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NETFLIX

MGMT 5005 Supply Chain Risk Management

Submitted to
Prof. Amy Vuong

Submitted by
Ramandeep Singh, Harpreet Kaur, Natarajan Sundaresh, Kanwaljit Singh
November 21, 2014

NETFLIX
Contents
EXECUTIVE SUMMARY................................................................................................................................... 2
ISSUE IDENTIFICATION .................................................................................................................................. 3
ENVIORNMENTAL AND ROOT CAUSE ANALYSIS ........................................................................................... 3
SWOT ANALYSIS ............................................................................................................................................ 4
Strengths: ............................................................................................................................................. 4
Weakness: ........................................................................................................................................... 5
Opportunities: ...................................................................................................................................... 5
Threats: ................................................................................................................................................ 5
PEST ANALYSIS ............................................................................................................................................... 6
ALTERNATIVES/OPINIONS ............................................................................................................................. 6
RECOMMENDATIONS .................................................................................................................................... 7
IMPLEMENTATION ........................................................................................................................................ 7
MONITOR & CONTROL: THE BALANCED SCORECARD ................................................................................... 7
REFERENCES .................................................................................................................................................. 9

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EXECUTIVE SUMMARY
Netflix, Inc. is the world's largest online movie rental service, with more than 10 million
subscribers (Netflix Media Center, 2009).
Netflix exhibits dominant economic characteristics in the online movie rental business. They
enjoy strong market size and growth rate when compared to rivalry competition. The number
of rivalries are increasing, and the market remains dominated by only a few sizeable
rivalries like Blockbuster Video, Wal-Mart, Walt Disney Movies and Movielinks
Downloadable Movies. Netflix is determined to offer new and innovative technology to
sustain their competitive advantage.
Netflix growth strategy entails making the best product and the best consumer experience
even better. Lead the expansion of internet delivery content by offering subscribers both
mail delivery and a continuously improving internet delivery option (Netflix Overview, 2009).
Netflixs vision is to change the way people access and view the movies they love. To
accomplish that, on a large scale, we have to set a long term goal to acquire 5 million
subscribers in the U.S., or 5 percent of the U.S. TV households over the next four to seven
years (Thompson C-41).
This vision is well devised and crafted setting short term and long term performance targets.
Current analysis shows less than 4 million subscribers in 2004, and in less than six years
their subscriber base has more than doubled to more than 10 million subscribers.
Their intent is to leverage their online DVD rental leadership to grow both subscribers and
net income, thereby using a balanced scorecard approach relating to financial performance
and those related to strategic performance.

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ISSUE IDENTIFICATION

MARKET RISK - Ever expanding market size and threat to be left out in a market.
They should focus on increasing their focus in different markets like India instead of
only focusing on U.S

BARGANING POWER customers have higher bargaining power due to available


different option.

SUPPLIER STRENGTH- Cost of content is increasing as they need to buy in from


different supplier and producers as they have copyright, so the cost is increasing for
Netflix.

COMPETITORS HBO, AMAZONE, GOOGLE, HULU etc.

FINANCIAL RISK High debt and increasing working capital cost.

ENVIORNMENTAL AND ROOT CAUSE ANALYSIS


DVD rental outlets and kiosk services, such as Blockbuster, Movie Gallery and Redbox
(Source: Netflix Annual Reports 2010)
Video package providers with pay-per-view and VOD content including cable providers,
such as Time Warner and Comcast; direct broadcast satellite providers, such as DIRECTV
and Echostar; and telecommunication providers such as AT&T and Verizon (Source: Netflix
Annual Reports 2010)
Online DVD subscription rental web sites, such as Blockbuster Online (Source: Netflix
Annual Reports 2010)
Entertainment video retail stores, such as Best Buy, Wal-Mart and Amazon.com (Source:
Netflix Annual Reports 2010)
Internet movie and TV content providers, such as Apples iTunes, Amazon.com, Hulu.com
and Googles YouTube. (Source: Netflix Annual Reports 2010)
Popularity of alternative entertainment mediums which can be distributed using a similar
business model like Netflix (Example Gaming CD and DVDs)
Currently the time for distribution in DVD format is shorter than release to other mediums
(VOD, premium TV etc) after a theatrical release of a movie. This gives a competitive
advantage to the DVD market. However this competitive advantage may go if the
distribution to these multiple formats happens simultaneously.
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NETFLIX
The proprietary technology and information systems are also based on a certain historic
scale of operations which has increased substantially and this could lead to systemic
disruptions and negatively impact operations.
The DVD format would probably give way to Internet movie and TV content providers and
Netflix would be left stranded with its warehouse and sophisticated mail handling systems.
However the one thing which will continue to survive is CINEMATCH and its database of
billions of movie ratings which will give a competitive edge to Netflix when it decides to
switch over to other formats of movie distribution.

SWOT ANALYSIS
Strengths:

Brand Recognition: The Netflix brand is very well known and has become a verb
among many internet users.
Accessibility: The Netflix App has enabled their subscribers the ability to stream
media on nearly all internet enabled devices.
Original Content: Award winning original content for series House of Cards and
Hemlock Grove and other critically acclaimed titles.
Brand Recognition: The Netflix brand is very well known and has become a verb
among many internet users.
Accessibility: The Netflix App has enabled their subscribers the ability to stream
media on nearly all internet enabled devices.
Original Content: Award winning original content for series House of Cards and
Hemlock Grove and other critically acclaimed titles.
Cost of Content: The cost of mass licensing packages and the in-house original
content production has the company undertaking a large amount of debt.
DVD Subscribers: DVD and Blu-ray subscribers have dramatically declined in 2013.
Raising Subscription Prices: Netflix has a difficult time raising subscription
prices. The last attempt to raise monthly subscription prices left currently subscribers
upset and Netflix stock tumbling.
International Expansion: The ability to create original content will enhance
international growth.
Original In-House Programming: With many house-hold entertainment devices
connected to the internet, there is an opening for internet tv and Netflixs exclusive inhouse content poises the company for that demand.

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Word-of-Mouth Campaigns: Marketing expenses have steadily decreased due to


word-of-mouth campaigns based on original content.
ISPs: Netflix accounts for about 30% of daily internet traffic. With net neutrality laws
struck down, Netflix may have to assume more debt or cut content.
Competition (Amazon Prime, YouTube): Both, Amazon Prime and YouTube has
announced their own original content productions and aim to be a direct competitor to
Netflix.
Content Price: The price of licensing and renewing those license agreements
remain to be the largest threat to the companys ability to operate at a profit.

Weakness:

Cost of Content: The cost of mass licensing packages and the in-house original
content production has the company undertaking a large amount of debt.
DVD Subscribers: DVD and Blu-ray subscribers have dramatically declined in 2013.
Raising Subscription Prices: Netflix has a difficult time raising subscription
prices. The last attempt to raise monthly subscription prices left currently subscribers
upset and Netflix stock tumbling.

Opportunities:

International Expansion: The ability to create original content will enhance


international growth.
Original In-House Programming: With many house-hold entertainment devices
connected to the internet, there is an opening for internet tv and Netflixs exclusive inhouse content poises the company for that demand.
Word-of-Mouth Campaigns: Marketing expenses have steadily decreased due to
word-of-mouth campaigns based on original content.

Threats:

ISPs: Netflix accounts for about 30% of daily internet traffic. With net neutrality laws
struck down, Netflix may have to assume more debt or cut content.
Competition (Amazon Prime, YouTube): Both, Amazon Prime and YouTube has
announced their own original content productions and aim to be a direct competitor to
Netflix.
Content Price: The price of licensing and renewing those license agreements
remain to be the largest threat to the companys ability to operate at a profit.

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NETFLIX
PEST ANALYSIS

ALTERNATIVES/OPINIONS

Focus on original content publishing like Orange is the new Black increased
revenues and lower costs

Pursue market penetration by excellent service and low prices

Capitalize on their award winning Customer preference software differentiation


factors

Create more partnership to create perfect hardware

Invest in innovation

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NETFLIX
RECOMMENDATIONS

Production of in house serials, movies and content would be a major game changer
for Netflix

Increased revenues at lower costs

Capture the loyalty of customers through copyrighted content

Price rises should be done with caution recent hike led to loss of 6 M customers

Netflix should start broadcasting ULTRA HD Contents

IMPLEMENTATION
This strategy can be implemented by following many key factors, few of which are listed
below:
1. Strong human resource team
2. Continuous and consistent representation of the company
3. Develop more distribution centres to accommodate the growing economies of scale
4. Focus on Marketing through social media
5. Investing in R&D to improve efficiencies
6. Improve the MIS (Management information system) to achieve supply chain efficiencies.

MONITOR & CONTROL: THE BALANCED SCORECARD


This method of analysis will allow firms to evaluate strategies from four perspectives:
Financial performance, customer knowledge, internal business processes, and learning and
Growth. The following table is Netflixs Balanced Scorecard:

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Area of Objectives

Measure or Target

Time

Primary

Expectation

Responsibility

Customers
1. Number of

Increase customer

2018

customers

base to 100 M in 3

Aggressive

years

expansion

Managers/Employees
1. Employee welfare

Employee Turnover

4 years

decreased by 20%

Enhance
communication.

Operations/Processes
1. Lowering the Cost
of software

Marginal Cost

2018

decreased by 4%

Outsource more
types of content.

implementation
Business Ethics/Natural
Environment
1. Eco friendly
company

E waste to reduce by 40

2016

ISO 14001
standard

Financial
1. Financial
sustainability

Net Profit increased to


6% (currently 3%)

2019

TQM practice

Optimize global
expansion

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REFERENCES

www. Netflix.com

http://www.ibtimes.com/hbo-challenges-netflix-streaming-announcement-questionsloom-about-price-quality-cable-tvs-1705777

http://qz.com/299989/netflix-now-accounts-for-35-of-bandwidth-usage-in-the-us-andcanada/

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