SEEP Analysis Rubric

Introduction

Netflix is a media streaming and video rental company founded by American entrepreneurs
Reed Hastings and Marc Randolph in 1997. Netflix also creates original programming. Its
corporate headquarters are in Los Gatos, California (William,2018).

Netflix has been known for its innovation and early-entry into different segments of the
entertainment and media industry for years. Netflix began as the first DVD-by-mail service, but
soon became the first in other categories as well including a DVD subscription plan and then a
streaming service. Currently over 50 percent of adults living in the United States have a Netflix
subscription. For years Netflix has been a front runner in the streaming industry, but new
competitors have been attracted to join the streaming industry by their success. New entrant
that has taken the streaming industry by storm is Disney +. Without strategic planning and the
addition of new features and content, Netflix could lose its hold of the streaming industry
although it is still very popular and successful (Anna,2021).

Media and Entertainment Industry

The media and entertainment industry (M&E) in the United States is a sizable market with a
value of 703 billion dollars. which accounts for one-third of the global media and entertainment
industry. This makes United States the largest M&E market in the world. This industry is made
up of several different components. These are film, television, video games, music and
publishing. Netflix falls into the film and television sectors of this industry.74 percent of the
entire media and entertainment industry in the United States is accounted by film and
television alone. Netflix can be considered a technology, media or entertainment company, but
the current chief executive officer Reed Hastings says that he prefers the entertainment
classification. He continues by saying that “media” tends to involve advertising, and it does not
stream advertising on its viewing platform. Netflix’s valuation is significantly higher than
traditional entertainment companies, according to CNBC. This ties into their innovation and
unique approach to watching film and television. Netflix has been the epitome of success in the
streaming industry for many years (Anna,2021).

Big data is utilized in media and entertainment industry. Data is collected and combined from
various sources to be able to understand viewer behavior as well as improve themselves in a
way that it will make them viewers favorite. This fact is well known in marketing and profit
making that the more you know your customer the more you can abide by what is liked by
them and set content, price and accordingly set user interface (Muskan,2021).

Business and Corporate Level Strategies

Netflix best fits into the differentiation strategy. A differentiation strategy is based around the
idea of providing a product/service that has unique features compared with its competition. A
company just tend to focus more on what they can provide rather than what to charge and
does not necessarily mean they are more expensive. Netflix differentiates itself very well. The
lack of advertisements that Netflix implements, is one of Netflix’s biggest means of
diversification. Netflix does not include advertisements in its streaming platform. This gives
users an ad-free experience for as long as they watch. Other streaming services like Hulu use
advertisements. This is a huge advantage for Netflix. Their recommendation software and
algorithms is another feature that really makes Netflix stand out amongst its competitors. Their
profiles and ability to recommend content based on what its users are watching and how they
are ranking content is a huge advantage for Netflix as it personalizes the user’s experience.
Netflix has also become a producer and has added original content to the Netflix platform like
the Stranger things. This helps differentiate Netflix from other competitors through offering
content that can only be viewed on Netflix. The basis of corporate level strategies is how a
company differentiates itself. Netflix’s diversification strategy is best defined as a single
business strategy. Netflix has two sources of revenue. The two sources are DVD rental service
and a streaming platform. Netflix fall into the single business strategy based on the dominance
of their streaming platform, although technically they have two businesses and streams of
revenue. A business where 95 percent of a company’s total revenue comes from a single
business is single business level strategy (Anna,2021).
Stakeholders

Stakeholder and Publics-These days Netflix has become a household name. It has many
different stakeholders. Netflix now has to take care of its customers first and foremost, aside
from the obvious stake holder like the owners and employees. As for its stakeholders, a large
portion these days are movie companies. Multiple movie studios now have a stake in Netflix’s
future, now with its original content. Big studios like Marvel Entertainment have started
creating its series to through Netflix. Their suppliers are another large stakeholder for Netflix.
Many companies like Marvel studios have flocked to Netflix, whose show are actually winning
awards. Mega companies like Sony, LG, and even Google have a stake in Netflix. The most
important of Netflix’s stakeholder and publics are its customers. In the U.S, alone there are over
40 million subscribers as at the beginning of 2016(Jesse,2016).

Netflix’s strategy could be simplified to acquiring the most content, giving them the most
subscribers, preventing competitors from funding their own content, ensuring Netflix continues
to have the most content. Up until now investors expected that at some point Netflix’s content
advantage would be so great that no new entrant could build their own content library and win
over Netflix’s customers. Netflix could cut content spend and have the pricing power to
indefinitely profit from subscription fees, once subscriber growth saturated. The serious
investments incumbent US networks are making in subscription offerings. On whether Netflix’s
rosy, profitable future will materialize, there is greater investor uncertainty (Ankur,2019).

Stakeholder analysis

KEEP SATISFIED

• Communities –I think communities for Netflix are all the people who want a Netflix account
but don’t subscribe and watch Netflix on a borrowed account. This group is only mildly
important because they impact reputation and control content with their wants but they have
low interest to the company because at the end of the day, they are not contributing financially
because they do not have an account (Smith,2021).

MANAGE CLOSELY
• Customers – Since their main source of income comes from customer subscriptions, Netflix is
a customer driven company. You will lose subscriptions, if the customers are not happy. The
customers are also going to be on social media criticizing the site (or any other channel).
Customers control the reputation. Without the viewers, Netflix shows are not successful. They
need to be managed closely since they also have the power to keep money away from the
company by finessing the system. People can keep money from Netflix by not subscribing by
easily passing on their username and password. It is almost impossible to find a way to keep
people from watching who don’t pay for accounts.

• Suppliers – Netflix prevails because of their content, beyond having a significant number of
subscribers. Their selection of syndicated series and recent movies and their original content is
Emmy award-winning and are part of why they thrive. The deals that Netflix can create for this
content have high influence and interest because the entire premise of the company is the
content. In order to maintain success these relationships need to be managed with care.

• Media – Netflix has grown to become a media powerhouse. They need to overpower or
partner with other media channels, in order to continue growing. In the form of licensing
opportunities from TV channels, there are already partnerships in place to gain access to their
shows (Smith, 2021).

MONITOR

• Distributors –They the companies that provide the internet service to allow the streaming as
well as the devices where you stream Netflix. They partnered with T-Mobile recently and now
part of the data service plan includes the ability to stream Netflix for what is, allegedly, on T-
Mobile’s dime.

• Employees –They include all of the people who work on creating their original content and
also their inside team (sales, events, marketing, etc.). People who are creating the content need
to be monitored but essentially, once their project is approved, they have free reign. They are
important in terms of helping with the goals, but they do not require a great deal of effort once
the project is in motion.
• Competitors –Hulu is swiftly coming for the top spot. Their original content is improving and
winning as well the Emmy-award. Since their content is extensive and have a stronger customer
base, Netflix is still ahead of Hulu. Many people are willing to subscribe to both, making them
less of a threat (Smith,2021).
KEEP INFORMED

• Investors –Netflix is a publicly traded company. Their interest is high because their money
relies on their success although their influence is low.

• Analysts –Netflix has analysts that monitor which shows and movies are being watched. It is
easy for them to cut ties and save their money if a show or movie is not getting watched due to
their specific licensing agreements. Their influence is low because they are only sharing this
data with Netflix rather than the public but their interest is high. They make sure of wise
spending of company.

• Regulators –Their content doesn’t have rules like other companies because Netflix is a
streaming service. In regard to their licensing agreements, they do have regulations. For
example, with CW shows, each season is only added to Netflix after it has stopped airing on
TV(Smith,2021).

Netflix’s use of big data and analytics

Netflix use data analytics by collecting data from their 151 million subscribers, and
implementing data analytics models to discover customer behavior and buying patterns. Based
on their subscribers’ preferences, they use that information to recommend movies and TV
shows (Dixon,2019).

Over 75% of viewer activity is based off personalized recommendations, according to Netflix.
Netflix create a detailed profile on its subscribers by collecting several data points. The profile is
far more detailed than the personas created through conventional marketing.

Significantly, Netflix collects customer interaction and response data to a TV show. For example,
Netflix knows the time and date a user watched a show, the device used, if the show was
paused, does the viewer resume watching after pausing? Do people finish an entire TV show or
not, how long does it take for a user to finish a show and so on (Dixon,2019).

Netflix even has screenshots of scenes people might have viewed repeatedly, the rating content
is given, the number of searches and what is searched for. Netflix can create a detailed profile
on its users with this data (Dixon,2019). Netflix requires data analytics to collect all this data
and harness it into meaningful information. For example, to suggest TV shows and movies
based on user’s preferences, Netflix uses what is known as the recommendation algorithm.

The reason behind their success is their ability to collect and use the data is. They earn over a
billion in customer retention because the recommendation system accounts for over 80% of the
content streamed on the platform. To decide if they want to greenlight original content, Netflix
also uses its big data and analytics tools. It might look to an outsider like Netflix is throwing
their cash at whatever they can get, but in reality, they greenlight original content based on
several touch points derived from their user base (Dixon,2019).

For example, because ‘Weeds’, Jenji Kohan’s previous hit performed well on Netflix in terms of
viewership and engagement. Netflix distributed ‘Orange is the New Black’ knowing it would be
a big hit on their platform.

Netflix even uses big data and analytics to conduct custom marketing, for example, to promote
‘House of Cards’ Netflix cut over ten different versions of a trailer to promote the show. You get
a trailer focused on the female characters, if you have watched lots of TV shows centered on
women. However, if you watched a lot of content directed by David Finch, you would have
gotten a trailer that focused the trailer on him. Because they already knew how many people
would be interested in it and what would incentivize them to tune in, Netflix did not have to
spend too much time and resources on marketing the show (Dixon,2019).

Netflix also encourages feedback from its subscribers, in addition to collecting data on
subscriber actions. One feedback system is the thumbs up/thumbs down system that replaced
their rating system, the system improved audience engagement by a significant margin, which
enabled them to customize the user’s homepage further. There are 33 million different versions
of Netflix, according to Joris Evers, Director of Global Communications, (Dixon,2019).

To churn out meaningful information, powerful analytics models can process terabytes of data.
The main reason for Netflix’s success is judicious use of data analytics. In fact, big data and
analytics are so vital to Netflix’s success that you may as well call them an analytics company
instead of a media company. The value of data analytics is highlighted by Netflix’s success
because it presents an incredible insight into user’s preferences allowing them to make smart
decisions that deliver maximum ROI on their choices (Dixon,2019).

Netflix’s Use of Machine Learning to Cut Costs and Retain Customers.

Netflix faces several challenges that almost necessarily require the use of machine learning to
address as it seeks to continue to grow across markets in this increasingly competitive
entertainment space (Eltom,2018). These challenges include, increased consumer demand for
personalized content, growing diversity of customer needs and preferences in content, and
tightening competition on content licensing but are not limited to those.

Netflix needs robust analysis of an incredible amount of data, which can only be conducted
with artificial intelligence in order to satisfy an increasingly broad set of customer tastes in a
cost-effective and personalized way for its diverse customer base (Eltom,2018). The use of
machine learning in the areas of content acquisition and production, and customer experience,
which includes content recommendations and streaming quality is currently being
implemented by Netflix’s management.

The company has seen that even its largest titles, which are viewed by tens of millions of
people, account for a very small percentage of overall streaming hours so it understands that it
is the combination of pieces of content that attract and retain customers. Since tastes are
broad, Netflix offers a wide breadth of programming, even within a single market, in order to
maximize the size of its customer base. Netflix uses machine learning to determine expected
hours of viewing for each piece of content, estimate the cost per hour viewed, and compare it
with that of similar content deals to satisfy this broad range of customer tastes in a cost-
effective way. The firm also uses predictive models to understand customers, such that there is
a large enough set of content that meets their preferences without necessitating the renewal of
any specific title. As increased competition bids up licensing and renewal agreements, this cost-
effectiveness is particularly important (Eltom,2018).

Netflix has focused on building out its own original content to further reduce reliance on
outside studios and ideally reduce content costs, as well as strengthen brand loyalty. Netflix
leverages machine learning also in this area of content production. The company uses machine
learning not only to identify potential projects its customers will like, but also to make cost-
effective business and technical decisions. In the pre-production decision process, Netflix
combines and analyzes various data sets to predict the cost of numerous attributes of the
production process, such as content, location, and schedule, and optimizes decisions given
resource constraints such as time, cast, and locations. Netflix tries to make content accessible
to as many viewers as possible in order to extract as much value as possible from these
production investments. Netflix needs to prioritize markets given the previously mentioned
constraints in order to do so. By predicting which languages, a piece of content will be most
popular in, in which locations, and amongst what groups, machine learning informs this
strategy (Eltom,2018).

Netflix needs to deliver the right content to the right customer, in addition to having the right
content to acquire and retain customers. To address these challenges, the firm uses machine
learning. Netflix relies on a recommendation engine that uses “implicit and explicit” data to
identify trends to direct customers towards the content they want to watch. Explicit data is
behavioral data that includes which shows users watched and how fast and frequently they
watched those shows and implicit data is information that users share with Netflix, such as
like/dislike feedback. For very distinct reasons based on identified tastes, the engine
recommends shows to different users. Netflix uses machine learning to match the tastes of a
customer to the form in which content is recommended to them in an effort to further
personalize the user experience and maximize successful recommendations. This makes it so
that different customers are not only promoted the same content because of distinct reasons,
but also promoted the same content in distinct ways. Netflix does this primarily by promoting,
for the same content, different images that appeal to different preferences. (Eltom,2018).

The firm needs to ensure that it is searching for new data sources to refine its algorithms, in
addition to what they are currently doing. Competitors like Amazon have data unrelated to
video that can inform their recommendation models. To acquire this additional data, Netflix
should seek to partner with companies like Data Wallet. Netflix should also strive to seek
causality with its algorithms and ensure they are not self-reinforcing to eliminate bias
(Eltom,2018).

Opportunities

It is important for Netflix to find new opportunities to standout with the rise of new
competitors. With its pricing, Netflix has the opportunity to remain competitive. Their pricing is
average in comparison to other streaming services; therefore, it is just as appealing as other
platforms. One opportunity that Netflix has is to reward existing customers with a discounted
yearly rate. They could potentially offer an annual subscription versus the typical monthly
subscription. An annual subscription plan would offer customers a small discount for
committing to Netflix for a year while also guaranteeing Netflix that business for a year at a
time. The capacity to produce original content for specific regions is another opportunity that
Netflix possesses. The streaming service has started producing its own movies and series, this
gives them the ability to create content for specific target audiences to better suit the wants of
its customers. Producing its own content also gives the company an opportunity to expand its
content collection without the risk of losing contracts. Any content created by Netflix can
remain on Netflix indefinitely. With its originally produced content, Netflix has proven
successful, therefore its opportunities are endless in regards to producing (Anna,2021).

Netflix’s saving of cancelled shows

Saving TV shows helped Netflix make its name and gain popularity, but it's since become part of
the problem by cancelling so many series. Netflix began creating original content in
2013, with House of Cards released in February of that year. That helped to cement Netflix's
reputation. On May 26, 2013, three months later, Netflix would drop a 4th season of the cult
comedy Arrested Development. The award-winning series had been a critics' darling on Fox but
its perpetually low ratings led it to be cancelled. Netflix picking the show up was seen as a
power move, proof that they could do what the traditional networks couldn't or wouldn't.
Things have changed drastically, seven years later (Donaldson,2020).

Since that original programming launch, Netflix garnered a reputation for being a home for
shows that never got their due on network TV. Netflix picked up The Last Kingdom and made it
a hit, and brought Lovesick, the British comedy, to a worldwide audience after Channel 4
dropped it. Fox's paranormal procedural Lucifer got a second chance at life, as did
Lifetime's You, with the latter becoming a minor phenomenon thanks to the streaming service.
It’s a great marketing tactic to TV lovers; Netflix will give underappreciated shows the attention
they deserve (Donaldson,2020).

Conclusion

The case study has explored a disruptive innovation, Netflix by reviewing its adoption
categories, analyzing its design in the phases before and after its release, evaluating its
entrepreneurship and start-up potential and using analytics to understand and predict
consumer behavior towards the same. Companies should always try to satisfy all adopter
categories for an innovation to boost revenue and should never overlook any specific category.
Significant research should be done both before and after design phases based on simulations,
alpha and beta testing, surveys and participant observation to know what customers want in
their products and how to implement the same. The introduction of cheap prices, exclusive
content, the “Netflix Originals” category and by maintaining good customer relationship and
service, Netflix was doing better than any of its competitors back then and now. The unique
content and design of how information was given to the users made Netflix none like the
others. The paper helps understand the various aspects that have to be looked upon for any
Innovation to be Disruptive in terms of its developments, analytics and the start-up potential
for a similar Innovation. Companies should utilize analytics to understand customer behavior in
relation to past and current trends of an innovation and predict downtimes to enable smart
management of customers and resources.

Bibliography

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