Group Assignment Two

Luis García - Pilar Martín - Alicia Menor - Sofia Ocepek - María Ramírez - Suraia Pérez

5ºA TSM
Table of contents
1. Strategy...................................................................................................................................................3
2. PESTEL analysis.......................................................................................................................................5
3. Porter’s five forces..................................................................................................................................7
4. Resources and capabilities......................................................................................................................9
5. SWOT analysis.......................................................................................................................................10

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1. Strategy
Netflix is a company founded in 1997 in Los Gatos (US). Currently, it has a market cap of
$107.24 Billion (2022), an Annual Revenue of $29.69 Billion (2021), a net income of $5.11 Billion
and 11300 employees. Furthermore, according to Interbrand, it is ranked number 36, with a
brand value of $15.0 billion.

Netflix´s global expansion strategy is impressive. In 7 years, it has reached 190 countries. First of
all, it didn't reach every market at once. It began gradually in nations that resembled its
domestic market in the United States. By 2015, it had grown to a few dozen nations using the
lessons it had learnt in these markets, and it has since continued to learn and develop. Second,
it made adjustments to satisfy local customs and preferences, then used that information to
create partnerships with regional stakeholders and deliver content that would appeal to
customers all around the world.

Strategy Issues

2022 is turning out to be a critical year for the company. It lost subscribers for the first time in
more than a decade. The news shocked Wall Street and sent the stock plummeting 35% in April,
wiping out $50 billion in market capitalization. And the company's stock had fallen more than
40% so far this year.

Another challenge that the corporation is facing is people share accounts. People share service
in more than 100 million additional households, and not everyone is paying. The firm had
thought about adding a little payment for making easiest and more secure for members who
share the password outside their home. But in April its final decision wasn't that. "While we're
not going to be able to monetize everything right now, we think it's a great opportunity in the
short to medium term," they say.

Netflix's solution to the current landscape is to keep improving the service and keep the focus
on the user. Despite this, it is on top of a market which is changing the way people consume
entertainment. This week they announced that from November they would be offering a new,
more economical payment plan. A plan with ads but without the offline option.

The end of shared accounts

A few days ago, Netflix announced one of the worst news for all those who share an account on
the platform but do not live at the same address. It will put an end to shared accounts so the
company will review the connections of each of its registered accounts to confirm that it is
shared between cohabitants. In addition, they have announced that they will start charging an
extra fee to all accounts where they detect that this fraudulent use of subscriptions is taking
place.

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In order to fulfil its purpose, Netflix will verify IP address, identifiers and account activity using
algorithms and artificial intelligence. With these methods, the platform will be able to detect
shared accounts that are not cohabitating and will therefore have to pay a little more.
It is not yet known how much this extra amount will have to be paid, but it could be around
17.99 euros, the highest price at the moment. For people who do not live together and have
the maximum tariff contracted, it has not yet been revealed what their fee will be.
So far, this measure has been applied in Chile, Costa Rica and Peru, but it will continue to be
applied in the rest of the countries in order to avoid shared accounts. According to what has
been announced, in the case of Spain this new system will begin to operate in 2023, although it
is possible that it will be brought forward and this change will be seen at the end of 2022.
Ads on Netflix.
There are currently three subscription packages on Netflix:
Basic package (7.99 euros)
Standard package (12.99 euros)
Premium package (17.99 euros)
On 10 November, this offer of Netflix subscription packs will be increased as they will add a new
profile with a basic plan with ads for 5.49 euros per month. Advertisements will appear at the
beginning of the fiction and then the interruption rate will be 5 minutes with advertising
intersections every hour. Netflix specifies that "each ad can last up to 30 seconds" and also
clarifies that "you cannot skip or fast forward ads. However, you will be able to pause
playback".
The platform also explains the type of ad that users will be able to see: "At the moment, we can
show you ads based on your interactions with Netflix (such as the genre of the content you
watch) and the information you provide to Netflix". All other plans will remain as they are
currently. So, the new packages will be these:
Basic with ads: 5.49€ per month
Basic: 7.99€ per month
Standard: 12.99€ per month
Premium: 17,99€ per month
With the basic with ads plan, it will still be possible to watch films or series at the highest
quality (up to 720p), but it will not be possible to download any episodes or series, which is
available with the basic, premium and standard models. In addition, some films and series will
not be available for the time being due to licensing restrictions.

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2. PESTEL analysis

Political factors:

 In US markets, audiences are moving away from traditional television to on-demand

streaming services. However, with internet usage on the rise, US telecommunications giants
AT&T turned to the Federal Communications Commission to insist on stricter usage
regulations. If passed in Congress, internet prices could rise, which would threaten the
business model of internet streaming service.
 The controversial EU decisions will consider streaming class services to be in the same
category as traditional TV distributors. What this means is that Netflix will have to comply
with the rule that 30% of the platform's content must be European. In addition, the
company will be taxed the same 26% as traditional media, which will force Netflix to pass on
the costs to customers.
 Due to the government rules and policies, the entire content of Netflix is not available in all
countries and its viewers. Due to this, Netflix faces considerable loss.
 Restricted access does not allow Netflix to operate in many countries. Even if the brand
agrees, the government norms do not allow it.

Economic factors:

 A key issue affecting Netflix's expansion is the issue of exchange rates. The company
targets its pricing around the $10 US rate, however, in certain markets this can be as
high as $19 due to exchange rates and VAT. This makes Netflix a luxury purchase for
some customers and could affect the attraction of a whole 'price-conscious' segment.
 The fluctuating exchange rate affects its economy when buying others’ content.
However, Netflix can profit from its original content like movies and TV shows.
 The loyal customers of Netflix complain about a steady hike in the subscription price.
High-quality content can be the solution to satisfy the viewers to make them realize the
content is money’s worth.
 Increased competition in the streaming services poses a threat to Netflix with the
uprising of a powerful rival with high-quality content.
 Content piracy is a massive threat to the security of the company. It affects profitability.

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Social factors:

 Younger viewers are watching less traditional tertiary television and are now turning to
online streaming services for their entertainment.
 Social trends show 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 smartphones, in 2016 it grew to over 40 minutes. This trend
shows a demand for mobile content to fit into customers' busy lives.
 Cord-cutting' in the United States is the act of customers switching from traditional
cable media to online streaming services. In 2017, US cable companies recorded the
largest loss with 2.4% in switching records. The trend of customers finding expensive
cable options less attractive considering the variety of online viewing options
demonstrates the influence of services.

Technological factors:

 The 4K TV market has experienced a ten-year growth of 43% in the US, with the market
estimated to be worth $71.9 billion (digitaltveurope.net, 2017). To capitalise, Netflix has
invested money in R&D to support 4K streaming efficiently.
 The technological shift to 4K screen resolutions has created a problem for streaming
services. The amount of data needed to stream is a major strain on customers'
broadband services. Within 'Netflix Labs', the company aims to create a new patented
technology that allows for better compression of its 4K signal. If successful, this
innovation will give Netflix a huge competitive advantage.
 Netflix's R&D labs have also developed new software codenamed 'Hermes' that
automatically scores a translation of a Netflix programme. This innovation will enable
faster and higher quality translation efforts for Netflix to serve its programming in its
190 countries.
 In Netflix, one can avail high-quality video with minimal data being spent. It is one of the
many advantages of the company.
 The continuously changing algorithms often confuse the users. The best example of this
is the content rating system.

Environmental factors:
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  Netflix contributes to the improvement of the environment because being a streaming
service reduces the production and waste of discs.

Legal factors

 The sudden hike in subscription prices led the company to have a conflict with its
customers. Some dissatisfied customers even filed class action against the company.
 The continuous copyright claim drives Netflix to face issues with a small segment of its
customers. Instead of blocking users from other countries, the company must come up
with a suitable strategy.
 Before entering any new market policies of the government are important to investigate
as they affect the business. With the advancement of technology, it becomes important
to keep data safe and secure. Intellectual Property Rights, Consumer Protection Law,
security laws should be taken care of for the customers of that country.
 Streaming on multiple devices at the same time should also be checked because users
have a habit of sharing credentials with each other. Copyright issues are the major area
in which Netflix can suffer problems. So, to safeguard themselves they should have
proper licensing for the series and movies being shown.
 It is also sometimes difficult for them to understand and comply with local laws,
regulations and customs in foreign jurisdictions, including local ownership requirements
for streaming content providers.
 Netflix also needs to block various technical blocks to make sure that users from various
countries don’t hack the content to stream online.

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3. Porter’s five forces

Competitors (of the same sector)

There are a lot of companies with direct competition to Netflix such as HBO, Amazon Premium
or Disney +
In the past, Netflix does not have a real competence because HBO wasn´t that famous,
Cinepolis Click or Roku were companies that can be categorized as competitors in the past but
of course Netflix was more powerful. They used to have a good management of this force.

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But nowadays we have a lot of companies making and changing their strategies to attract and
keep clients with exclusive content.
The difference is that in the past Netflix was the “only one” and the TOP but now there are a lot
of rivalry and the consequence is a lower growth

Potential competitors.
We can talk about premium channels, internet pages, companies with mensual rent...
The problem is, are they going to have rentability trying to compete with Netflix? But nowadays
you can make a lot of different platforms focused on different types of content.

Clients.
Clients influence the price of the platform because they are always trying to pay less.
They talked about digital products, if you are giving me a digital product, you should give it to
me at a less price than a physical product.
The problem is that clients have a lot of force, and they achieve that Netflix, and their
competitors clash and have a lower rentability.
Also, if clients are not happy with the platform, they can use illegal ways of video downloading,
so it is very important to understand the clients.
You should take into account the price, quality and service.

Suppliers:
Traditionally, cinemas want an exclusivity window of up to 90 days before moving onto on-
demand streaming services. Netflix, however, has been fighting back against the major cinema
chains by demanding a window of 45 days at most.
With Netflix's increasing power, the powers of traditional cinemas will continue to downfall.
This is not the only time Netflix has done this; in 2018 they released Alfonso Cuaron's Roma,
just a 21-day release at independent and small chain cinemas before it started streaming.
With increased production companies launching their own VOD services, some of Netflix's
most-watched content will soon disappear. For example, the forever popular 90's sitcom
Friends was removed from Netflix in 2020 and instead move to HBO's very own streaming
service. This increases the risk of power of suppliers.

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So, while the popularity of Netflix's original content is certainly on the rise, viewers still enjoy
watching their old favorites such as Friends and The Office US.
Netflix is an accomplished and trusted producer of content now; therefore, the power of
alternative suppliers can be considered only a moderate threat.
As seen above, content plays a significant role in customer acquisition and retention. Netflix
acquires content through multiple ways, licensing old content, producing new TV shows or
acquiring exclusive distribution rights to shows produced by 3rd parties.
Netflix reaches the customers through many internet-connected devices, including Smart TVs,
TV set-top boxes, streaming devices like firestick and mobile devices. This infrastructure plays a
key role. Netflix enters into agreements with TV manufacturers for the Netflix button on
remotes.

Substitute products:

The average viewing time of subscription videos on demand such as Netflix rose by 7 mins in
2019 compared to 2017.
YouTube accounts for a large part of total video viewing as 12%, which offers live streaming as
well as recorded content.
With traditional broadcast television on the decline, especially among young adults, who are
switching to subscription video services, the threat of a substitute product is low for Netflix.
The theaters were followed by DVD rentals, and now it is streaming. Social Media and Gaming
are shaping into tough contenders to Watching Movies.
Spotify, which offers personalized music suggestions, crossed 1 billion downloads in May 2021
and has 232 million active users.
If this popularity of other entertainment channels persists, Netflix will have to face the threat of
substitution. Gaming is a significant threat as the advent of AR and VR allows the user to engage
in ways not possible for movies.

Factors
Threat of New Power of Interfirm Power of Threat of
Leading
Entrants Suppliers Rivalry Buyers Substitutes
to…

High New Platforms that

threat companies provide more

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 content and
cheaper
subscription

Modera Alternative If Netflix

te suppliers should take
threat into a count
their needs
and pricing

Low Premium
threat channels,
internet
pages,
companies
with mensual
rent...

Overall The
Assess competitors
Clients are
ment: are very
tired of the
They demand award of We think that
same content
Many same realising Netflix it is not that
the say in the
companies are days as complain and easy to
platform for
growing in the cinemas to they give to compete with
them to pay
sector downfall their the viewers Netflix being a
more to
power what they new company
maintain the
won't
subscription
(example. No
ads)

We conclude that it is a attractive industry because is growing but they should take into
account what people say and feel about their new strategies. They have the advance that they
are popular platform as their competitors, but they shouldn't risk their clients loyalty, include
more content, stop cancelling shows and movies...

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4. Resources and capabilities

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5. SWOT analysis

STRENGTHS
- Brand Reputation: Netflix is in top of mind
position of customers. The effort required is
smaller because brand awareness already
exists in society. Therefore, the strategy has
to focus on differentiating and achieving
the optimal positioning to get the highest
number of users and, with the consequent
profitability.
WEAKNESSES
- All episodes are offered at once: Netflix
launched all episodes at once, unlike rivals
like HBO who add new episodes every
week. Because it takes longer for the user
to receive the episodes, this fact can be
viewed as both a benefit and a negative.
The user can simultaneously view the entire
content without having to wait each week.

-Content exclusivity: In addition to - Restricted Copyrights: Since Netflix

providing entertainment from other licenses the majority of the content it sells
providers, Netflix has recently started to from other studios, when those licenses
generate high-caliber original eventually expire, Netflix's content starts to
programming. For instance, TV broadcasts appear on competing websites.
documentaries about influencers like
Dulceida and Tamara Falcó. - Sharing a membership: Netflix is aware
that many of its users share an account in
- Exponential Expansion: As a result of its an effort to save money. It is currently
successful expansion strategy over the past considering beginning to charge more.
ten years, Netflix has grown to become one
of the most recognizable and famous - Price increase: While other new video
brands in the world. streaming providers like Disney+ and Apple
TV+ have launched their services at
- Customer-Centric Service: Netflix has the significantly reduced pricing, Netflix has
consumer at its core. It considers it increased its subscription prices. Because of
essential to listen to them and adapt to its massive debt, the corporation has raised
their needs to offer an outstanding its pricing. To deal with this problem, last
customer experience. The latest example is month Netflix launched a new package of
the launch of a new, more basic, and subscriptions which is cheaper but includes
economical pack with ads and reduced ads.
features.

- Environmentally concerned. A
contribution to the environment because it
is a business based on streaming. In
contrast, they could design a strategy using
green energy to improve the brand’s image.

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OPPORTUNITIES THREATS
- The audiences switching from traditional - Changing competitive environment:
television to streaming services due to Competitors: Netflix is not “the only one”
internet rise. anymore because of its new competitors
- International expansion: Netflix is which are strengthening their positioning.
available in 190 countries. Therefore, the Consequently, digital providers are
company has the opportunity to follow an increasing in number and volume
strategy to target the places not reached constantly. Furthermore, there have been
yet. created more specialized. Different
streaming video providers focused on
- Annual Subscription: Netflix is thinking different types of content. (this can be
about including an annual plan to deal with considered also an opportunity to be more
temporary subscribers. By offering a customer-centered and satisfy nowadays
discounted year they would make sure they user with an adhoc strategy)
don't lose you in that time period. This
would be an excellent strategy to achieve a -Inflation is a problem that is starting now
loyalty program. as a consequence of the pandemic and the
war between Russia and Ukraine. Prices are
- Partners: It can partner up with several starting to rise and will take time to come
local and international broadcasters. down. An economic crisis is coming that will
make it difficult to get new consumers and
-Niche Marketing: A very profitable strategy will cause the loss of some as Netflix is not
for Netflix is to create regionally specific a first need service and can be dispensed
content in the local languages of those with.
locations. Nowadays, there are alternative
platforms focused on different types of - Piracy: To avoid paying a membership fee
content (at the same time this is considered on a streaming platform, many people still
a threat), so Netflix can design a illegally download media content from the
personalization-oriented strategy. internet.

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BIBLIOGRAPHY

 Fernandez, A. (s. f.). Las 5 Fuerzas de Porter. Scribd. Recuperado 3 de noviembre de

2022, de https://es.scribd.com/document/485043280/Las-5-Fuerzas-de-Porter
 Netflix: Fuerzas de Porter, Análisis FODA y Cadena de Valor. (2017, 21 marzo).
Inteligencia Competitiva y Geoeconomía.
https://intcompgeoem17.wordpress.com/2017/03/21/netflix-fuerzas-de-porter-analisis-
foda-y-cadena-de-valor/
 Raggio, L. (s. f.). 5 fuerzas Porter: Netflix. prezi.com. Recuperado 6 de noviembre de
2022, de https://prezi.com/p/owk7kshgihiy/5-fuerzas-porter-netflix/
 MBA Skool Team. (2022, 7 febrero). Netflix PESTLE Analysis. MBA Skool

https://www.mbaskool.com/pestle-analysis/companies/18258-netflix.html

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