Netflix Summary
Netflix Summary
GROUP ASSIGNMENT
PALLAVI GROVER 1474651
YASHIKA DEORA 1462695
NEELANSHI SHARMA 1460507
SIMON J 1467248
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EXECUTIVE SUMMARY
E-business is the method of the future, and gradually Kiwis are adopting it. This
report focuses on an exploratory study of Netflix business model with a digital
enterprise context and its business activities. Moreover, its mostly concentrate on the
nature of the organization and the business exercises in e-commerce. This report will
analyse the efficiency of Netflix working and proceeds with a overview of the
company's revenue area and cost structure furthermore also the ways to deal with
value creation from the point of view of the organisation and for its customers.
Ultimately, the report finishes up with outlook on possible changes to enhance the
organization's value creation. There are some key issues that can be a case to
propose the organization to concentrate more on the activity of the site and focus on
significance of online networking.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY............................................................................................2
CONCLUSION ............................................................................................................14
REFERENCES ............................................................................................................15
APPENDICIES………………………………………………………………………16
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BUSINESS BACKGROUND
Netflix depends on the content it delivers to differentiate it from other programs in the
industry provided by its rivals. The major cost associated with Netflix is the cost of
the content. According to the latest figures the cost of licensing and production is
around $ 10 billion per year. But the revenue has only risen from around $ 5 billion to
$ 6 billion year on year. But shareholders and investors are unfazed by the deficit
since Netflix is adding subscribers in a good pace and also is expanding rapidly in
many parts of the world.
Later it was launched with wider platforms like the Xbox 360, Blu-beam plate players,
TV set top boxes and Apple PCs, hence inserting the openness idea as a key
variable of its development technique bringing about client base upgrade addition of
2 million individuals in 2010.
STAKEHOLDERS
Netflix tries to take into account everybody who has an overabundance to broadband
web access. It engages mostly grownups who are excessively occupied, making it
impossible to move out and search for alluring banner. Netflix also focuses on people
those are movie buffs and individuals who want the most value for their money.
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INDUSTRY OVERVIEW
BUSINESS MODEL
Netflix business model canvas is made of these standard segments
• VALUE PROPOSITIONS
• CUSTOMER SEGMENTS
• CHANNELS
• CUSTOMER RELATIONSHIPS
• REVENUE STREAMS
• KEY RESOURCES:
• KEY ACTIVITIES:
• KEY PARTNERS:
• COST STRUCTURE
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The image below will give the detailed parameters falling under each segment.
Convenience
Revenue Analysis
Netflix is one of the leading providers of streaming media which delivers TV shows
and movies over the internet. Its subscribers can watch videos on any internet
connected devices such as PCs, Macs, Smartphone, Game consoles, etc. Also in
United States, Netflix offers the delivery of the DVDs to the subscribers at their
address. Netflix generates revenues through the monthly membership fees for its
content streaming services and DVD-by-mail services.
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Netflix offers three types of streaming membership plans that differ by the quality of
the content offered and the number of screens that can access the content
concurrently.
1) International Streaming
2) Domestic Streaming
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As per the statistics, Netflix delivered a disappointing subscriber numbers as part of
its Q2 2016 earnings, which showed that the company had only added 0.16 million
subscribers in the U.S. in the three months ending June 30’16. That’s far below the
0.9 million which the company added during the same quarter a year ago, and even
below the company’s conservative April guidance of 0.5 million for the quarter.
The company generated a total of $2.1 billion of revenue across all of its businesses
during the three months ending June 30’16, compared to $1.64 billion during the
same quarter a year ago. The company’s net income was $41 million, compared to
$26 million for Q2 of 2015. This equals earnings per share of $0.09 compared to
$0.06 a year ago.
There are a number of risks involved with the concerned revenue component. Netflix
is completely dependent on its content streaming and the subscribers for the
revenue generation. However there are some weaknesses of the company that
could affect the total revenue of the company.
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They are ;
1) Netflix has a big window of time since when the movie is launched to when it
is been adopted by the Netflix library. Customers have to wait for 28 days to
access the content unlike its competitors which affects the revenue of the
company as a whole.
There are also some opportunities associated with the revenue component.
COST ANALYSIS
Netflix spent $607 million, $472 million, and $270 million on marketing, technology
and development, and general and administrative expenses respectively. Here are
the Netflix’s key costs and operating expenses areas:
Cost of Revenue:
This is referred to the expense of getting content. In the streaming segment of both
domestic and international, content expenses include amortizations of the streaming
content library and the licensing and acquisition of the streaming content expenses.
Both domestic and international segments of streaming includes the streaming
delivery expenses along with customer service and payment processing fees which
is also included in cost of revenue.
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Along with Streaming delivery expenses, equipment costs related to OpenConnect
(Netflix’s content delivery network) and all third-party costs that is associated with
delivering the streaming content are included as well.Delivery expenses for the
domestic DVD segment consist of the postage costs to mail DVDs to and from the
members and the packaging and label costs for the mailers;
Streaming Delivery: One of the major cost incurred by Netflix is streaming cost. It
costs 6 cent for Netflix to deliver a movie which uses 1.8GB of data and lasts around
2 hours. 3GB data is used to watch the HD movies and it would cost 9 cent for one
HD movie. This cost varies according to the data used by each movie/video.
Content: An important part of Netflix business is content acquisition. Netflix gets its
content from distributors, studios, and other suppliers through direct purchases,
revenue sharing agreements, and license agreements. For content delivery, Netflix
makes use of its own content delivery network (known as Open Connect) and third
party content delivery networks. For the delivery of DVDs in the US, Netflix has a
network of shipping centers for delivery and returns of DVDs.
- The company has incurred cost for $700 million in 2011and $1.2 billion in 2012 for
third party licence.
- In 2014, Netflix’s cost incurred on programming was higher than that of than
HBO, Amazon and Hulu.
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- According to The Wall Street Journal report in 2015, out of the Major Three,
Netflix had planned on designating the most funds toward acquiring content –
more than what Hulu and Amazon had projected on spending, combined.
Property: Netflix don't own properties and they prefer to rent/lease the
properties for the essential use. They have a lease agreement for global
distribution centre and once the lease agreement is over will be a tremendous
cost for Netflix.
Estimated Lease
Location Square Expiration Primary Use
Footage Date
Los Gatos, 250,000 March 2018 Global streaming corporate
California office, general and
administrative, marketing and
technology and development
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Financial Risk
The revenue and expenses of Netflix is highly co-related with the Euro, The
Canadian Dollar, Brazilian Real and The British pound. So there will be a negative
impact on the revenue and net income of the company which is communicated in US
dollar because of the changes that will come in the conversion rate.
Value Creation
Current Approach:
For the purpose of Value creation one has to be able to understand the meaning of
leverage to its fullest. Netflix has managed to leverage the competitive advantages of
different industries for its own benefit. The current value creation for the company
comes through licencing rights of content from media houses and by its ability of
convenience and control it offers to its subscribers over the purchased content
(Mikhalkina, 2014)
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Netflix makes available different content from diverse background to a diverse
audience with differing taste. This makes for highly desirable entertainment content
for the subscriber. Value is created by giving the customers complete control over
the content, in terms of the time of the day they want to watch, in terms of the genre
they prefer on a particular day, and the number of series or movies they wish to
watch.
Netflix has to make sure it signs the contract for the maximum possible time from the
content providers for the latest movies and series, and then be able to stream the
same over a longer period of time under different genres to keep it relevant for the
consumers, all at the same time drawing in more revenue from the same content.
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Value Creation in next 5 to 10 years.
The Value creation is going to lie in the ability to depend less on licencing and
producing in house. This will bring down licencing liabilities of the firm and reduce
the control production houses can exert over Netflix. By promoting in house movies
and series the firm will be better able to leverage on the economics of content and
be able to increase the profit.
This along with increasing its customer base over different locations and ensuring
more viewership for the same locally produced content will provide more cash
inflows and decrease capital expenditure. So the main value creation proposition for
the firm over next 5 to 10 years is going to be creating more in house content and
expanding to more locations (Statista, 2016)
Conclusion
Netflix was built to take advantage of and leverage on the advantages of the
entertainment industry for the customers. This as such is a brilliant way of generating
cash by offering control of the content over to the subscribers. So far as we
discussed this model has been highly effective in the ways it provides service to the
clients.
In the near future a lot will depend on its ability to cut down expenditure by producing
its own series and movies and not being dependent on production houses. Also with
the reach of broadband internet increasing day by day it gives more incentives for
the firm to expand globally and take monetary advantage by providing localized
content over a wider audience to increase profit.
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REFERENCES
Mikhalkina, T. (2014). Netflix Business Model. London: Cass Business School.
Williams.T. (2016) Netflix’s weak subscriber growth is just a blip. Retrieved from:
http://www.marketwatch.com/story/netflix-is-improving-earnings-revenue-at-the-cost-
of-subscribers-2016-07-19
Rosenfeld. E.(2016) Netflix beats on earnings, but plunges after weak guidance,
Retrieved from:
http://www.cnbc.com/2016/04/18/netflix-reports-first-quarter-2016-results.html
Anson, J., Boffa, M., & Helble, M. C. (2014). A Short-Run Analysis of Exchange
Rates and International Trade with an Application to Australia, New Zealand,
and Japan.
Chao, C. N., & Zhao, S. (2013). Emergence of Movie Stream Challenges Traditional
DVD Movie Rental--An Empirical Study with a User Focus. International
Journal of Business Administration, 4(3), 22.
Chicago
Sharma, A. M. O. L. (2013). Amazon mines its data trove to bet on TV’s next hit. The
Wall Street Journal, 1.
Finlay, S. C., Johnson, M., & Behles, C. (2014). Streaming Availability and Library
Circulation: An Exploratory Study. LIBRES: Library and Information Science
Research Electronic Journal, 24(1), 1.
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