Student Edition

Group Work for Netflix Case

External Perspective
Conduct a Porters & PESTEL at the time the case took place?

Porters Analysis for Online Streaming

Power of Buyers: Low to Mid
 Although buyers are price conscious, the number of buyers meant that the power of one buyer
to affect price low.
 The backlash from the price change is noteworthy
Power of Suppliers: High
 Production companies have high power. Cost to make movies is extremely high and time
invested. Star power was needed to ensure interest in movies.
Threat of New Entrants: Low to Medium
 Hard to get into this industry without brand power and technology. At the time, many
established companies (e.g. Apple and Google) were entering online streaming.
 The customer is now ready – technology and broadband access
Threat of Substitutes: High
 Substitutes include anything that can serve as entertainment (e.g. games, books, going to
theatre etc.).
Competitive Rivalry: High
 Existing competitions in video rental from Blockbuster
 New streaming competitors include Applier iTunes, Amazon Video on Demand, Hulu, Google TV
and You Tube. Many cable companies also starting to offer Video Demand.

PESTEL Analysis
Political
 Tension over piracy as the music and movie industry lobbied for regulation
 Industry consolidation
Economic
 Higher postage rates and slower delivery of DVD rentals
 Recession of 2008
 Resistance to fee increases
 Growing wealth internationally
Social
 More consumers turning to streaming video as an alternative to traditional cable
 Video on Demand rentals
 Consumers want more content but unwilling to pay higher fees.
 People rent and watch movies during the recession (Video entertainment appears to be
recession-proof)
 Increased computer use vs. TV
 Expectation or more content

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Technological
 DVD is becoming obsolete
 More devices capable of streaming video content
 Partnerships with Microsoft and Sony
 Broadband access both locally and internationally
 More ability for file sharing
 Ability for companies such as Amazon, YouTube and Apple to stream high definition video
directly to web enabled TVs quickly without loss of video quality.
 New piracy technologies make it easier to circumvent subscription and Video on Demand
services
 Illegal file-sharing services have increased quality and speed.
Environment
 Continuing concern about violence in movies
 Packaging, transportation and disposal of DVDs
Legal
 Pirating
 Illegal downloads
 Bankruptcy of Blockbuster

Conclusion (Opportunities and Threats):

PESTEL and Porters form the basis of the Opportunity and Threats for the company.

Opportunities???

Threats???

Key Conclusions and Possible Strategies from the External Perspective

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Value Proposition
What is the value proposition of DVD Rentals?

What is the value proposition of Online streaming?

How did Netflix capture value in both models?

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Internal Perspective: RBV

Conduct an RBV Analysis at the time the case took place?

Resources
 Brand V R I N E
 4000 employees – not much mention but usually V R I N
 Relationship with content distributors V R
 Partnerships with Microsoft and Sony V R
 Large established customer base V R
 Pricing model – subscription unlimited flat fee V R
 Strong financials that resulted in high capital V
 Content breadth V

Are there any other resources?

Capabilities

DVD Rentals
 Close relationship with USPS that reduces the shipping time between deliver and return-
 Had distribution centers in different area around the US

Online Streaming
 Technological savvy-investing in R & D
 Data mining system to influence demand- not in case?

Ability to Transition Business Model

 Harvest outgoing value in DVDs (and appease lagging customers) and transition to new
technology and revenue stream.

Are there any other capabilities?

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Competitive Advantage and Core Competency

1. At the time of the case what was Netflix’s Competitive Advantage? Was it sustainable?
2. What was Netflix’s Core Competency? What did it do best?

Conclusions (Strengths and Weaknesses)

The Resource Based View determines the Strengths of a company as noted above (VRINE Resources).
Can you identify any weaknesses?

Weaknesses???

Key Conclusions and Possible Strategies from the Internal Perspective

 What conclusions can you draw from this analysis?

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Historical Perspective
Key Questions for each Event:
1. What significant events impacted on strategy?
2. How did Netflix deal with these events?
3. Pros and Cons of strategies used?
4. What can we learn from this?

Significant Event #1
In 2005 Netflix’s growth slowed as U.S. per capita annual spending on DVDs fell:
 Consumers not afraid of risks and video quality in illegal downloads
 DVD rentals begins to die in the industry overall

Netflix responded in 2007 by launching its own streaming service that provided member with unlimited
movie rentals for a nominal monthly fee?
 Lower the cost of subscription service to a $10/month flat rate.
 Netflix paid a fixed cost to distributors for only 1-2 years then adjusted on the basis of subscriber
numbers.

This was seen as effective strategy to get Netflix back on track.

 Discussion: What have we learned from this event?

Significant Event #2
Netflix Lost 805, 000 subscribers in 2011 when it split online and DVD rentals into two business streams
and increases price.

Apologizes and lowered price but still splits business.

 Discussion:
o How did Hastings deal with this?
o Was it effective? Pros and Cons?
o What have we learned?

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Strategic Analysis
Based on this analysis answer the following questions:
1. What are the sources of tension in Netflix splitting into the two business streams?
a. Do you agree with Reed Hastings that consumer reactions only occurred because of a
bad communication strategy?
2. What are the strategic issues facing Netflix at the end of the case?
3. What strategic options (alternatives) can you suggest?