Netflix 7s Model

Netflix

Marc Randolph and Reed Hastings founded Netflix in 1997 in California. It first started as a mail order company delivering DVDs. Their first business model consisted of traditional pay per view model but was later changed in favour for a monthly subscription with unlimited rentals. Netflix built it reputation on having a flat fee model with no late fees, postage fees or due dates.

In 2007, Netflix introduced the possibility to stream movies through their website. This allowed customers direct access to a movie instead of waiting 24 hours to receive a DVD via mail. Netflix has a total of 2 billion hours of content in its library and adds new material daily. Up 30% of the traffic in this US during peak hours can be related to Netflix.

Netflix was involved in a big controversy when the company decided to split up the rental service and streaming service into two different subscriptions. This led to customers having to pay a higher price if using both services.

In 2010, Netflix launched its streamed service internationally when entering the Canadian market. The service is now available in a total of 30 countries spread out in five different continents.

Since 2012, Netflix also produces its own shows and movies with famous titles such as “House of cards” and “Orange is the new black”

Netflix’s total amount of subscribers is, as of October 2015, 69.17 million, including more than 43 million in the US.

The turnover for the financial year of 2014 was US$ 5.5 billion, an increase of 21% from the year before.

Strategy

“TV is fundamentally changing from a linear delivery model to a world in which apps compete with each other and Netflix is spending millions to be part of that future” Reed Hastings (2013)

Netflix delivers at an affordable cost, high quality content to consumer’s different platforms such as phones, tablets, computers or TV boxes. For a monthly fee, customers can access a large library of movies, series and documentaries, free of commercials.^[1] Netflix does not use a Freemium model, which is widely used among competitors and other streaming services such as Spotify. Instead, all content is free of advertisement.  This has had a major impact on TV networks that now starts to decrease the amount of advertisement during prime time shows.^[2]

The recent years, Netflix has produced a lot of own content as a way to create desire and loyalty from its customer.  It is also a way to make Netflix less dependable on the TV networks. Studies have shown that Netflix together with HBO has the highest-ranking shows in the industry.^[3] Netflix has also made strategic alliances with different studios in order to cut out the TV networks.^[4] 

Offering licensed content is expensive and does not offer any extra value compared to competitors unless it exclusive.