Netflix in 2011

Netflix in 2011

• Background

The founder and CEO of Netflix, Inc. Reed Hastings, incorporated in 1997 and starting movie rental services in 1999. Netflix continues to use a subscription-based business model. The company, originally, was only a DVD-by-mail service. Customers had to pay a certain level of membership that allowed certain number of DVD’s to be rented at one time. DVD’s were mailed to the customer and then returned by the customer when they had finished viewing. In 1999, Hastings sensed an opportunity in the internet market and started movie rental service over the internet.

• Strategy

Reed Hastings developed a strategy which made Netflix the largest online subscription service provider that streams media and entertainment in the world. The various strategies include:

• Wide range of DVD selection
• Continuously acquired new content by establishing relationships with the studios and entertainment media providers
• Easy to use technology to order and identify for customers
• A Personalized feel by providing movie recommendations
• Providing options for customers between streaming and mail renting service
• Aggressive Marketing by large spending to create and raise brand awareness
• International expansion

• Porters Five Forces Model

1. Threat of new Entrants: The threat of new potential entrants is low. This is mainly due to high cost or high capital requirements in the form of DVD stock. New entrant will have to establish its brand. It will be quite expensive as a few players already exist in the market. So a lot of money has to be spent on marketing and advertisement.
2. Competition: The movie rental industry is extremely competitive as there are large numbers of firms in the industry. Consumers have many options such as in-store rental, online selection and mail delivery, kiosk rental or VOD. Low switching costs also increases competitiveness. Also there is low level of product differentiation. Competitors are Blockbuster, hulu, Amazon etc.
3. Substitutes: The threat of substitutes is high. Hence costs must be kept low. Substitutes are physically watching a movie in a theatre, watching on television, surfing a web, playing a video game etc.
4. Bargaining Power of Buyers:  The bargaining power of buyers is high. Industry is highly price sensitive as consumers have a lot of power. There is almost no switching cost and customers have huge amount of options on which products to choose.
5. Bargaining Power of Suppliers: The bargaining power of suppliers is also high. Suppliers normally increase the price of their products or reduce the quality of products which may decrease a company’s profit margin.

• SWOT Analysis

• Strengths

• First mover advantage
• Recommendations, i.e. optimized content suggestion
• Video On Demand
• Low Costs and User Experience
• Lack of commercials
• Personalization and User Experience

•  Weakness

• Bargaining power of suppliers
• Focus only on movies
• Lacking in new content

• Opportunities

• Increasing infrastructure capacity
• Growth in mobile internet segment
• Live Streaming on internet
• New international markets like India
• Rise in Independent studios will help Netflix directly deal with small studios and content providers
• Increase revenue through advertising

• Threats

• Increasing Competition
• Competitive Pricing Strategy used by competitors
• Net Neutrality
• Increasing Frauds