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Strategic Analysis
SCS- May 2018
“Many strategy errors emanate from mistaking the relevant
industry, defining it too broadly or too narrowly p.37”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

PESTLE
Analysis
A PESTEL analysis is a framework or tool used by marketers to analyse and
monitor the macro-environmental (external marketing environment)
factors that have an impact on an organization. The result of which is used
to identify threats and weaknesses which is used in a SWOT analysis.

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 Section 1
PEST Analysis
PEST Analysis (Political, Economic, Social, and
Politics Economy Technological) is a method whereby an organization
can assess major external factors that influence its
operation in order to become more competitive in
the market. As described by the acronym, those four
areas are central to this model.

A popular variation on the PEST Analysis format,

Social Technology especially in the UK, is the PESTLE strategic planning
approach, which includes the additional aspects of
Legal and Environmental.

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 ▪ In US markets, audiences shift away from traditional TV towards on-demand
streaming services like Netflix. However, with an increase in internet usage,
US telecom giants AT&T have gone to the Federal Communications
Commission to insist on stricter usage regulations. If passed through
congress, internet prices could rise which would threaten the business
model of Couchweb's internet streaming service (Romm, 2017).

▪ Couchweb might be influenced by changing laws concerning copyrights of

certain kinds of content, like the television and movie shows that companies
Political Factors rely on to present to customers. Copyright law changes might affect
Couchweb’s ability to distribute this content to customers which could
significantly impact business because this content might represent large
segments of a company's services offering (Fritz, 2009)

▪ Controversial EU rulings will look to class streaming services like Couchweb

into the same category as traditional television distributors. What this means
is that Couchweb will have to abide under the rule that 30% of content on
the platform needs to be European. Furthermore, the company will be taxed
the same 26% levy as traditional media, forcing Couchweb to potentially pass
the costs onto customers (Robinson and Murgia, 2017).
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 ▪ One key factor for the success of online streaming businesses like Couchweb
is their competitive pricing against traditional television services. In a current
global recession where many customers spending budgets are tight, services
like Couchweb are more attractive than costly traditional media subscriptions
(Bradshaw and Bond, 2017).
▪ For Couchweb competitive advantage to be maintained, it is essential to
price competitively against rivals. Couchweb is working in a business that
Economical depends mainly on the disposable income of its clients. If the growth of
economic rates were slow and the power of customers purchasing are
Factors negatively impacted, Couchweb would feel the impact of this drop in
purchasing power first.
▪ A key issue that affects Couchweb's expansion is the issue of exchange rates.
The company aims its pricing around the Mayland's $12 fee, however, within
certain markets this can be a higher amount even after adjusting for
purchasing power parity due to exchange rates and VAT. This moves
Couchweb into a luxury purchase for some customers and could potentially
affect attracting a whole 'price-conscious' segment (Pelts, 2016).

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 ▪ In UK markets, younger viewers are watching a third less traditional
television and now turn to online streaming services for their
entertainment (Bond, 2017).

▪ Social trends are showing that many customers are moving to watch
video content on their smartphones rather than traditional larger
screens. In 2015 US viewers watched 24 minutes on average on
Socio-Cultural smartphones, in 2016 it grew to over 40 minutes. This trend shows a

Factors demand for content on the move to fit into customers busy lives
(Mintel, 2016).

▪ Couchweb depends on the attractiveness of movies among customers

in the sectors of the target market. As the average age of the potential
consumers carry on growing older and filming expenditure among the
older demographic turn out to be less popular, it might adversely affect
the business.

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 ▪ The 4K television market has seen a ten-year growth of 43% in the US, with
the market estimated to be worth $71.9 billion (digitaltveurope.net, 2017).
▪ Netflix's R&D Labs have developed new software codenamed 'Hermes'
which automatically grades a translation of a Netflix show. This innovation
will allow for faster and higher quality translation efforts for Netflix to serve
its programming to its 190 countries (Roettgers, 2017).
▪ Given that the core operations of our business are internet based, Couchweb

Technological has to contend with the continually developing technology sector, as the
industry progress toward online expenditure. The market share is facing

Factors challenges from new rivals, because of the lower barriers to entry in terms of
streaming content. The changes of Technology in terms of the internet rates,
imposes on competitors in this industry, the need to continually modernize
their model of business to sustain market share. (Netflix, 2009).
▪ The technological shift to 4K screen resolutions have created an issue for
streaming services. The amount of data required to stream is a huge strain
on customers broadband services. Within 'Netflix Labs', the company is
aiming to create new patented technology which will allow for better
compression of their 4K signal. If created, this innovation will give a huge
competitive advantage to Netflix (Roettgers, 2017).

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 ▪ For streaming services like Couchweb, the access to data
servers puts huge pressure on the environment. In partnership
with Greenpeace, tech companies are beginning to look at
Environmental solutions to lessen their carbon footprint. At current usage
Factors rates, tech companies are being told by global governments to
pay part of an environmental bill worth upwards of $11 trillion
by 2025 (Lewis, 2016).

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 ▪ In 2016 Netflix suffered a costly PR misstep over a consumer
lawsuit. At the start of the year the company announced it would
be raising subscription prices, however it was not clear over how
current users would be affected. As a result, Netflix was issued a
class-action lawsuit from customers who were angry, furthermore
the company received widespread media criticism for their
confusing customer contracts (Spangler, 2016).
Legal Factors ▪ Growing demands from televisions and film studios over copyright
access to content. Streaming companies will have to introduce
blocking workarounds for users who access content from certain
countries. As a result, this will affect a small segment of users and
its demand for the product due to the limited access some
Couchweb’s countries have (Greenberg, 2016).

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“Understanding the competitive forces, and their underlying
causes, reveals the roots of an industry’s current profitability
while providing a framework for anticipating and influencing
competition (and profitability) over time. P. 26”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

Porter’s
Five Forces
Porter's Five Forces is a model that identifies and analyzes five competitive
forces that shape every industry, and helps determine an industry's
weaknesses and strengths. Frequently used to identify an industry's
structure to determine corporate strategy, Porter's model can be applied to
any segment of the economy to search for profitability and attractiveness.

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 Section 2
Porter’s Five Forces
Porter's Five Forces is a business analysis model that
helps to explain why different industries are able to
sustain different levels of profitability. The model was
originally published in Michael Porter's book,
"Competitive Strategy: Techniques for Analyzing
Industries and Competitors" in 1980. The model is
widely used to analyze the industry structure of a
company as well as its corporate strategy. Porter
identified five undeniable forces that play a part in
shaping every market and industry in the world. The
forces are frequently used to measure competition
intensity, attractiveness and profitability of an industry
or market.

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 Competitive Rivalry: High
▪ Companies within the industry compete on content offerings
and subscription prices. In terms of content offerings,
companies fight to negotiate superior deals with studios for
existing content. Existing content is often expensive and will
only be offered for the amount of time negotiated in the
original contract. Keeping content up to date with
consumers’ favorite shows and movies drives subscriber
growth and revenues, but is also costly.

▪ Original content programing has recently become a

competitive trend within the industry. Couchweb has
produced award winning shows like “tumbling Down,” and
“Politics Game.” These shows and other originals hold
consumers loyal and are offered indefinitely. Competition has
begun to pick up within the original content programming
space with Amazon producing titles like “Manchester by the
Sea.” Original content will be a critical selling point for
potential subscribers, and create a more competitive space
for content providers.

▪ Subscription prices also play a major role when competing

for memberships. The industry as a whole charges similar
monthly rates currently, but as licensing new content and
producing original programming becomes more expensive, it
will be challenging for companies to raise rates without
losing part of their membership base.
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Bargaining Power of Suppliers: Moderate

The bargaining power of suppliers is moderate and will likely stay

moderate in the near future. To provide previously aired content to
subscribers, content providers must negotiate deals with the content
owners. Content providers like Netflix, Amazon, Hulu, and others, are all
competing to offer similar shows and movies that subscribers actually
want to watch. Because of the increased demand in acquiring popular
licensed content, content owners have some ability to raise prices and
reduce viewership timeframes. However, content owners can only raise
prices to a certain extent as there are only a few large players that can
afford expensive programming. As seen with Netflix, the expensive
licensing fees associated with acquiring content can damage a company’s
free cash flows and lead them to start producing more of their own
original content.

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Bargaining Power of Buyers: Moderate

Given the increasing competition within the

industry, buyers have a wider selection of
subscriptions and more bargaining power.
Currently, substitutes in this industry are
moderate, but future increases in monthly
subscription prices may drive more
consumers to decide to leave one streaming
company for another, cheaper site. Monthly
subscription prices range from $8 to $16 per
month for most online content providers
currently.
Threat of Substitutes:
Moderate

Online movie and television

show streaming services are
popular, but more than half
of the people in the U.S. are
not interested. For these
people, such as sports fans or
people who enjoy watching
the news, their existing cable
services provide plenty of
entertainment. Traditional
cable services continue to be
popular.
Threat of New Entrants:
Moderate

Moderate barriers to entry within the

industry create some threat of
potential entrants. Due to the large
upfront costs of purchasing licensed
content, starting a new business in the
online entertainment space would
require tremendous capital. Well
established online companies, like
Amazon, looking to expand into new
markets pose the biggest threat to
Couchweb as they are more easily
able to enter the market. Couchweb’s
business model is also easily
replicated if a company has enough
capital to invest.
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 Business
Strategy
Today’s dynamic markets and technologies have
called into question the sustainability of
competitive advantage. Under pressure to improve
productivity, quality, and speed, managers have
embraced tools such as TQM, benchmarking, and
re-engineering. Dramatic operational
improvements have resulted, but rarely have these
gains translated into sustainable profitability.

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Catalysts for Growth & Change

International Markets
Domestic based companies in the online and catalog retail industry
are looking to international markets for new growth. Global
connectivity has encouraged online retailers to expand services to
countries in Europe and Asia. By partnering with local content
owning or producing studios in foreign countries, international online
content providers can deliver local content in a variety of languages
to reach more individuals and ultimately grow their overall
membership base.
Original Content
Original content offerings are how key players in the industry
differentiate themselves. Much like how cable stations have specific
television shows that draw viewers to a specific channel, online
content providers are creating original content to attract and retain
viewers. Original content requires large up-front investments from the
content providing company, but has no limitations on how long the
content can be viewed for before a renewal. Instead of constantly
paying expensive licensing fees to “rent” content to viewers for a time,
large initial expenditures will be worth the customer growth driven by
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Key Investment Highlights

▪ Favorable Economic Outlook – Key macroeconomic factors such as

rising real GDP and increasing consumer spending are creating a
variety of investment opportunities within the consumer
discretionary sector. Consumer confidence is at an all-time high and
driving growth in the discretionary goods and services market.

▪ Original content creates a competitive advantage – Couchweb will

continue spending billions of dollars to produce award winning
original content that viewers cannot access anywhere else, creating
a strong sense of brand loyalty as well as giving the company a
competitive advantage over peer companies.

▪ Opportunities for international membership growth – Currently

operating in 100 markets, Couchweb plans to continue to expand
into new countries and inspire strong membership growth rates by
creating a more diversified content library.

▪ Limited revenue streams and increasing competition – The large

dependence on monthly membership rates reduces Couchweb's
capability to generate revenue from other business activities.
Competitors like Netflix, Amazon and Hulu are making large
headway when it comes to streaming content and producing original
series, which will force Couchweb to keep rates low.
Investment Positives

▪ Production of original content has created strong brand

recognition leading to a loyal membership base in over
100 countries.
▪ Large opportunities for future growth are present in
international markets.
✓ Couchweb has the opportunity to continue
diversifying its library in order to intrigue more
members.

Investment Negatives

▪ Lack of diversified product mix creates significant

exposure to declining revenue growth as more
competitors enter the industry with new content and
more membership features.

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