitation of productivity methods enhancing the marketability of the competent service delivery (Rothaermel, 2021). Research indicates that Netflix’s competence lies in the ability to satisfy consumer needs at an affordable quotation (Dizon, 2018). An integration of product differentiation and cost leadership attributes to an elevated strategic marketing and competent consumer service experience (Rothaermel, 2021). As a result, individuals access the Netflix platform at an exchange of a friendly subscription fee to watch the variant programs for entertainment. In 2017, the Netflix CEO received a medal for the best drama series in the Golden Global awards (Dizon, 2018). It is an initiative that further demonstrates the apt success rate based on the intersection of product differentiation and cost leadership quotient across the niche online global market.

Netflix’s fast growth poses a proficient challenge towards incorporating distinctive perspectives on marketability and competitiveness. According to scholars, one of the key Netflix’s outliers involves maximizing on the online platforms (Türkmen, 2020). Therefore, the business strategy aligns with the comprehension of consumer needs among the online clients. Technological advancement steered the elevation of informational exchange contributing to emergence of a global village. Despite the establishment of a niche for the corporates, the vital onus lies in the retention of inventive environment for the subsistence of enterprise model. Essentially, Netflix faces a profound contention regarding the core perspectives to exploit on improving customer satisfaction and loyalty along the consumptive spectrum.

Netflix Innovation Strategy

Competitiveness in a corporate world entails the advocacy for multidimensional mainframe on productivity and marketability. Netflix’s business model prominently disrupted the U.S entertainment industry on account of enhancing the digitization of the production and marketing process. One of Netflix’s business objectives enshrines incorporating initiatives steering higher international market penetration, mainly technological resources (Rothaermel, 2021). The initiative proficiently influenced customer satisfaction based on the clients’ easier accessibility of the products and services across the online dimensions (Porter, 1996). Apart from tapping the niche market segment, Netflix further exploited innovative framework on the marketability of the service delivery quotient. The company customized the thematic constructs of the movies and series based on the consumer need while eradicating the monopolistic control on product informational flow.

Conventionally, such Netflix competitors as Hollywood, CBS, and NBC encounter an abstruse strife due to the cognizant innovation scale. Netflix’s foundation engulfed the development of a platform that complements the role of a video library. In this case, Hasting incorporated an algorithm that enhanced the company’s invention on improving customer satisfaction (Türkmen, 2020). The main objective involved ensuring the client accesses appropriate video based on the current moods to elevate the moods. Ideally, the business model formed around the conceptual mainframe of consumers’ feelings against the competitor’s essence of transactional quality experience.

The Netflix model changed over time with based on the articulate engagement of distinctive stakeholders. Essentially, the company’s innovation strategy evolved towards the incorporation of programs within the online platform while the managerial team coordinated with the internet service providers to better streaming experience. The innovation encapsulated ensuring ultimate customer service experience along the margin of customized products and services (Porter et al., 2018). Further, the corporate’s foundation advanced into production and casting television shows, series, and movies. The initiation boosted the market acquisition rate as a competitive advantage due to the integral attention to the customers’ necessities on entertainment spectrum.

The incorporation of technology resources is an ideology that significantly poses a challenge to businesses on account of the acquisition. Due to globalization, companies incorporate technology in different forms to achieve superiority in the market. It is a phenomenon that renders the increase in business competition across the market scope. However, the core issue that abides by the proper selection of technology resources entails incompatibility with the enterprise model. Poor selection of technology resources poses a great challenge in fostering the superiority of the products and services. Therefore, it is paramount to select the right technology to achieve certain business objectives (Buckingham et al., 2020). In this case, the right choice of technology influences the effectiveness in the process of product development. The integration of technological advancements with the corporate project of product development renders the emergence of a superior commodity for the market.

One of the significant technological advancements encompass the advent of artificial intelligence in computer systems that foster the efficient delivery of services. An algorithm refers to an entity embedded in various enterprise platforms. An excellent example of a company that utilizes artificial intelligence is Netflix. The algorithm learns the browsing habit of the client in the portal such as shopping spree. Once the algorithm gathers the basic client information, it establishes a behavioral pattern and predicts the interesting products and services for the client during browsing (Mansyur & Aprianingsih, 2022). The utility of the algorithm embedded in the artificial intelligence renders the ability to automate systems in optimizing the customer’s experience. The incorporation of the artificial intelligence automates the production process hence increasing the amount of input and output at a cost friendly phenomenon.

Netflix Core Competencies

Netflix business model features distinctive competencies influencing the niche market acquisition rate. The company’s fortes enshrine cost leadership, differentiation, and effective marketing initiative. Research notes that Netflix remarkably focuses on improving the service experience level among consumers through the incorporation of customization features (Arauna & Wibowo, 2022). Fundamentally, the major insight lies in the ability of identifying the clients’ needs and maximizing on the personalization of the delivery system. During the onset, the company’s objective encompassed offering a solution to the monopolistic control of the video libraries on consumptive pattern across the populace. Therefore, Hasting developed the online platform that further advanced in the entertainment industry to ensure an adept competitive outlier.

The core competencies significantly contribute in the sustenance of Netflix competitive advantage based on the essential construct of promoting customer satisfaction and loyalty. The diversification of commodities within the Netflix platform and modification of outputs fostered intensified niche market acquisition. One of the vital strategies to hone the competitive advantages entails elevating the exploitation of technological resources for business practice (Buckingham et al., 2020). It is crucial to establish an integral plan on factorial modifiers to project the outcome from the instituted innovation framework.

Netflix Maturity Gradient in the U.S

Netflix optimally commands a significant percentage of the American consumers due to the customization features of entertainment library. Primarily, researchers agree that the core foundational aspect of enhancing the market performance in the U.S regards optimizing the streaming services (Arauna & Wibowo, 2022). Therefore, intensifying the convenience of the products and service is a necessity in the promotion of Netflix. Additionally, researchers indicate that it is crucial to amplify the marketing and promotional techniques (Arauna & Wibowo, 2022). The implementational perspective encapsulating effective advertisement of Netflix features prominent awareness among the American citizens concerning the profitability quotient from Netflix as a medium of entertainment.

The popularity index of Netflix forms a strategic opportunity for different stakeholders to intersect initiatives elevating Americans’ productivity. One of the constituent prospects enshrines the introduction of educational programs within the online platform. The concept attributes to the fluency in the value exchange quotient mainly across the learning community in the U.S while reconstructing the Netflix future multidimensional functions. In a different spectrum, another gateway strategy engulfs the incorporation of e-sports. Researchers stipulate the e-gaming is an emergent niche in the online market that is profitable and entertaining (Arauna & Wibowo, 2022). Therefore, the strategic embodiment of the element within the Netflix business model boosts the acquisition rate of the online niche entity while intensifying the profitability scale internationally.

Netflix International Market Penetration

Different factors influence the performance of an organization in an environment that includes external and internal entities. External relationship building is essential among employees since it enhances the optimal customer service experience. During the evolution of consumer behavior, the majority of clients realized the importance of aligning their loyalties with certain companies (Purwaningrum & Hamsal, 2022). It is a perspective that enhances consistency in assessing worthiness despite price variations. Therefore, an organization’s external relationship as an inclusive entity involves promoting the participation of suppliers, government, and relevant stakeholders.

Strategic management is a necessity in the development of competitive advantages for an international company. Rothaermel (2021) argues that Netflix poses a significant potent on international market expansion and acquisition. The core foundational outlier for the initiative underlies the exploitation of exponential globalization. Transcendentally, Netflix’s business opportunity aligns with the spread of technological utilize globally and the advancements (Cozzolino et al., 2018). In this case, it is crucial Netflix focuses on countries with higher similarity index on geographic and cultural quotients. Excellent examples of the nations include Canada, Latin America and the Caribbean due to the geographical proximity and relativity on cultural ideologies. Canada is a strategic international location due to the high speed internet connectivity and adjacency to the U.S. Further, Latin America and the Caribbean’s nearness to the U.S. affirms as a strategic entity as well as the vast market population. One of the distinctive elements in the enterprise model enshrines penetrating in the international market segments with high-speed internet connectivity and geographical synapse.

In a different continuum, Netflix restructured the strategic management on international market penetration to enhance customer satisfaction. Ideally, Grigoriou & Rothaermel (2017) indicate that the technological-based companies face a prominent opportunity to customize the products and services and the delivery system. Therefore, during the Netflix case study, Rothaermel (2021) addresses the corporate’s competence gradient under the spectrum of localizing the broadcasted content. An excellent example is the incorporation of diverse language translations maximize entertainment experience across the distinctive regions. Focusing on geographical and culturally proximate international market saves costs on infrastructural development and setup for the operations and the acquisition initiative (Rothaermel, 2020). Further, Netflix incurs additional insights during the penetration process to incorporate in the competent business model. The optimal similarity index is a framework that reduces emergence of key challenges, mainly, censorship and legal issues.

Conclusion

Conclusively, there is a profound opportunity for Netflix international market growth based on the attributable factors of significantly exploiting the technological resources. The key challenges encountered involve disparity on socio-economic policies across different countries. Therefore, it is crucial for the Netflix management to incorporate methodologies enhancing remodification of the competitive advantage. Netflix maps a dynamic process on strategic management that prominently contributed to the expansion and overwhelming the competitors along the gradient of providing solutions to the issues in the entertainment industry.

References

AFI Strategic Framework

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Cozzolino, A., Verona, G., & Rothaermel, F. T. (2018). Unpacking the disruption process: New technology, business models, and incumbent adaptation. Journal of Management Studies, 55(7), 1166-1202.

Grigoriou, K., & Rothaermel, F. T. (2017). Organizing for knowledge generation: Internal knowledge networks and the contingent effect of external knowledge sourcing. Strategic Management Journal, 38(2), 395-414.

Mansyur, Y., & Aprianingsih, A. (2022). Proposed development strategy for green diesel product in industrial fuel market. European Journal of Business and Management Research, 7(4), 148-153.

Purwaningrum, R. W., & Hamsal, M. (2022). Proposed business strategy on the online delivery service platform shopeefood. Eqien-Jurnal Ekonomi dan Bisnis, 11(1), 1343-1351.

Rothaermel, F. T. (2020). Tesla. Inc., McGraw Hill Case MHE-FTR, 67.

Rothaermel, F. T. (2021). Strategic Management (4th edition). McGraw-Hill Interamericana de Espana S.L.

Harvard Business Review

Buckingham, M., Edmondson, A. C., Cappelli, P., & Roberts, L. M. (2020). HBR’s 10 Must Reads 2021: The Definitive Management Ideas of the Year from Harvard Business Review (with bonus article” The Feedback Fallacy” by Marcus Buckingham and Ashley Goodall). Harvard Business Press.

Porter, M. E., Davenport, T. H., Daugherty, P., & Wilson, H. J. (2018). HBR’s 10 Must Reads on AI, Analytics, and the New Machine Age (with bonus article” Why Every Company Needs an Augmented Reality Strategy” by Michael E. Porter and James E. Heppelmann). Harvard Business Press.

Porter, M. E. (1996). What is strategy?. Harvard Business Review, pp. 37-55

Additional Peer Review Journals

Dizon, G. (2018). Netflix and L2 learning: A case study. The EuroCALL Review, 26(2), 30-40.

Steck, H., Baltrunas, L., Elahi, E., Liang, D., Raimond, Y., & Basilico, J. (2021). Deep learning for recommender systems: A Netflix case study. AI Magazine, 42(3), 7-18.

Türkmen, B. (2020). Utilising digital media as a second language (L2) support: A case study on Netflix with translation applications. Interdisciplinary Description of Complex Systems: INDECS, 18(4), 459-470.