Question

Netflix Case Analysis for the article “How Netflix sent the biggest media companies into a frenzy, and why Netflix thinks some are getting it wrong” by Alex Sherman, CNBC, Wed, 13 June 2018

Background/Problem Statement

Netflix began in 1997 but did not cause a major disruption in the media business until later in its existence when it began its DVD order service, which many believe took out Blockbuster, and the like, and it's true big disruption when it began its online streaming service. While their DVD order service affected the rental business, their new streaming service was a direct hit on the cable industry. Netflix has pushed themselves way ahead of their competitors by investing in this Blue Ocean and has taken the strategy of spending their cash to continually grow and raise their stock prices, whether this spending is through buying rights to previous shows or making their original content or accruing popular talent to participate on screen or behind the scenes. The strategic issue, in this case, is to determine ways in which Netflix can continue to spend the amount of cash they do without letting their stock go down while new competitors enter the market.

SWOT Analysis

Strengths

• Blue Ocean: First in the industry providing them the opportunity to set the standards and have an advantage in the amount of content available.
• Brand Recognition: Netflix has developed strong brand recognition which allows them to better negotiate for contracts with developed shows and when they try and recruit known actors. Due to their brand recognition, individuals and companies are more likely to be willing to work with them due to knowing they are established and have a respectful reputation among viewers.
• Low Cost: By providing their consumers with a low-cost alternative, originally $8 per month, to the cable industry, $80-100, Netflix has been able to attract 92 million subscribers by 2018.

Weaknesses

• Lack of Cash Flow/Large Debt: Netflix typically spends more a year than they bring in causing them to rely heavily on debt financing. This can cause Netflix’s investors to become worried and may cause Netflix interest rates to increase significantly if they are unable to pay their debts. As more debt is acquired investors become more worried that they will not get their investment back.
• Reliance on Content Providers: A large portion of Netflix’s content is provided by other companies who originally produced this content. While Netflix has entered deals with these companies to have the rights to these titles for a specified period with the increasing number of companies pursuing their online streaming services Netflix runs the risk that they will lose this content once the contract expires.
• Inability to Provide all Desired Content: Netflix is not able to be a one-stop-shop for all consumers due to its lack of ability to invest in all content markets such as sports. This can cause potential subscribers not to subscribe due to other avenues having this available. In addition to sports Netflix also requires its subscribers to wait till the end of current seasons are finished before placing them on the streaming service, preventing subscribers to watch the season in real-time.
• Reliance on Internet Providers: Netflix’s streaming service is based on providing its subscribers with reliable content available to them anywhere with internet access. Thus, they rely on these services to be able to handle streaming which could be a problem if they are unable to work with those providers.

Opportunities

• Expand Original Content: By investing in their own original content more Netflix can lessen the impact content providers have on their services. If they can develop shows that are only available on Netflix consumers will have to continue to subscribe to watch these even when content providers start their services and remove their programs from Netflix.
• Expand Their Services to Different Industries: Reed Hastings, the CEO of Netflix, has been hesitant to do this as he does not want to become like Amazon which dabbles in every industry. However, if Netflix were to invest in an internet company or the like they would avoid any chance of internet providers making it difficult for customers to utilize their services.
• Invest in Live Content: At the time being the cable business still provides the majority of live content allowing Netflix to move live content online. While Hulu already provides the opportunity to its subscribers Netflix still has a chance to further enhance the services, and at the same time provide more of the desired content it is currently lacking.

Threats

• New Entrants (Current Companies/Mergers/Acquisitions): With the streaming service industry growing more companies are wanting to invest in providing their streaming services for their content. As more companies start their services, they will pull their current content from Netflix.
• Advances in Technology: Technology is a fast-changing market and can disrupt any industry at any time. If Netflix does not ensure that they are staying on the cutting edge of technology, they could easily be overtaken.
• Changes in the Economy that Significantly Increases Interest Rates: If the economy changes and there is a significant increase in interest rates Netflix could struggle to pay off its debt with the increasing prices or struggle to secure any investments.

Integration

From the SWOT analysis, it is clear that Netflix relies on that their large investments in the content will provide them with loyal viewers and increases in subscribers which is difficult to predict fully with the changing market. Therefore, if Netflix loses subscribers due to new competitors in the market and they have to continue to increase their debt to gain subscribers or retain subscribers they are likely to lose investments and their stock will suffer. This finding leads me to suggest that Netflix should focus on investing in its original content to prepare for losing content to other providers, current media companies entering the streaming business, while at the same time look into other industries that they could expand into to increase profits.

Recommendations

1. Look for opportunities to partner with companies that televise sports or other genera currently missing from Netflix’s content.
2. Being development on a replacement to the internet required to use their service without increasing the necessary storage customers need to utilize the service.

Action Plan

Recommendation #1

• Within the next year, Netflix should determine partner companies to provide live services and begin negotiations to complete the deal.
• Before settling on a partner company Netflix should examine the different genres that are missing and determine the most important genres to invest in. To do this they will need to look into the customers’ needs and what they find to be the most important genres to have taken particular note to genres that subscribers find to be deal-breakers if they are not present.
• To increase profits Netflix may consider having advertisements on its live content. While this may be tricky to implement Netflix should limit the advertisements only to live content as much as possible, so their customers are not blindsided with their current services changing.
• The final step that Netflix will need to take is determining the price charged to customers for this live service. They will need to determine a price that allows them to continue to be a low-cost option but also needs to start earning more money than they spend. A new division is a perfect opportunity to change that

Recommendation #2

• This recommendation will take time to develop as they must work through all of the research and development before they will even be able to perform a test run on the product. Netflix should have a goal to have this available within the next two years.
• After the development of the product, Netflix will need to market its new service that allows individuals to access their content from wherever without the internet. This should be new to the market so Netflix will need to capitalize on that to earn more subscribers.

Make a comment regarding the case analysis and ask 2 questions related to the case.

Answer 1

Comment:

The above case study of Netflix tells about  business weaknesses plays an important role. Because it gives the real picture of the company. Along with the SWOT analysis every company should focus on product life cycle of the company.

Questions:

1) Create revised product life cycle of Netflix on your own

2) What is the role of 3rd & 4th P in Netflix