AN EXECUTIVE SUMMARY

To: Ted Sarandos & Reed Hastings

From: Sagnik Bhattacharya
Subject: Netflix Competitive Position and Analysis
Date: August 29, 2020

Introduction
Netflix, Inc. is an American technology and media services provider and production company headquartered in
Los Gatos, California. Marc Randolph, Mitch Lowe and Reed Hastings founded Netflix in 1997 in California.
The idea concepted when Hastings was charged a late fee for returning a movie after the due date. Its website was
launched in April 1998 and their business model was that of a pay-per-rental for movies. The company decided
to venture into the monthly subscription model in 1999. In 2007, the company’s website was live for viewing
movies online that made Netflix grow while DVD sales declined. Currently, Netflix is available worldwide except
in mainland China, Syria, North Korea and Crimea. With offices in 7 countries, Netflix produces and distributes
content from countries all over the globe. Since 2012, Netflix offers a variety of “Netflix Original” content.

Internal Analysis
Core Competencies:
The core competency of Netflix is undoubtedly its content. Its content comprises scores of Emmy and Oscar
award winning shows. Netflix is also a forerunner in original content development among its peers. The range
and high quality of their original content is one of their competitive advantages. This original material cannot be
substituted given the size and continuous funding. Netflix has targeted the differentiated market space with
premium pricing but wide range of content.
Netflix’s other core competency is their data analytics capability; unrivalled product offerings, utilizing the
consumers’ likes & habits, making sure that Netflix finds something for everyone.

Netflix’s other competencies include:

• Brand name
• Highly skilled human resources
• Technological expertise
• Seamless UX
• Streams in multiple interfaces & devices
• Language not a barrier
• Revolutionized dubbing, captioning, etc.
• Expertise in local content

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Organizational Culture at Netflix
• Value creation
• Freedom to innovate
• Zero micromanagement is the mantra
• Enormous development of the employees
• High Social & professional recognition as a Netflix employee
• Income level of employees is the highest in the industry.

External Analysis
As do all players in the online streaming space, the external forces play an important part in forming the eventual
fate of the company, especially when the company is as disruptive as Netflix. This is to a great extent because the
world has shifted gears towards digitalization and continuous innovation.

Netflix’s Global Presence

From the PESTEL Analysis (Exhibit 1), we see how the political and legal factors in countries like China has
stopped Netflix from entering a huge market. Also, in this industry, the regular change in governmental laws in
terms of viewership also poses as a problem for this industry as a whole. Even though increasing buying power
has resulted in more subscribers, the competitive pricing remains a factor in most developing countries. The
COVID-19 pandemic has also played a major role in boosting the video streaming industry. Due to this, most
people were quarantined at home and binge watching became a daily word. Netflix gained over 15 million paid
subscribers due to the pandemic and gained a profit of nearly a billion dollars.

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Overall, the video streaming industry is
growing and is expected to grow at
approximately USD 82 Billion by 2023
at 17% of compound annual growth
rate (CAGR). North America
dominated the overall OTT market
share in 2017, as the region is equipped
with high broadband access as well as
number of services, which have already
moved on to providing several videos
in HD and 4K. However, the Asia-
Pacific region is expected to grow at the highest CAGR as telecommunication providers offer OTT services with
their data plans, which fuels the growth of the market. Companies like Amazon (Amazon Prime/Fire TV), Hulu,
HBO, Google (YouTube Premium), Apple, Disney have entered the market as the barrier to entry in streaming
space is low. There is no “entry blocking” patented technology or any regulation that hinders the entrance of new
player. As per the Porter’s Five Forces Model (Exhibit 2), due to low barriers of entry and low switching costs it
is easy for any company to enter this space. Due to that many local content providers who previously used to
generate content on TV are shifting to the online video streaming platform. User preferences change with time
and most of the shows stay in the limelight for a certain period of time only, thus need to generate fresh content
becomes a must with ever changing needs. Also, Netflix has created a brand name for themselves through their
content. In the current scenario, Netflix is at the top of this industry but staying at the top over the years will take
Netflix to continuously improve their content and services offered. Licensing and actors for content generation
also come at a cost that these companies have to incur. The threat of substitutes is moderate as even though
traditional Television exists; people are switching to online platforms for greater ease of access.
Through a SWOT Analysis (Exhibit 3), we can say that Netflix clearly enjoys the first mover advantage in this
sector. They disrupted the market through their content instead of competing on price. Netflix has a great team of
analysts and programmers who enjoys a knowledge base of their customer’s preferences which helps them
generate curated content to different users. Even though the competitors are entering the market with huge
investments and cost of generating content is increasing by the day, Netflix has the opportunity to venture into
markets like China and technologies like Virtual Reality and 4K to provide a better user experience. The price
that Netflix charges is higher than most of its competitors but it has a differentiated market of its own.
From the Strategic Map (Exhibit 4), we can see that differentiation is the strategy adopted by Netflix to stay in
this business. The prices are high for a yearly Netflix subscription compared to its competitors. In terms of global

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presence Netflix is at par with Amazon
Prime but outbids the later in terms of
number of total subscribers. The online
video rental giant, Blockbuster had the
chance to buy Netflix in 2000 for $50
million but thought that Netflix was
competing in a very niche market and
passed on the opportunity. Netflix is
now valued at $32.9 billion.
With no differentiation in the
distribution of the content, subscription
(annual or monthly) and business
model, the video streaming industry is
rapidly converging towards becoming
an entertainment or media industry or a
content generation industry. As per Nielsen’s 2020 report the need for expanding the content is a key factor in the
OTT market and this is the market which Netflix has tapped and trying to succeed in the best possible way.
Though there are a few challenges towards sustainability, Netflix can stay at the top if they understand how to
generate better content at lesser prices and continue to provide services to a post-COVID world.

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Exhibit 1:
PESTEL Analysis
PESTEL Analysis helps us analyze the organization's circumstance and helps to uncover incongruities, ultimately
serving as a foundation for the executives to design risk. It includes Political, Social, Economic, Technological,
Environmental and Legal factors that have an impact on the organization.

Political:
• Government protection from piracy in services sector
• Stable politics and bans by government in certain countries
• Copyrighted material and content laws
Economic:
• Competitive pricing is important in developing countries
• Liquidity affected as cash outflows continue to increase
• Economic growth due to rising incomes affecting buying power
Social:
• Consumer behaviour always changing
• Diverse cultural factors and need to interpret many markets
• Changing demographics
• COVID-19 outbreak causing stir in global business
• Changing attitudes towards sustainability & environment etc. impacts viewership
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• Socio-cultural trends impacting content
• Web series gaining traction due to young people’s disappearing interest towards TV
Technological:
• Almost 50% yearly growth for the 4k TV Market
• Increases in video on demand
• Internet speed/capacity an absolute basic need and adjusting content as per the need
• Improvement of streaming quality by using lesser and lesser data
• Constant need to upgrade business model
• Multiple devices and interfaces should support the content
• With technological superiority, the barriers of entry are rising for this sector
Environmental:
• COVID-19 forcing more people to stay at home due to which this industry is boosted exponentially
• Competitors like Amazon prime are using renewable energy / best practices
• Laws changing best practices
• Socio-cultural attitudes toward sustainability
Legal:
• Proper legal structure required to implement contracts
• Duties in service sector
• Consumer lawsuits implications on Public Relations
• Strict Censorship (China, Middle Eastern countries)

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Exhibit 2:
Porter’s Five Forces Analysis:

Threat from
New
entrants

Bargaining Threat of Bargaining

Power of existing power of
Suppliers competition Buyers

Threats
from
Substitutes

New entrants (Low)

• Low switching cost from TV
• Industry Leader (Netflix) so threat from new entrants is likely to be less
• High on localized & foreign content
• Technological barriers are easy to achieve due to non-existence of a patented technology
Bargaining power of Buyers (High)
• Switching cost very minimal
• Can cancel anytime with no cancellation charges imposed
• Consumers subscribe to more than one provider thus brand loyalty is very less
• Cheaper than traditional entertainment
• High alternatives like Amazon, Disney, Apple or local providers
Threats of Substitutes (Moderate)
• TV, DVDs, cable etc.
• Unwillingness to switch to online medium
• Movie theatres
• Decline in TV viewing
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Supplier Power (Very High)
• Content is king
• Original content requires actors who has a high leverage with Netflix
• Onset of bidding wars
• Have to maintain reputation
• Content licenses may have long term fixed costs
• Can raise percentage of profit while generating original content
Threat of existing competition (High)
• High competition within few brands like Amazon, Disney, Apple who already gained popularity
• Local content providers are switching from traditional TV to online video streaming with their shows
• Volatile market with low switching costs
• Technology is evolving and hence competition may come up with some brilliant and disruptive technology

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Exhibit 3:
SWOT Analysis:
Strengths:
• Competitive First Mover Advantage
• Strong Brand Name
• Superior information and Knowledge Base
• Superiority with customer data and analytics
• Established Economies of Scale
• Flexible Infrastructre with low operating costs
• Great In-house content
Opportunities:
• Can penetrate untapped markets like China
which would increase viewership at an
exponential level
• Partnership with local content providers(cable
network channels) to increase content and
customer base and open a global market for
them
• Technological advancements like 4K quality,
Virtual Reality can be explored
Weakness:
• Depedence on internet service providers
• Country based laws
• High subscription cost as compared to Prime
and other OTT platforms
• Low brand loyalty
• Low rankings in terms of environmental
• High cost for curating in-house content
Threats:
• Content privacy is the biggest challenge
• Till end of 2019, Netflix recordeed losses and
had an outstanding debt of $2billion
• Competitors like Amazon, Disney(Hotstar),
Apple are entering the market with huge
investments
• Due to rising content cost, Netflix needs to
dervie a profit building model to keep the
business sustainable
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Exhibit 4:
Competitor Analysis:

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References:
[1] https://www.businessinsider.in/business/ecommerce/news/amazon-has-surpassed-150-million-prime-
subscribers-globally/articleshow/73910974.cms
[2] https://www.comparitech.com/blog/vpn-privacy/netflix-statistics-facts-figures/
[3] https://www.investopedia.com/articles/markets/051215/who-are-netflixs-main-competitors-nflx.asp
[4] https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years
[5] https://www.sec.gov/Archives/edgar/data/1018724/000119312518121161/d456916dex991.htm
[6] https://www.mediapost.com/publications/article/315055/amazon-expected-to-spend-5-billion-on-video-
conte.html
[7] https://www.aclu.org/issues/free-speech/internet-speech/what-net-neutrality
[8] https://techcrunch.com/2017/04/25/netflix-china-iqiyi/
[9] http://fortune.com/2018/10/02/netflix-consumes-15-percent-of-global-internet-bandwidth/
[10] https://www.statista.com/outlook/206/100/video-streaming--svod-/worldwide
[11] https://www.alliedmarketresearch.com/over-the-top-services-market
[12] https://currency.com/netflix-industry-analysis-are-there-threats-on-the-horizon
[13] https://en.wikipedia.org/wiki/Netflix
[14] https://en.wikipedia.org/wiki/Disney%2B
[15] https://en.wikipedia.org/wiki/Amazon_Prime
[16] https://en.wikipedia.org/wiki/Hulu
[17] https://en.wikipedia.org/wiki/Apple_TV%2B
[18] https://en.wikipedia.org/wiki/YouTube_Premium
[19] https://finance.yahoo.com/news/netflix-disney-media-giants-will-battle-streaming-2019-210353678.html
[20] Yuani Fragata and Francis Gosselin Who Said Disruption Would Be Easy: the economic & strategic
challenges of Netflix-
http://www.xnquebec.co/pdf/NETFLIX_FG8_EN.pdf

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