Securing ProFit In a Competitive Industry: The Story of Netflix

Securing Profit in a competitive industry: The story of Netflix

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1. Introduction

Netflix is currently, the world leader in Internet television network entertaining over 83 million people in more than 190 countries. On an average Netflix subscriber enjoys more than 125 million hours of TV shows and movies every day (Netflix, 2016). With a moderate internet connection Netflix members can enjoy as much as they want from anywhere and whenever they like. Apart from DVD rental service, presently Netflix is providing unlimited and commercial free streaming service. Any subscriber can enjoy their service with an internet TV or most internet enabled devices for a monthly fee (Netflix, 2016). Despite of some vigorous competition with HBO, Amazon Prime, Hulu and piracy, Netflix has established its dominance over the internet TV market. According to Netflix they compete “against linear networks, pay-per-view content, DVD watching, other Internet networks, video gaming, web browsing, magazine reading, video piracy, and much more” (Netflix, 2016). Since the market with DVD rental service is declining over the time Netflix has some big plans to penetrate the vast online video streaming market especially globally.

Despite of being the market leader, it is extremely difficult to grow continually in United States due to the chances of market maturity in near future. So, Netflix is putting more effort to expand globally. Furthermore, they will be more focused on their original content to attract domestic market (Netflix, 2016). But it will be very challenging to penetrate international market with difference in culture, social structure and taste of the people from different geographic area. In the past quarter, Netflix operating profit from US market was $2.90 per month in the last quarter while in international market they had lost $0.60 per subscriber. Alarmingly, the company has experienced a loose of around $0.90 per international subscriber per month for the last 10 quarters (Richter, 2016).

2. Analysis

2.1 SWOT Analysis

SWOT analysis has been conduct to get a better inside about the company’s strength, weakness and opportunities and threat. For this research paper, SWOT analysis will help to find out the forces shaping their financial strategies and the factor affecting their financial success. Further, it will also assist to analyze where the company is currently established in respect to the whole industry and thereby contributing in providing comprehensive recommendations.

Strengths.

• Netflix has established a solid brand reputation both locally and globally serving more than 80 million customers (Netflix, 2016).
• Netflix accounts for almost one third of all internet uses in US (Watt, 2014).
• Original programs are gaining extreme popularity achieved more than 50 awards and numerous nominations (Allen, Feils & Disbrow, 2014).  
• Streaming library is very rich with over 100,000 movies and TV show. So, the customer can select from a wide variety of collections (Netflix, 2016).
• Low monthly subscription fee starting at $7.99 (Allen et al., 2014).
• Succeed to introduce Netflix apps for different internet devices (Netflix, 2016).
• Uses of predictive algorithm to suggest customers about their possible choices (Netflix, 2016).

Weaknesses

• Movie offering time is limited due to contacts with the suppliers. It could happen that customer wants to watch a movie but that no longer available in library (Netflix, 2016).
• Original content production is expensive and results a huge amount of debt (Netflix, 2016).
• Netflix’s global market is still struggling to gain profits. Lost almost $0.90 per month per customer in last two years (Richter, 2016).
• Wait time is larger for series and new releases. As a result customer intended to switch to other competitors (Stephan, 2013).
• Decline is DVD rental business is reducing the cash flow. The investment in DVD rental business would be a great burden if the business collapses totally.

 Opportunities

• Global market is expanding for the industry both in terms of internet user and technological expansion (Netflix, 2016).
• Planning to produce original content for different culture group. That will make Netflix even more popular globally (Allen et al., 2014).
• Involving customers in the business process through seeking their input for selecting program content. Customer will feel them more attached and prioritized (Stephan, 2013).
• Using multiple platforms for advertizing. Netflix will send text to subscriber’s every device possible to inform them about new contents (Netflix, 2016).
• Reduction U.S. marketing budget, substituting by strong brand image and word of mouth.
• Global market possesses a great potential for this industry. Careful scrutinizing of global market can help them to move towards right direction (Netflix, 2016).

Threats

• Netflix has to compete with a huge number of market competitors. Hulu, Amazon Prime, HBO are some of the major players in the industry (Netflix, 2016).
• Piracy is a serious threat to the industry. A lots of site is providing free contents that user can download through torrent files. This duplicity is hampering the industry.
• With developing technologies human taste and user trend is also changing. Now people are getting reluctant to spend too much time on TV because they have devices like cell phones or tablets (Stephan, 2013).
• Netflix have to heavily rely on internet provider. If the internet connection is slow their service will be interrupted. This will be even crucial in terms of international market where internet is rather slow for continuous streaming.  

2.2 Force’s shaping Netflix’s financial strategies

Based on the SWOT analysis following predominant forces has been identified that shaping Netflix financial strategies.  

Stage of the product life cycle

The online streaming is still at early stage of product life cycle. The initial costs are higher and large investments are needed. People are still trying to understand what benefits this new product or service will bring in. For Netflix, if we consider the domestic market the product has already reached their growth phase but as far as the international market concern it is still at initial phase, trying to develop a demand in international market (Ferrell and Hartline 2014).

Capital Intensity

One of the major challenges for online streaming industry is the cost associated with their establishment. It is a capital intensive business. One has to invest a lot of money to pay the content provider for licensing movies or TV show. Even they want to provide original content still it needs a lots of investment. Current Netflix are in considerable debt because they are trying to shift towards original content for domestic market (Netflix, 2016).    

Economy of scale

This is one of the less concerning factor for Netflix. In fact, what they have to be more conscious about is the diseconomies of scale. It means they have to maintain a balance between their growths and profit (Harrison & John, 2016). As for example, if Netflix invest too much in making their content rich they might come to a point where they have so many options in their library but most people are confined in popular programs.

2.3 Factor’s determining financial success

There are mainly three predominant factors that determining Netflix financial success.

Technology

Netflix has shown tremendous ability in predicting technological trend and adapting market. Initiated in 1997, as DVD rental service by mail Netflix quickly predicted that their future lies on online streaming business. Any captured a bulk of market through fast mover strategy (Stephan, 2013). With the current market trend it would be predicted that the next big shift also embark through technology.    

Cost of service

A ticket at movie will cost you $16, in-store rental could cost $4 plus possible chance of late fee, a DVD rental from Kisok is $1 per night, and pay per uses can be more expensive than that. Online streaming industry has provided the cheapest way for home entertainment and Netflix is leading the industry with very comparative pricing at $7.99 per month (Netflix, 2016).

Convenience

People were able to enjoy the real sense of convenience after online streaming come into effect. It enabled the views to customize their program and watch whatever they like and whenever they have chances (Edgerton, 2016). More than 74% of American people use online streaming so that they can enjoy the right entertainment at the right time and they do not have to worry for the program they have missed during the day time.