Running head: NETFLIX BUSINESS MODEL 1

Netflix Business Model

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Netflix began its operations of VOD in 1997 through it CEO, an American

philanthropist and an entrepreneur known as Wilmot Reed Hastings and a member of

the board of directors of Facebook got this idea after being compelled to pay a fine for

late returning of a tape by the Blockbuster. It is possible to infer that this was aimed at

competing Blockbuster but ironically at one point in 2000 Hastings wanted to partner

with blockbuster, an indication that he wanted to make a serious move in the market

since Blockbuster was the most famous by then (Radak, 2016). Blockbuster turned

down the offer and towards 2005 Netflix had beaten them and dominated the market.

Progressively, Netflix has reached a point of producing its own shows and has evolved

to become an undisputed kingpin in the VOD industry since 2013. By 2015 the company

had generated a revenue of over 6.78 billion USD which is to be noted that it just did not

come out of blues to make such revenue. The company has undergone various

transformations to reach this far. One question worth asking from such a tremendous

development is what kind of business model does Netflix use and the components of

the model that has driven it to success? This, in fact, draws the focus of this paper as

understanding this model would lead to understanding the criteria of operations of

business and how it has remained at the top of its game.

Customer Segments

Mass market: this forms the main target for Netflix as far as getting customers is

concerned. Nevertheless, following the notion that Netflix cannot satisfy every

customer, customer segments further occurs from the perspectives of domestic

(U.S.) and international ones like Canada, Latin America, etc. (Rauta, 2014).

Value Propositions
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Newness: Netflix ensures that is customers have access to free viewing which is

unlimited including TV shows and its own made productions. Some of these

programs cannot be watched unless somebody has subscribed to them.

Nevertheless, Netflix strives to enhance newness of the content alongside

quality. For instance, Netflix own production House of Cards won the Emmy

award in September 2013 as it managed to exceed market expectations (Rauta,

2014).
Convenience: this is brought about by the easiness in which the customer can

gain access to Netflix services. Rauta (2014) highlights that the customers need

to have an internet connection to be able to access the Netflix services. Besides,

customers have the ability to pause, fast forward along with other setting for

personal preferences which provide full control to their experiences with the

company. Finally, Netflix content is not ad-supported, thus a customer can enjoy

watching his/her program in a commercial-free environment.

Price: Netflix offers friendly prices with long hour of TV shows as well as movies.

However, this price is slightly similar to other companies such as Hulu (7.99$ per

month) and Amazon (6.60$). Netflix only exceeds these companies with the

elongated hours it provides for its customers (Rauta, 2014).

Channel of distribution

Online advertising: as an online subscription entertainment service Netflix uses

online adverts in social media and web-browsing to reach its customers. This is

the only greater chance the company can use as most of its customers spend

quite an enormous amount of time on the internet and therefore paying for an

online service would be more appealing to them.

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Broad-based media: Netflix uses TV and radio as the popular platform it can use

to reach its customers. The company has to persuade customers that internet

video forms a large chunk of streaming in future as well as suiting the needs of

the customers at friendly prices.

Strategic partnership: these have their specific significance which is critical in the

long-term plan. For instance, Netflix formed a partnership with Apple whereby

they allowed the owners of Apple TV set boxes to directly sign up for Netflix and

even pay for the services through their iTunes accounts. This in one way or the

other was an opportunity for Netflix to access the large customer base of Apple

("6 Strategies Netflix Can Teach Us for Dominating Our Market | Predictable

Profits - Leading Small Business Coaches", n.d.).

Customer relationships

Acquisition: the prosperity of Netflix is solely based on its subscribers. It is,

therefore, important to become acquainted with them in terms of knowing their

needs from the company and enhancing a stronger relationship with them.
Retention: the company should maintain a higher delivery of quality content

which would attract more customers and make them become attached to their

content. With good services and enhanced continuity of providing these services,

Netflix would manage to retain customers and increase the purchasing power.
Automated services: Netflix uses online services with user-friendly interface and

convenient as well. This enhances the relationship with their customers from the

perspectives of enhancing automated services. This in many ways is important in

enhancing the subscribers satisfaction.

Key activities
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Providing content: as an online-based business, Netflix must strive to satisfy the

needs of its customers through providing appealing content which can help in

value delivery. For instance, if focus is taken back to the past years, it is worth

mentioning that Netflix had warehouses where it used for delivering DVDs to its

customers. The company could open as early as 4 am so that the employees

could pack the on-demand DVDs for shipping during the afternoon (Voigt, Buliga,

& Michl, 2016).

Marketing: this becomes important where there is a noted decrease in

customers. Marketing is important as it assists in increasing the number of

subscribers leading to generation of more revenues

Video on Demand: this began in 2007 and had grown to become the largest

online movie streaming business with over 40 million subscribers as at 2013.

Due to competition, the company strives to produce original content so as to

continue satisfying its customers (Mikhalkina, 2014).

Key Resources

Top-quality streaming media infrastructure: this is a mandatory requirement as far

as retaining customers is concerned and making the user interaction better.

Netflix needs to upload media with substantial content on their sights which

would attract some fee from their customers (Mikhalkina, 2014)

Licensing: through uploading magnificent content into their website, Netflix would

get more customers attracted to the viewing of such content, and with various

watching platforms available, every customer would end up subscribing to be

given the license required to stream on the multiple platforms.

Originally own produced content: in the pursuit of creating a unique competition

Netflix started its own TV show house of cards. This is an in-house content
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aimed at holding customers who like the show because for them to enjoy it, they

have to subscribe to Netflix (Rauta, 2014).

Key Partners

Internet Providers: to enhance the continuity of streaming at high speeds Netflix

indulges into automated and constant optimization of the bit-rate used for

streaming through collaborating with internet providers. This is important as

Netflix services are solely based on interdependent internet platforms and

therefore strengthening a basic partnership with the internet providers is crucial.

Television networks and motion pictures: in the pursuit of delivering media

through the platform of motion picture studios such as FOX and others, Netflix

pays for the licenses for TV series it shows to its subscribers. This is done to see

to it that there is the delivery of original content (Rauta, 2014).

Cost Structure

Technology and development cost: these are used to fund the streaming

processes and to improve the originality of the content produced. In case there is

external content, Netflix has to pay for the license cost to bring the content

online. Finally, there are other costs affiliated with marketing which the company

uses to ensure it captures its customers (Rauta, 2014).

Revenue Streams

Monthly no commitment membership fee: customers pay a standardized fee of

7.99$ per month for membership, and this allows them to watch whatever they

want from Netflix database without further payments or limiting months of

contract (Voigt, Buliga, & Michl, 2016)

Conclusion
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In the effort to grow its business and increase profitability, Netflix should focus

more on customer segments and cost structure. With a strategy to grow more of its

streaming subscription database both domestically and internationally, it is worth

mentioning that all these relies on the ability of Netflix to satisfy its customers through

using value prepositions. To continue retaining the customers, it is important to focus

also on the key resources from the key partners as they strive to reach customers

through the various channels.

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References

6 Strategies Netflix Can Teach Us For Dominating Our Market | Predictable Profits -

Leading Small Business Coaches. Predictableprofits.com. Retrieved 8 December

2016, from http://www.predictableprofits.com/6-strategies-netflix-can-teach-us-

dominating-market/

Mikhalkina, T. (2014). 1 Netflix Business Model (1st ed.). City University London: Cass

Business School. Retrieved from

http://www.cass.city.ac.uk/__data/assets/pdf_file/0017/220517/Netflix.pdf

Radak, D. (2016). Breaking Down the Netflix Business Model: The History and the

Future of the VOD Giant. Business 2 Community. Retrieved 8 December 2016,

from http://www.business2community.com/business-innovation/breaking-netflix-

business-model-history-future-vod-giant-01582436#5jzwDsRhhIJqu6ri.97

Rauta, A. (2014). The Netflix Saga Part 1: The Business Model. investazor.com.

Retrieved 8 December 2016, from http://investazor.com/2013/11/15/netflix-saga-

part-1-understanding-business-model/

Voigt, K., Buliga, O., & Michl, K. (2016). Business model pioneers (1st ed.). Switzerland:

Springer International Publishing.