RAW CASE ANALYSIS

(PRESENTATION OUTLINE)

CASE TITLE:
NETFLIX: THE KING OF STREAM

Submitted by:
BORDEOS, Percival Jr. C.
GUMPAL, Jose Marie Jesus
CASTILLO, Luzille

Submitted To:
Prof. Joy Maranan- Quintos
Title. NETLIX: THE KING OF STREAM

INTRODUCTION
Netflix, Inc. is now considered to be one of the most successful entertainment
mass-media-companies of all times. Netflix, Inc. originally began its inception in 1997 by
providing services to customers through means of mailing out actual copies of movies,
shows, video games and other forms of media through standard mailing system.

Today, the platform has advanced to streaming technologies that have elevated and
improved Netflix’s overall business structure and revenue. The platform provides its
viewers the ability to stream and watch a variety of TV shows, movies, documentaries
and much more, through means of using a software application paving a way to a new
era of entertainment called streaming which made them gain the title “King of Stream”.

Company Profile
Company: Netflix, Inc.
CEO: Reed Hastings
Year founded: 1997
Headquarter: Los Gatos, USA
Type: Public
Ticker Symbol: NFLX (NASDAQ)
Market Cap (Sept 2020): $ 227.59 Billion
Annual Revenue (FY19): $ 20.16 Billion
Profit |Net income (FY19): $ 1.86 Billion
Founders: Reed Hastings, Marc Randolph

History and Timeline

 Marc Randolph and Reed Hastings founded Netflix on August 29, 1997 in Scotts
Valley, California. When they heard about DVDs, first introduced in the United States
on March 24, 1997, they tested the concept of selling or renting DVDs by mail by
mailing a compact disc to Hastings' house in Santa Cruz. When the disc arrived
intact, they decided to take on the $16 billion home-video sales and rental industry.
Hastings is often quoted saying that he decided to start Netflix after being fined $40
at a Blockbuster store for being late to return a copy of Apollo 13, but he and
Randolph designed this apocryphal story to explain the company's business model
and motivation.
 In February 2007, the company delivered its billionth DVD, and began to move away
from its original core business model of DVDs, by introducing video on demand via
the Internet. Netflix grew as DVD sales fell from 2006 to 2011.
 In January 2013, Netflix reported that it had added two million United States
customers during the fourth quarter of 2012, with a total of 27.1 million United States
streaming customers, and 29.4 million total streaming customers. In addition,
revenue was up 8% to $945 million for the same period. That number increased to
36.3 million subscribers (29.2 million in the United States) in April 2013.
 2013 – Present: Netflix Conquers the World
 At the 2016 Consumer Electronics Show, Netflix announced a major international
expansion of its service into 150 additional countries. Netflix promoted that with this
expansion, it would now operate in nearly all countries that the company may legally
or logistically operate in.
 During the COVID-19 lockdown in 2020, Netflix acquired 16 million new subscribers,
which almost doubles the result of the final months of 2019.

LOGO EVOLUTION
 Analysis of Reports

Demand and Supply

It

wasn’t until 2007, when Netflix launched “streaming” services through

Netflix subscription plans, that it attained significant revenue streams and additional
revenues.

 Monthly subscriptions fees with three different price options In US market (Basic –

$8.99/month, Standard – $12.99/ month & Premium – $15.99/ month)

 Netflix has established a global presence with international streaming to expand its

customer base.

 Upselling opportunities – Upgrade from Basic to Premium Plan etc.

 Money-making movie studio with Netflix original shows like fuller house, house of cards,
etc.

Price increases for non-essential products and services are by nature risky, but
they’re (usually) necessary. Netflix’s pricing strategies are bound by the same laws of
supply and demand that affect every other commercial entity’s rates, and Netflix likely
felt compelled to raise prices due to mounting pressure from several directions. Content
is officially king online, but for companies like Netflix, it’s even more important than that:
Content is their lifeblood. Netflix currently claims the largest share of the streaming
video market thanks to its proactive efforts to develop original shows and its
advantageous library of licensed content. Part of its appeal may also lay in its members’
“binge-watching” habits, which Netflix encourages by releasing entire seasons all at
once rather than one episode at a time.

Pandemic Boost
Netflix reported a massive surge in users as people stayed home due to the
coronavirus, but the company’s stock dropped almost 9% after hours on guidance for
new subscribers that was less than half what analysts expected.

Netflix’s results for the second quarter reflect for the first time how business looked
during three full months of a pandemic. The company beat expectations for revenue
and global paid net subscribers. 

Demand for in-door activities is off charts as people around the globe are suggested to
stay at home in order to stay safe from COVID-19. Video platforms and video games
demand are on a rise.

Netflix provided third-quarter revenue guidance of $6.33 billion, below analyst estimates
of $6.40 billion, according to Refinitiv. It expects third quarter earnings of $2.09 per
share, above analyst estimates of $2.01.

Netflix expects 2.5 million net subscriber additions for the third quarter, while analysts
were expecting 5.27 million.

Country by country, Netflix continues to localize and work out what resonates with
consumers. The continued momentum in Netflix subscriptions is now also against a
backdrop of an increasingly dynamic and diverse competitive landscape. However, the
high-profile new service launches are at least in the short term, complementary. In its
key countries, Netflix remains the staple service, with the vast majority of households
choosing to subscribe. As we head beyond the lockdown and into H2 2020 and beyond,
the key objective won’t just be how many subscribers Netflix adds, but also how it will
continue to retain existing subscribers.

Demand for in-door activities is off charts as people around the globe are suggested to
stay at home in order to stay safe from COVID-19. Video platforms and video games
demand are on a rise
Revenue
How does Netflix Make Money?

Netflix was a platform which started as only offering an extensive collection of movies,
shows and dramas (925 listings) through the mail-in-delivery system. It wasn’t till
2007 when Netflix has decided to convert their business structure from mail-in-system
to streaming content based on subscriptions. Before launching online streaming in
2007, Netflix revenue on average summed at annually at around $997 million. 

Subscription-based Business Model

o Netflix has over 193 million members from over 190 countries (as of July

2020)
o In fiscal year 2019, Netflix generated $20.16 billion annual revenue from
both the United States and international regions.

Important partnerships

 One of the most influential tactics implemented was its ability to build alliances
with a wide range of movie producers, filmmakers, writer, and animators to
receive content and legally broadcasting the contents required aligning licenses.
 To make the Netflix platform and its streaming possible, setting the partnership
between Internet Service provider was also crucially important.

Technology

Technology platforms allowed “streaming” accessibility to become convenient and

unique and during their conversion year in 2007, not a lot of media companies
offered such, which made the platform greatly attractive.

Pricing Strategy

Porter’s Five Forces

 Netflix, Inc. is one of the leading firms in the CATV Systems. Over the years
Netflix, Inc. has redefined the ways of doing business in Services. Netflix, Inc. is listed at
New York Stock Exchange (NYSE) and have a market cap 65.41B USD.

Threat of New Entrants

Threat Level: HIGH

The COVID-19 pandemic gave the whole streaming platform industry a whole new
opportunity as people all over the world are recommended to stay at home in order to
control the said pandemic. People all over the globe will have to rely on streaming
applications, video games and other in-door activities to manage their boredom.

Major organizations such as Apple, Disney, HBO and Britbox (BBC and ITV) are either
launching or have recently launched their new streaming services. Disney has already
launched its streaming platform in US and managed to gain many subscriber taking
advantage of its own established popularity.
Barriers to entry are high for a new entrant who doesn't already produce their own video
content, due to the extremely high investments needed in either producing new content
or acquiring content from big players. For established organizations in the entertainment
industry, the barriers to enter the specific industry are fairly low, as they will be able to
immediately launch the service with their own content and can already have a fan base
for the organization as a whole or for a specific series.

The threat of new entrants is a very real and serious issue for Netflix with an increasing
number of organizations deciding to launch similar services with their own content. The
size of these organizations also means initial costs for technology and marketing would
not be an issue. While many customers will have multiple subscriptions, there will no
doubt come a time where subscribing to so many services is no longer viable so they
may decide to close their accounts.

In conclusion, the threat of new entrants is high for Netflix and must be monitored
carefully.

How Netflix, Inc. can tackle the Threats of New Entrants

 By innovating new products and services. New products not only brings new
customers to the fold but also give old customer a reason to buy Netflix, Inc. ‘s
products.

 By listening to audience, Netflix can manage its products knowing what to keep,
what to discard and what to acquire.

 By developing and improving new features such as the Netflix Party which
enables two or more viewers watch Netflix together. However, it is only available
in Laptops and Ipads. Making it available on mobile devices would gain hype in
this Pandemic situation.

 Building capacities and spending money on research and development. New

entrants are less likely to enter a dynamic industry where the established players
such as Netflix, Inc. keep defining the standards regularly. It significantly reduces
 the window of extraordinary profits for the new firms thus discourage new players
in the industry.

Threat to Substitute

Threat Level: Moderate

• Many substitutes (DVDs, satellite/cable TV, etc.)

• Decline in traditional medium viewing

• Reluctance to adopt new technologies (commitment to traditional TV, for

example→aging population of key markets)

• Threat of substitutes trending towards being diminished

The substitute products pose moderate level of risk in the media and entertainment
industry.

When a new product or service meets a similar customer needs in different ways,
industry profitability suffers. For example, services like Dropbox and Google Drive are
substitute to storage hardware drives. The threat of a substitute product or service is
high if it offers a value proposition that is uniquely different from present offerings of the
industry.

Certain customer segments still tend to rely on substitutes like Satellite and Cable TV,
DVDs and Rentals, and Movie Theatres for entertainment. Customers will continue to
rely on television to watch live shows which get broadcasted on specific channels and
on theatres to watch newly released movies.

While there is an increasing trend in the popularity and demand for digital streaming
services, rapid technological advancements may result in new and innovative
substitutes that could pose a threat in the future.
How Netflix can tackle the Threat of Substitute Products?

Netflix can focus on providing greater quality in its products. As a result, buyers would
choose its products, which provide greater quality at a lower price as compared to
substitute products that provide greater quality but at a higher price.

Netflix can focus on differentiating its products. This will ensure that buyers see its
products as unique and do not shift easily to substitute products that do not provide
these unique benefits. It can provide such unique benefits to its customers by better
understanding their needs through market research, and providing what the customer
wants.

Competitive Rivalry

In order to expand its offering, Amazon Prime not only gives you access to their video
streaming services, but many other benefits such as faster delivery (same day, 1 day),
Music and books.

Competitive rivalry is high is for Netflix. While competitors such as Amazon can offer
additional services for customers' subscription fees, others are removing the most
popular video content from Netflix to show on their own platforms.

If the rivalry among the existing players in an industry is intense then it will drive down
prices and decrease the overall profitability of the industry. Netflix, Inc. operates in a
very competitive CATV Systems industry. This competition does take toll on the overall
long-term profitability of the organization.

How Netflix, Inc. can tackle Intense Rivalry among the Existing Competitors in
CATV Systems industry
  By building a sustainable differentiation

 By building scale so that it can compete better

 Collaborating with competitors to increase the market size rather than just
competing for small market.

Power of Suppliers

Threat level: Moderate

 Content providers and creators make up the primary suppliers to the online video
streaming industry. These suppliers are under no obligation to create licensing
agreements with Netflix, or its competitors. They are fortunate to have numerous
options in terms of profit generation and Netflix is simply one avenue to garner
revenue.
 Another major supplier and enabler of Netflix’s service offering is network and
broadband providers.   Netflix, YouTube, Amazon Instant Video, and the other
online streaming-video providers all require a broadband connection.
 Traditionally, cinemas want an exclusivity window of up to 90 days before moving
onto on demand streaming services. Netflix, however, has been fighting back
against the major cinema chains by demanding a window of 45 days at most. 

Almost all the companies in the CATV Systems industry buy their raw material from
numerous suppliers. Suppliers in dominant position can decrease the margins Netflix,
Inc. can earn in the market. Powerful suppliers in Services sector use their negotiating
power to extract higher prices from the firms in CATV Systems field. The overall impact
of higher supplier bargaining power is that it lowers the overall profitability of CATV
Systems.

How Netflix, Inc. can tackle Bargaining Power of the Suppliers

 By building efficient supply chain with multiple suppliers.

  By experimenting with product designs using different materials so that if the
prices go up of one raw material then company can shift to another.
 Developing dedicated suppliers whose business depends upon the firm. One of
the lessons Netflix, Inc. can learn from Wal-Mart and Nike is how these
companies developed third party manufacturers whose business solely depends
on them thus creating a scenario where these third party manufacturers have
significantly less bargaining power compare to Wal-Mart and Nike.

Power of Buyer

Threat level: Moderate

 Viewers are not tied into contracts, so many viewers are paying on a monthly
basis with the option to cancel subscriptions at any time, thereby putting even
more power into the hands of the consumer.

 The industry is not very price-sensitive. As all the services are priced at very
similar rates, viewers will mainly focus on the quality of content. As of January
2020, a single subscription costs $12.99 for Netflix, Amazon Prime $8.99, Hulu
$5.99 and Disney+ $6.99 a month.Netflix subscribers represent buyers to the
industry, as do consumers of the competition. As individuals, the average
consumer has minimal buying power or influence in regards to pricing, and
content provided.
 The power of buyers cannot be underestimated here, with viewers now having
the choice to watch whatever they want if they cannot find something they desire
on Netflix they can simply look on a competitors site for something else.

How Netflix, Inc. can tackle the Bargaining Power of Buyers

 By rapidly innovating new products. Customers often seek discounts and

offerings on established products so if Netflix, Inc. keep on coming up with new
products then it can limit the bargaining power of buyers.
  New products will also reduce the defection of existing customers of Netflix, Inc.
to its competitors.

CONCLUSION

Today, Netflix is worth $227 Billion in market cap value. Perhaps, it isn’t really

about what a company sells, rather, it’s about how a company sells or promotes its
products. Through Netflix’s powerful technological tactics, innovating the accessibilities
has helped to increase customer/user experience positively. Netflix implemented in
several areas that helped to capture the global market. 

The future of Netflix is not certain. While its product is great, the company has paved
way to other companies that would want to over-take its current market position like
HBO Go and Amazon Prime. Netflix is still the king of streaming and still one step
ahead of the game but they shouldn’t be complacent.
 RECOMMENDATION

To maintain supremacy, Netflix need to meet consumers’ constant quest for

“more, more, more” entertainment options by continually expanding and updating its
inventory. With Netflix’s credentials as a serious player in TV and feature-film production
well established, Netflix seems poised for even greater success in 2018 and beyond.
Predictably, Netflix remains strongly committed to producing original programming, and
the company is reportedly planning to produce around 700 Netflix Originals in
2018 alone, having increased its content budget from $6B to $8B.

Competition from rivals including Amazon and Hulu will likely intensify in the coming
years, but Netflix still has plenty of options:

 Augmented and virtual reality content

It’s practically impossible to speculate about the future of home entertainment—and,

by extension, the future of Netflix – without talking about augmented reality (AR) and
virtual reality (VR).

 Better shows, driven by data

Currently, Netflix uses the data it knows about us to optimize which shows we’re
shown in our discovery queues. However, with so much data at its disposal,
Netflix is uniquely positioned to produce substantially better programming using
this same data.

With all of the data Netflix has about us and the shows we watch, Netflix isn’t just
equipped to get people to watch more shows but to actually make better shows.
A more data-centric approach to TV production could be one area of growth we
may see as competition for audiences intensifies in the coming years.

 High-profile acquisitions
 Media consolidation is one of the single most important trends in entertainment
today. With several mega-mergers fundamentally reshaping the media landscape in
North America and around the world, Netflix may find itself negotiating strategic
acquisitions of major media publishers to acquire existing intellectual properties,
broadcast rights, and service providers. For example, Disney’s acquisition of 21st
Century Fox, a deal that will see Disney assume indirect ownership of Netflix rival
Hulu, may force Netflix to look beyond its own backyard so that the company can
effectively preempt competing programming.

REFERENCE

https://sgmanetflix.weebly.com/buyer-and-supplier-power.html
http://fernfortuniversity.com/term-papers/porter5/analysis/3012-netflix--inc-.php
https://toughnickel.com/industries/Porters-five-forces-analysis-of-Netflix-Inc
https://www.sdcexec.com/warehousing/article/11442396/the-effects-of-supply-and-
demand-on-netflix-pricing-strategies
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