Netflix has a long-term strategy of providing its subscribers with a wide range of DVD titles. Acquiring new content is an important process for the company as its customers are always expecting for it. This requirement compels to developing relationships with video producing companies. The company provides its subscribers with a list of TV shows that might interest them. Also it has developed a website and application which allows toscroll through the DVD list. The company has traditionally used the strategy of fast mail DVDs delivery, and it has also expanded the availability of its content through streaming.
Netflix highly values marketing, and it is a part of the strategy used to harness a larger market share regionally and internationally. The company has spent millions of dollars on Netflix brand marketing plan in purpose to create awareness among new potential subscribers across the world. The company has also focused on promoting the content streaming type because it aims at eliminating the email delivery service.
Top priority issues
The top priority should be attaining of consistency in Netflix’s delivery service strategy. In 2011-2012 fiscal year, the CEO of the Netflix demonstrated some incompetence in making strategic decisions, and the main issue appeared to be sudden fundamental changes made by the company. Subscribers prefer services that are stable and consistent.
Netflix also needs to prioritize satisfying customer’s needs in the United States. The company has lost many subscribers owing to poor decision-making, but it can entice them back. Instead of focusing too much energy on the international market, the company should look into harnessing a larger market share locally.
One more priority, Netflix should also pay attention to is an enhancing its competitive power. A critical view of the company’s case reveals that stiff competition is among the issues that have led to its downfall in the American market. The management needs to prioritize this three issues.
Recommended strategy
Netflix has the potential to rise back to its leadership position in the entertainment industry. The downfall of the company started when the CEO developed a novel strategy for streaming content and mail delivery prices increasing. The company should look into developing a business strategy that attains consistency for the subscribers. Sudden changes and increments in the prices of subscription services should be avoided by all means.
The company should also focus on providing its products under one website and brand. Netflix is a popular brand that can make good sales if the price is kept at a competitive level. It has lost its glory at the local market because of lack of consistency, but it can regain popularity if it follows the people’s will. The company should take course into identifying the needs of the American people to develop dominance in the market. Shifting in the international market has proved to be a hectic project that does not guarantee profits. Competition in the market is quite stiff, and most successful companies are the ones working hand-in-hand with strategic partners. In the TV entertainment industry, the ability to continue increasing the shows and movies available for subscribers is crucial. It is also important to continue diversifying the nature of the services provided to subscribers faster than the rival companies. Netflix should focus on venturing into business processes in order to minimize financial liabilities.
The case study on Netflix documents the talent management strategy and culture of the company. The focus of the company was on recruitment, performance review, and team building. The first goal of Netflix was to hire the right people, as the company believed that a good employee would be motivated to work more if accompanied by equally efficient colleagues.
Further, when the wrong employees are recruited, it increases the chance of attrition. The second goal of the company was to establish a process of reviewing peers. Peer reviews allow the employees to evaluate the performance of their colleagues. The third was to develop motivated teams that could work together without disruption.
The fourth focus of the company was to create a business-oriented company culture that allowed all its employees to understand the business model, goals, and mission of the company. Fifth, Netflix introduced innovative human resource management policies, like not tracking vacation and absences.
The first aim of the company was to hire the right people. It is important to hire the right people, as this will allow the company to create an environment that would support the culture of the company. The right people will understand the business and the culture within the organization. Hiring the right people will create a cohesive environment, helping in knowledge management.
Further, hiring the right people will reduce turnover ensuring higher productivity (Abbasi & Hollman, 2000). Performance review of the employees is important. 360-degree review of the employees allows peer review and self-review. When evaluating an employee, this holistic evaluation process concentrates only on the performance of the employee.
Feedback of employees from peers, seniors, and subordinates can provide a competitive advantage to the company (Potočnik & Anderson, 2012). The case study shows that a holistic environment for performance review helps garner a competitive advantage for the company. However, the success of a 360-degree assessment to increase performance has not been proven through empirical findings (DeNisi & Kluger, 2000).
The managers of Netflix value the importance of creating a great team. A good team would work in accordance with the company’s strategy and follow the goal of the company. Here the stress is not only on creating a good team, but on also ensuring that the managers become good leaders. It is important to have a great team, but it is equally important to have a focused team-leader.
The company culture is important to ensure that human resource management can become a competitive advantage. Hence, leaders are responsible for ensuring implementation of the company culture within the organization. The leaders of the company develop the company culture. Leaders must remove all discrepancies between values and behavior within the organization.
Further, the leaders must ensure that the employees understood the business model and strategy in order to align their personal goals with that of the organization. Further, leaders must disseminate their knowledge about the organization to all the employees within the company. This will help the employees to know the different segments within the organization and understand the unique subcultures present within the departments.
Talent management is not a process of HR but that of innovation and business. Therefore, talent management must not be approached as simply as acquiring people, but hiring the right people and grooming them in the right manner. Thus, approach towards the human resource, talent acquisition, and management should be from a strategic point of view rather than through the lenses of human resources.
References
Abbasi, S. M., & Hollman, K. W. (2000). Turnover: The real bottom line. Public Personnel Management, 29(3), 333-342.
DeNisi, A. S., & Kluger, A. N. (2000). Feedback effectiveness: can 360-degree appraisals be improved? The Academy of Management Executive, 14(1), 129-139.
Potočnik, K., & Anderson, N. (2012). Assessing Innovation: A 360‐degree appraisal study. International Journal of Selection and Assessment, 20(4), 497-509.
Netflix Inc. is one of the largest companies in the American market. We have been delivering our services to the public since 1997. Our main goal is to provide Internet access to films, serials, TV shows through streaming so that our customers can get a fast, convenient, and uninterrupted access to them. Many people have chosen our services, and by the end of 2016, almost 69 million viewers from different countries were our customers and preferred our streaming media services. In addition, our company has been recognized as one of the most successful corporations in the last five years. The purpose of this paper is to provide an overview of external forces that influence Netflix Inc.
External Forces
Political Forces
The company bears full responsibility for meeting the institutional conditions and legislation requirements of the US. In particular, we take mandatory measures to protect intellectual property and combat piracy so that the services that our customers use to meet all standards and rules (“Relationships between key external forces and an organization,” n.d.). Also, we implement measures to meet regulatory requirements in terms of licensing and other rights to the content so that our customers have the exclusive right to watch official streaming media (Ulin, 2013). In addition, we protect the personal data of our users from leaks including their bank details and other personal data, and do not use them without the consent of clients.
Apart from that, Netflix complies with the rules of state competition regulation and does not violate the antimonopoly legislation (“Relationships between key external forces and an organization,” n.d.). Regarding the current trade policy, we pay all taxes and subsidies in the field of mass communication and exclude the possibility of lobbying (Ulin, 2013). Netflix does not represent anyone’s political interests at the local, national, or international levels.
Legal Forces
At present, one of the greatest legal factors that influence our company is copywriting. Netflix intends to be the first to receive the exclusive right to content so that our clients can gain exclusive access to movies, shows, broadcasts, and other streaming media (Netflix, Inc., 2017). The company has been experiencing problems with receiving the rights for first-run content from companies due to the latest legal restrictions. Nevertheless, we make efforts to resolve this issue as soon as possible since our goal is to be the leading supplier of on-demand Internet streaming media.
Regulatory Forces
We would like to note that changes in copyright regulations have a direct impact on the company. Therefore, we comply with all the rules so that we can distribute videos and shows to our clients with no barriers (Fleisher & Bensoussan, 2015). At present, there is a difference in tax differentials for companies streaming videos and those organizations offering offline services, and Netflix ensures that its clients do not fall into the category subjected to taxation.
It is also crucial to dwell upon net neutrality that has been bothering our client groups. This law provides for a person’s right to equal access to any Internet resources (Zelnick & Zelnick, 2013). Our CEO, Reed Hastings, made a statement on behalf of our company that Netflix would no longer support this concept. Due to the fact that our enterprise is the leader in the video-streaming market, we will be able to strengthen our position further by making this decision (Netflix, Inc., 2017). When the regulations in the network neutrality are dropped, it will allow us to establish a new level of entry into the market. Therefore, Internet service providers will no longer be able to decelerate communications for our website. We would like to highlight that Netflix has paid the Comcast fees to ensure our clients are not affected by the changing regulation.
Governmental Forces
In terms of the governmental forces, they determine Netflix’s performance both on the domestic and international level. The state policy of each country specifies our role in the system of socio-political relations. Also, it affects the degree to which our company can be independent of the authorities. Each state has its own levers of regulating competition, which we should oversee (Takane, 2016). For instance, Netflix should comply with the requirements of anti-monopoly legislation and meet the conditions of concluding transactions, which are unique for each country. Moreover, each state controls the activities of media enterprises differently (and applies certain sanctions) or provides for a share of state capital in the holding. Given these factors, we always carefully examine all the prerequisites in order to meet them to the full.
In some countries in which we operate, we have to meet anti-trust regulation, which takes up to 30% of our share. It is a strict barrier, which we have to face to be able to provide our online video streaming services to customers (Ulin, 2013). Apart from that, some governments pose strict tax regulations on the film industry. The application of this measure ensures that foreign companies make financial investments in the culture of the host country. Therefore, Netflix has to be aware of such requirements to be able to operate in the international markets barrier-free and without breaking the exquisite regulations that each country has.
Conclusion
Thus, external forces shape the performance and activities of Netflix. It is one of our main goals to comply with the political, legal, regulatory, and governmental requirements that the US and foreign markets impose on video streaming companies. By being aware of all the variables, we ensure that our clients can receive the services that tailor their needs and demands.
References
Fleisher, C. S., & Bensoussan, B. E. (2015). Business and competitive analysis: Effective application of new and classic methods (2nd ed.). Upper Saddle River, NJ: FT Press.
Netflix, Inc. (2017). Form 10-K. Web.
Relationships between key external forces and an organization [PowerPoint slides]. (n.d.).
Takane, Y. (2016). Constrained principal component analysis and related techniques. Boca Raton, FL: CRC Press.
Ulin, J. (2013). The business of media distribution: Monetizing film, TV and video content in an online world (2nd ed.). Boca Raton, FL: CRC Press.
Zelnick, B., & Zelnick, E. (2013). The illusion of net neutrality: Political alarmism, regulatory creep and the real threat to Internet freedom. Stanford, CA: Hoover Press.
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.
The modern world is profoundly influenced by capitalism. One of its core characteristics is the presence of competitive markets: every economic realm is supposed to have multiple agents that enter into rivalry with each other in order to attract customers and gain benefits. However, this model does not always correlate with practice. In this context, the phenomena of monopoly and oligopoly seem to be challenging. Monopoly and oligopoly can be considered the opposite end of the market structure spectrum from perfect competition.1 The USA is not an exception since some spheres tend to be controlled by one or a few companies.
In this regard, the example of online television and streaming media is illustrative. Recently, it has been discussed whether this market may be described in terms of monopoly and oligopoly and what position Netflix, one of the most successful and big companies associated with this field, holds. Although the majority of the nowadays studies that pertain to monopolies in digital media cover Google, Microsoft, Amazon, and Apple, Netflix has also become the object of growing interest among researchers.2 As a rule, the materials containing information about the current state of affairs, ups and downs, and management strategies are found in different web sources.
The purpose of the present paper is to examine if the Netflix’s tendencies to monopoly are increasing. The characteristics of monopoly and oligopoly in the modern setting are given. Further, the American audience’s preferences and the Netflix’s key competitors in the TV market are explored. Later on, the brief history of the company under consideration is described. Finally, monopoly tendencies and up-to-date situations are investigated.
Monopoly and Oligopoly in the Modern Age
The small number of sellers or goods in an industry may be described in relation to three key theories. One of them is the theory of monopoly. The term “monopoly” refers to the market situation when there is a single market entity that is the only provider of a product within a certain industry. Another assumption is that this firm produces goods that have no close substitutes; as a result, there is little, if any, competition.3 Finally, as the sole firm controls the production branch, it installs barriers to entry. Legal barriers, economies of scale, and a firm’s exclusive possession of some scarce resources account for the impossibility of entering the market.4 Because the barriers are high, new firms, the potential competitors, are unable to enter the industry and develop.
Apart from the theory of monopoly, there is also the theory of monopolistic competition built, again, on several assumptions.5 First and foremost, multiple sellers and clients are involved. Then, the offered goods and services are almost the same: they differ a little in terms of trade names, decoration, advertising, salespersons’ attitude, and so on. The quality and function of the products are similar. As for the entry process, there are no hindrances to start acting in a particular sphere or quit.
The third theory that should be mentioned touches upon oligopoly. Although the universally accepted theory has not been developed yet, it is possible to describe three assumptions. There are few interdependent sellers: in this case, each marketeer’s actions make an impact on the other. The firms produce and put up for sale either homogeneous or differentiated products; finally, the barriers to entry are significant.6 As the cartel theory predicts, sometimes oligopolistic companies may act as if they were one firm.7
Speaking of the present-day situation in the USA market, one can state that pure monopolies are quite rare, for instance, public utilities and amenities area and the U.S. Postal service. Monopolistic competition is much more frequent: various services, such as restaurants and cafes, clothing store business, and computer programs, demonstrate it. Oligopolies are also common, for example, airlines or movie studios spheres. In terms of the whole economy, there is a consistent tendency for monopolistic competition in America.8 At the same time, mass media communication and entertainment providers are inclined to oligopolies.
The Present-Day TV Market
In the age of the Internet, people’s love of TV content has not decreased. Television remains one of the most popular media in the United States. However, traditional linear television is becoming less popular. Nowadays, the constant interest takes the new form of Internet television, and the TV market tries to correspond to the needs of customers.
Linear and Internet Television
As the term implies, linear TV provides programs at a scheduled time on non-portable devices. In other words, programs follow each other, and a viewer is de facto chained to their TV screen. Obviously, such immobility cannot satisfy them now when people need the liberty of movement and flexible services assessable at the proper time.
Responding to these requirements, the biggest linear TV companies provide their programs via devices of different kinds. Internet television becomes ubiquitous. There are several reasons for this trend:
Nowadays, the Internet has become faster and more trustworthy; besides, smart TVs and other gadgets are more widespread;
A user enjoys the opportunity to watch programs on demand and choose what suits their tastes;
TV equipment and applications are frequently improved and updated;
One can access a program as many times as necessary; consequently, the experience is more individual and bright;
In general, there are few advertisements, and they are targeted;
There is a transition from a passive process of watching to more active content producing and content sharing.
Linear and Online TV Consumers in America
In spite of the fact that the Internet is becoming more popular, the Americans’ love of television lingers. In 2016, it was estimated that an average American person spends more than ten hours consuming media daily, and watching TV adds up to five hours; approximately half of the audience has subscription services, such as Netflix.9 Still, in comparison with previous years, these figures are lower.
What type of television is preferred depends on the characteristics of people who watch it. In this respect, there is nothing surprising. Persons aged 50 and older predominantly use linear TV services.10 The younger generation, as expected, is drawn to online TV. Apart from the advantages of this form described above, it is challenging because one should have enough skills to orientate themselves in thousands of channels, programs, episodes, and so on. Younger people are usually more advanced in this respect.
Finally, a typical TV consumer in America, similar to viewers all over the globe, is subject to binge-watching: an individual watches a new season of a TV show very quickly. On average, it takes five days: two hours of watching per day.11 All in all, TV plays a significant role in people’s lives regardless of their form.
Online TV Market in the USA and Netflix’s Competitors
At the present-day moment, Netflix remains the biggest subscription services provider in the online TV area. However, it does not mean that there are no other similar companies. In light of the previous information, one may argue that either a monopolistic competition or oligopoly model may be applied to the sphere of Internet television. There is no consensus among researchers; still, most of them consider Netflix to be the biggest monopolistic competition company.12 From time to time, one may encounter newspaper articles that use the term “monopoly” in relation to Netflix13. Strictly speaking, it is a misuse. Technically, one may discuss the monopolistic tendencies that take place in the online TV market because some other marketeers are present.
Amazon and Hulu Plus are two biggest companies that are notable for providing almost the same services. Still, there are slight differences. Amazon has a more direct overlap in contents with Netflix; Hulu concentrates on TV content, provides TV shows the next day after they are broadcast and sets aside some other shows and movies.14 One can state that Netflix has the most diverse contents. Moreover, Netflix also leaves its competitors behind in terms of market share. In the U.S. households, these indexes are 36%, 13%, and 6.5% for Netflix, Amazon, and Hulu correspondingly.15 While these data and figures show that Netflix is powerful, its present-day position is not, to some extent, favorable. The reasons for concerns will be described below in the context of the current situation assessment.
The Development of Netflix
The History and Strategies of the Company
Netflix’s history began in 1997 when CEO Reed Hastings got the idea for the DVD-by-mail service after paying a $40 late fee for Apollo 13.16 In those times, VHS format was predominant, but Hastings and his friend Marc Randolph realized that DVDs were going to oust it. At the early stage, the company did not offer subscription: it was launched only in 1999. The first profit was made in 2003 when Netflix reached one million subscribers; in 2007, after the company had reached more than 6.3 million customers, Netflix introduced streaming services.17
Sometimes, Netflix managed to achieve its goals sooner than expected: for example, the number of subscribers was to be increased to 20 million by 2012, but it happened earlier since the services were brought to Canada. Later on, quarterly sales topped $320 million by the end of 2008, followed by $394 million during the first quarter of 2009.18 These results are especially impressive because the company gained success when the whole movie rental sphere met with an 8% sales decrease. Stage by stage, Netflix managed to attract many clients from Ireland, Great Britain, the Caribbean, and other countries.
The key factor that endured Netflix’s early success is the accurate evaluation of the future technological development: when the company chose to work with DVDs, the majority of the American households did not own DVD players. Because of DVDs space effective size, the U.S. Postal service became a feasible way to send movies to customers. Netflix formed strategic relationships in the expanding DVD market: for instance, cross-promotional agreements with DVD hardware manufacturers and studios were reached, and the company offered free rentals with purchases of DVD players from Toshiba, Hewlett-Packard, Pioneer, Sony, and Apple.19 This agreement was equally beneficial for DVD players manufacturers and Netflix since it provided people with the new equipment and turned them into potential clients. Other actions taken by Netflix were teaming with studios in order to promote high profile films and collaboration with online movie information providers to funnel movie-interested Internet traffic directly to Netflix.20
The company’s well-handled optimizing distribution was also the advantage. In 2002, ten additional warehouses throughout the country were open: the location for each of them was chosen to cover as many customers as possible.21 What is more, the location of these warehouses was secret: the company workers even had to sign nondisclosure agreements if they wanted to be employed.
In the course of time, rental services have lost its significance. At this moment, Netflix concentrates on digital services. However, this sphere is characterized by the presence of similar companies. Consequently, Netflix finds itself in a new position.
The Current Situation Assessment and Recommendations
One of the presumably advantageous strategies is offering original products. The exclusive programs and shows are supposed to raise people’s interest: Netflix invests large sums of money in content. It is unknown whether this strategy will work. If the best happens, people will not only have to subscribe because they wish to watch a certain show but also do it eagerly since the offered programs will be to their liking.
Some researchers assume that Netflix will eventually climb down, and it will happen relatively soon. The orientation towards subscribers’ statistics is considered to be the strangest feature of the company’s strategy. If subscriber growth does not match investors’ expectations, the stock will take a tumble.22 Still, the number of customers is not changing upward. According to the up-to-date information, the additions within the USA have dropped by nearly half.23 Some reasons are connected with domestic and foreign policy, historical events, and culture, such as Brexit, restrictive European regulations, and the Olympic Games in Rio de Janeiro; however, apart from short-run or external factors, there are also inner prerequisites that help identify the current status of the company.
What usually is not discussed is the Netflix’s debt load: free cash flow falls, but the debt remains the same.24 Despite the unfortunate tendencies, the company is reportedly planning to raise even more debt. It is highly probable that the debt-to-equity will easily climb from its current 1.33 to 1.50 at the end of 2017; these intentions are not praised because a company that has found its capacity to hasten growth crippled is not raising capital to leverage its low efficiency.25 Netflix faces not only the expansion challenge but also management problems: while it is obvious that the company urgently needs to concentrate on organizing its balance sheet, the management ignores it.
Under these circumstances, the task of paramount importance is to realize that Netflix is not the growth stock anymore. There are several reasons that prove this statement:
According to the statistics given above, the number of new customers is declining not only in the U.S. but also all over the world now;
Netflix’s technologies used to be disruptive innovations, but nowadays one perceives them as something familiar. The company used to demonstrate that people need to be in step with the times and choose Netflix. However, since these innovations have become a part of the routine, the attention is drawn to the market share.
The company has probably reached its optimal level of scalability because those who needed online TV services have already subscribed to Netflix or one of its competitors.
In this context, Netflix needs to revise their policy and goals. Subscriber growth should become less important. Several concepts, such as lifetime customer value, operating margins, and customer retention, are more significant for the company.26 To succeed, it is vital to shift from quantity to quality commitment.
Conclusion
To sum it up, capitalist setting theoretically implies the existence of competitive markets where all market entities regard each other as opponents. However, theory and practice sometimes differ. In the USA, one may find examples of monopoly, monopolistic competition, and oligopoly. In general, monopolies marked by the presence of one seller are scarce: they pertain to public utilities and services and the U.S. Postal service. Unlike monopolies, monopolistic competition companies and oligopolies are of frequent occurrence, and sometimes it is not easy to tell them apart. Speaking of entertainment and mass media, oligopolies are more common.
An American consumer is known for their passion about watching television regardless of their age, gender, ethnicity, and other characteristics. In the era of digital devices and rapidly changing technologies, this habit reshapes. While linear TV has begun to take a backseat, online television services are currently needed. Such tendencies are not surprising since the modern world requires freedom of movement, fastness, and on-demand services.
In this context, Netflix is one of the most successful companies that provide access to the Internet television. While the company initially concentrated on DVD rental services, it eventually developed the modern approach and met the expectations of consumers. Nevertheless, it cannot be considered a monopoly: one should discuss the monopolistic tendencies that, indeed, take place. In comparison with the key competitors, Amazon and Hulu Plus, Netflix is more prevalent and covers about 36% of all American households. However, as it has been examined, the present-day management is far from being perfect: instead of improving the quality of its services, Netflix focuses on market share and attracting new consumers. Because the market demand is lower now due to the external factors, this strategy is unlikely to bring profit.
Overall, Netflix has never been a monopoly in the strict sense of the term. The company’s past is marked with monopolistic tendencies, but on the present stage of its development, Netflix is becoming one of the equal companies that provide consumers with online television services. Unless Netflix takes action and changes its administration, it is most likely to continue to lose ground.
Bibliography
Arnold, Roger A. Microeconomics. San Marcos: Cengage Learning, 2013.
Ferrel, O. C., and Michael Hartline. Marketing Strategy, Text and Cases. Mason: Cengage Learning, 2013.
In a business environment where companies always experience competition from their rivals who manufacture and sell similar products, change is not only an inevitable undertaking, but also a necessary aspect of driving innovation and attaining a competitive advantage (Goffin, Lemke & Koners 2010). Since it is considered as an imperative aspect of innovation, a company cannot let change to happen without managing it in a manner that will fit the organization’s structure and achieve the desired results (Willard 2009; Wysocki 2011).
As a result, managers must adopt suitable models of change management in order to ensure that all stakeholders embrace the change without much or any resistance (Ball 2010). This paper will discuss the various models used to manage change, define a case study of a company in regard to the Netflix organizational change, identify problems that appear in the case study, and provide solutions for them.
Literature Review
Practically, the various steps included in the models of change cannot take place completely in the real-life situations (Bernoff & Schadler 2010; Blood 2013). As a result, most of the change models that are evident in Netflix are not necessarily complete in accordance to the theoretical stipulations (Berry & Fazzio 2010). In some instances, the agents of change skip some steps or undertake several stages at the same time so that it becomes difficult to isolate the distinctive levels (Cooper 2012; Deshmukh & Naik 2010.
Lewis Three Step Model
Lewis proposed a model that introduces a change in three steps, including unfreezing, moving and freezing. Following the struggles that Netflix has undergone in an attempt to introduce price plans in correspondence to the cost of the Internet and licensing fee, the company adopted strategies that envisage the Lewis Three Step Model.
The CEO first expressed dissatisfaction of customers with one price plan. He stated that all customers are not satisfied with one price plan bearing in mind that the customers have different need (Barr 2011; Bell & Koren 2010). In essence, this was a tactic of unfreezing the existing price plan to prepare customers for change. Second, the company has expressed their intention to introduce the proposed model. This implies that the company is prepared to make the change (Bransley 2010; Bell & Koren 2007; Delimitrou & Kozyrakis 2013). However, they have not accomplished the last stage of freezing back to normalcy.
The Process of Transition
There are various aspects of the process of transition that have been shown in the Netflix’s attempt to introduce three tiers of price plan. In regard to the process of transition, there are three steps that have been portrayed including anxiety, fear and threat. In this case, it is important to understand that the company is in the process of introducing the new price plan, but it has not implemented it at this point. When the CEO announced their intention to change the prices in January, 2014, the customer expressed fear and anxiety that the plan might lead to a situation such as the one experienced in 2011. In addition, the change has been challenged by investors because they seem to have little confidence in regard to the ability of Reed Hastings to introduce the change successfully.
Kotter’s-8-Steps Model.
In regard to Kotter’s eight steps, it is evident that the company has already implemented the first step of this model. In this case, the CEO has successfully convinced the customers about the importance of making changes in the price plan. When he was announcing about the company’s intention to introduce the plan, Hastings said that one price was not fit for all customers. This argument seeks to capture the attention of the customers since it portrays the company’s commitment to their welfare.
Additionally, the CEO has shown diligence in regard to creating a strong coalition. In this case, he has included his co-founders when making this decision in contrast to what he had done in 2011 where one of the executives had opposed the decision publicly. In addition, he has created a strong vision with the help of his coalition members. In essence, this implies that they have implemented the third step of Kotter’s model. Besides the creation, the CEO and his co-founders have accomplished the fourth step of this model by communicating their vision to the customers and investors.
According to their report, they aim at introducing a price plan that caters for all customers in accordance to their preferences and financial capabilities. Accordingly, the company has implemented the first four stages of Kotter’s-8-step model.
The Technology of Leading Sustainable Change
Another model of change management that is essentially evident in the company’s attempt is the technology of leading sustainable change (Durrant, J & Holden 2009; Erskine 2013; Feher & Towell 2010).
The technology of leading this change incorporates three aspects that include the mind-set, emotional conviction, and capability. The CEO has been capable of harmonizing the three aspects considering the difficulties he experienced in 2011 when he introduced price hikes (Feuerverger & He 2012; Gallaugher 2010). First, the CEO has facilitated the collection of factual data in order to support the importance of introducing new price plan. In this case, he stated that the company needed a different price plan based on the fact that customers are not satisfied with one service provision.
Importantly, this step has occurred simultaneously with that one of the motivational conviction. In this case, the reason that was provided shows the urgent necessity of changing the old price plan which is both conservative and insufficient. He has also formed a strong team stating with his co-founders. This implies that the CEO has implemented the three steps of this model. Essentially, these are the models that the company has employed in its quest of introducing a new price plan.
Successful Netflix Change Management
When focusing on how Netflix is planning to introduce the new price plans, Gallaugher (2010) stated that the company is seeking for a breakthrough rather than incremental change. Incremental change refers to situation where success is achieved gradually due to undertakings that build on the members’ skills and commitment. On the other hand, breakthrough refers to profound success that is realized over a short period of time. Bransley (2010) stated that a company realizes breakthrough when it changes the paradigms of the organization.
On the hand, he revealed that if it needs incremental changes, it must concentrate on the behaviors and attitudes of the various stakeholders (Bransley 2010). In the case of Netflix, the CEO is concentrating on changing the organizational structure by splitting the company and introducing two additional price plans. This implies that the company is seeking to achieve a breakthrough rather than incremental change that needs a lot of time to give real results.
Role of Sponsor Change Agent
Bransley (2010) stated that change can be introduced successfully if the agents sponsoring it are involved actively in the process of implementation. Reed Hastings, who is the CEO and the sponsor of price changes, has been involved in the process of implementing the proposed plans. In this regard, he has been involved in making critical decisions, communicating them to the public, and defending the company against criticisms that arise in relation to the proposed changes. The active involvement has been a crucial force in regard to implementing the new price plans.
Netflix Change Management: Case study
Netflix is known as one of the most successful companies in the technological field where it has been providing streaming services and selling DVDs by sending them through email. These services are provided to the customers on a constant subscription that warrants them the opportunity to access unlimited materials such as movies and e-books. The companies have been struggling to introduce changes in its organizational structure and pricing plans. The most important attempts of introducing such changes were experienced in 2011 where the company entered into severe crises owing to the introduced changes.
In 2011, Reed Hastings, who is the CEO of the company, announced that the company had sought to split the DVD-by-mail form the streaming services. In this case, he stated that DVD services could operate as a different company known as Qwikster. According to his report, he explained that the name of the new company was chosen to portray the company’s intention of quick delivery. He stated that the two services were based on the premises that the two businesses had different benefits (Villarroel & Taylor 2013).
As a result, the management felt that the two services needed distinct marketing strategies and cost structures. During the announcement, it was made stated clearly that this plan could start applying to new subscribers immediately while the existing subscribers were affected after one month. However, the company reversed their decision whereby Qwikster was dissolved so that the two services were provided from the same company (Tuzhilin & Koren 2008).
Besides splitting the company, Netflix changed its price plan where it abandoned the original one that required customers to pay a monthly subscription of $7.99 for unlimited access of DVDs and streaming. In the updated price plan, they split the DVD and streaming provisions where the customers were required to pay $7.99 for each of those services (Vickers, A & Fearn 2010). This implied that the customer could either choose to subscribe to one of the services at $7.99 or both at $15.98.
This plan was introduced amidst sustained criticisms claiming that the access for DVDs was not satisfactory since the company had limited stock. According to business analysts in USA, the company experienced a shortage of DVDs’ supply due to the increased licensing fee charged by DVD owners in order to distribute their content. In fact, this shortage forced the company to start developing its own content despite the lack of the required human resources. This undertaking also led to the overloading of the employees due to the added job description.
Analysis
Introduction of Drastic Changes
In this case study, it is evident that the company sought to introduce two critical changes in regard to their structure and pricing plan. Pricing and organizational structures are sensitive areas that can lead to insolvency if they are not changes carefully and strategically (Ghimire 2011; Gilbreath 2010; Girard & Parsons 2012).
In essence, when the company split the services into streaming provision and DVD-by-mail service, it meant that most of them had to quit one of the services and maintain the other. Practically, splitting the company implied that the customers would be forced to visit the two websites in order to find for a movie (Harmon 2007).
Whereas the change presented customers with operational difficulties, the company announced their plan and implemented it immediately. Expectedly, the introduction of Qwikster, could come with other provisions that customers needed some time to learn (Goldfayn 2011; Harmon 2007; Harris 2010). As a result, immediate split was a completely doomed decision that could only see customers abandon the company and subscribe with their competitors (Goffin, Lemke & Koners 2010).
Additionally, the decision to split the company into two sections was followed by a new price plan that presented another challenge to the customers. In this case, the provision of DVD and streaming services separately led to division of price subscription. After these changes, the customers were needed to pay twice the original amount in order to access the two services since they were provided under different protocols.
Also, the customers were notified about one month prior to the implementation thus leading to drastic change of budget besides the operational difficulties. As a result, they did not have enough time to conceptualize and understand the necessity of those changes as explained by the CEO. This implies that the two changes were implemented drastically rendering them risky, destructive and financially invalid.
Changes Insensitive to Company’s Credibility
When making any changes in an organization or a business, it is extremely important to consider the credibility of the company in the face of its stakeholders (Hamada 2010; Harmon 2007; Ingwer 2012). It is fundamentally necessary to maintain their trust towards the company by ensuring that the company’s principles are upheld (Hastrup 2013; Hernaez 2011; Holgersen 2011).
It was clear that Netflix has made severe mistakes in regard to securing their credibility in the face of their customers (Healy 2010; Linden & Conover 2009; Lusted 2013). For example, it was evident that the company reversed the decision of splitting their services whereby they re-integrated the two services and continued with the original business model in which DVDs and streaming services were provided under the same company.
The re-integration took place after few weeks of lamentation and criticisms from various quarters. This portrayed lack confidence and raised critical questions on the company’s foresight and research. It also implied that the company did not have a well-defined plan of implementing their original plan of splitting their services. In addition, their attempts to regain respect and credibility have been impeded by strong resistance from stockholders and consumers.
In addition, the investors put pressure on the CEO since they almost lost their holdings during the splitting. In this case, splitting the company meant that the returns for the investors could reduce drastically since they had invested under the Netflix Company rather than Qwikster (Ransohoff 2010). In response to the investor’s complaints, Reed Hastings mocked them stating that he needed a food taster, and that is why he could not blame them for their criticisms.
This was an additional insult that resulted from poor implementation of change. In essence, change should be introduced in a manner that does not disparage the dignity of the company since it needs to maintain the trust and loyalty of the customers.
Lack of Proactive Approach to Change
In light of introducing and managing change managers are required to exhibit a proactive approach when handling the process (Komives & Wagner 2012; Lawes & Rider 2010). In this regard, they are required to anticipate and foresee problems and risks that could necessitate a change (Legutko 2012; Martin & Fellenz 2010). This implies that the company could be prepared to initiate the process of change gradually in order to avoid afflictions that could paralyze the organization (Marquardt 2011; Paul 2011).
However, the case study portrayed lack of proactive approaches in various instances. In the first instance, the company should have anticipated the increase in licensing fees bearing in mind that the company did not have its own content. In this case, the management should have anticipated such risks since the company did not develop its content, but practiced brokerage between the DVD developers and consumers (Rettie 2001; Roebuck 2012).
This implied that at the long-run, the DVD developers could have sought to sell their content directly and discourage brokerage by putting measures such as increasing licensing fee. If they had anticipated such eventualities, they could have been prepared to make changes in a manageable manner rather than take drastic measures that could paralyze the company.
In addition, the case study shows that the company decided to introduce price plans despite the criticism regarding the limited availability of DVDs. This undertaking showed that the management did not foresee the possible backlash of customers owing to increased prices without improvement of services’ quality or fixation of sustained problems. This problem is intensified by the insensitivity of the CEO towards the company’s investors, although they play an important role to determine the success of a company. In fact, it is regrettable that the CEO could afford to mock the investors claiming that he did not blame them because he needed food tasters.
Change Insensitive to Stakeholders’ Needs
Changes that are introduced to an organization should not be implemented for the sake of the management and the financial prosperity without considering the welfare of the customers as well as other stakeholders (Ryle 2011; Sarin 2010; Tihanyi 2012). In response to the question of the price changes, the company spokesman explained that the DVD and streaming services were split since the company felt that the two were different businesses.
Further, he stated that the splitting was necessitated by the need of the company to market the two services differently. However, they did not explain how they considered the operational and financial need in light of making their decision. In addition, the CEO mocked the investors showing his insensitivity towards the needs and concerns of stakeholders in the process of inducing change (Zeng & Gualdi 2013).
Conclusion
In regard to the problems identified in the case study, the company should apply the Kotter-8-steps model. First, it should create urgency such that all stakeholders want the pricing plan to change and the company to split. In this case, the executive must come up with idealistic proposals explaining the reasons as to why splitting and changing the price plan is important to all stakeholders (Weinberg, Sutherland & Cooper 2010).
Second, the executive must form a strong coalition with people who have influence in terms of politics, expertise and job status. This will call for identification of true leaders within the organization such that the coalition is capable of leading change. Thirdly, the CEO must harmonize all the identified opportunities, threats, and concepts in order to come up with a vision for the process. The vision should be easily understood by all the stakeholders so that they can embrace the process.
In the fourth stage, the CEO should communicate this vision to the stakeholders and make sure that he repeats it often bearing in mind that it will face competition from many people daily. After communicating the vision to people and establishing buy-in, the CEO should identify the obstacle that could be inhibiting change, including employees and company’s structure. Having streamlined the organizational structure, then he should create short-terms wins to give the company members an early taste of success in order to motivate them.
Then, Mr. Reed Hastings should go a step ahead to build change and incorporate the attained change in the company’s structure so that it becomes a part of the organizational culture. This will help the company to cope with the existing pricing conflict since the process is gradual and inclusive contrary to the one introduced in 2011 that was not only drastic, but also unilateral.
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