STRATEGIC AUDIT OF

Submitted by Group-7 BBA5C :

Shantipriya Nandy (A90606420192)

Chiranjibi Mundra(A90606420122)

Shounak Bagchi(A90606420154)

Angana Chakraborty(A90606420223)

Subhadeep Majumdar(A90606420064)
Executive summary
As of 2022, Netflix is the leading video streaming service in the world, with over 180 million
members. The portal initially started as a DVD rental service in 1997 in California, and
gradually built its way up to being one of the most successful businesses in the entertainment
industry. The new concept of monthly subscriptions for DVD rentals quickly became popular
among Americans, and the company became well known for its innovative way of
restructuring the entertainment system. Unlimited access to thousands of movies and TV
shows without commercials, and with an ability to watch on multiple devices attracts millions
of people to buy Netflix memberships. However, with the rapidly changing market, the
service must quickly adapt to new trends to keep their leading positions. This report analyses
the internal and external environment of Netflix Inc. conducts analyses in different matrix’s
and proposes recommendations and alternatives for strategic planning.
 TABLE OF CONTENTS

 Introduction
 History
 Strategy formulation
 Mission statement
 Vision statement
 External analysis
 External analysis of online streaming industry
 Main competitors of Netflix
 Internal analysis
 PEST analysis
 Poter’s five forces analysis
 Key strategic factors
 Conclusion
 Recommendation
 Bibliography
Introduction
Netflix rose fast to become the largest online streaming platform in the world. Its popularity
surged faster during the pandemic when people stayed indoors following lockdowns in
several leading markets, and Netflix was their main source of entertainment. The global
online streaming platform added 10 million members during the second quarter of 2020.
Overall, it has 193 million paid memberships across 190 countries. The largest markets of
Netflix are the US and Canada, generating the biggest portion of its revenue. Its penetration
of markets across Europe, Latin America, and in the Asia Pacific region has also grown
stronger. Netflix has a strong competitive advantage supported by differentiated customer
experience, a large collection of Netflix originals, its focus on innovation, and a competitive
pricing strategy driving higher popularity across all consumer classes. The platform offers a
vast set of originals, including movies and TV shows, top-rated among millennial
users. Netflix viewers can access digital content from their smartphones, laptops, and other
internet-enabled devices, including smart TVs. Its focus on creating original content and
providing a superior viewing experience resulted in deeper market penetration. Overall, while
Netflix continues to experience a fast surge in popularity and higher engagement rates than
rivals, its focus on innovation continues to grow stronger. The company’s revenue also
increased rapidly in recent years and has almost trebled in just five years. Rising from $6.8
billion in 2015, the annual net revenue of Netflix reached $20.2 billion in 2019. The
company’s operating margin also expanded from 5% in 2015 to 13% in 2019. It indicates the
firm’s growing profitability over the past five years.

Company history
Netflix began operation in 1997 as a DVD by mail rental service (About Netflix, 2017).
After many years, it has morphed into the largest online television network, with over 100
million members worldwide which streams over 125 million hours of programming per day.
Its members are able to watch on multiple different devices from just about anywhere, at any
time.

Strategy formulation
Mission
“We promise our customers stellar service, our suppliers a valuable partner, our investors the
prospects of sustained profitable growth, and our employees the allure of huge impact.”
The company’s mission statement calls for what Netflix is best known for – unique, excellent
streaming services. From the mission statement, one can understand that the corporation
equally values customers’ satisfaction with the service and the interests of their stakeholders.
By analyzing the mission statement, it is clear that Netflix aims to impact the lives of its
members, by setting high goals for corporate social responsibility. The service also does not
aspire to be a stable company, vice versa; it continually works on improving and exceeding
the expectation of every customer and investor. Lastly, Netflix’s ultimate goal is to deliver
high-quality entertainment to keep its members excited about the new releases and fill them
with joy every time they launch the service.

Vision
The vision of Netflix is:
 Becoming the best global entertainment distribution service
 Licensing entertainment content around the world
 Creating markets that are accessible to filmmakers
 Helping content creators around the world to find a global audience
Netflix refers to its brand promise as a “quest,” which equates to its mission statement: “We
promise our customers stellar service, our suppliers a valuable partner, our investors the
prospects of sustained profitable growth, and our employees the allure of huge impact.”
This clarity of definition ultimately benefited Netflix’s hiring process. McCord notes, “Only
fully formed adults apply to jobs here.”

External analysis
Netflix’s opportunity analysis
Netflix's Potential Growth of Subscription:
 The industry of DVD rental grosses every year, and Netflix might tap into this growing and
Expansion into markets.
 Expansion of movie download ability.
 Continued international expansion of DVD internet access, acceptance of e-commerce and
component sales.
 A small meteor crashes into Blockbuster Corporate Headquarters
Digital Distribution:
 As video content's digital distribution turn into a progressively more popular viewing
format, Netflix strategically located to provide as a connection throughout the slow
changeover from physical DVD system to digital streaming. Netflix is improving it's located
in this position than other companies because Netflix has an Electronic Commerce brand
name and business model.
Netflix’s threat analysis
Extremely Competitive Market:
The industry of DVD video covers a wide range of viewing prices, technologies, and
services. There are some competitors that might potentially present home video cheaper than
Netflix. If those competitors emerge with a better streaming ability and lower prices,
Netflix‟s business model might be severely compromised. (Amematekpo et al, 2011).
 Changeable Video Rental Industry:

The industry is constantly developing due to formatting and technological innovations.

Prices, goods, and customer preferences are subject to rapid change, creating irregular and
changeable markets where new competitor usually a threat and an impressionable business
model is necessary to achieve.
 Subject to direct assault by deep-pocket of Netflix's rivals, such as subscription products
presented by blockbuster.com

External analysis of online streaming industry

The online streaming industry has advanced rapidly over the past several years, with online
entertainment sources gaining precedence over TV and offline channels. According
to Statista, by 2020, the Video Streaming segment’s revenue is estimated to reach $51.62
billion. Its revenue will follow an annual growth rate or CAGR of 10.7%, leading to a market
volume of $85.7 billion by 2025. By 2020, user penetration must reach 11.9% and hit 17.2%
by 2025. ARPU or Average Revenue per user is expected to reach above $58 by then.
However, the US market will generate the most revenue of the entire global market, an
estimated $24 billion by 2020. The number of users worldwide in SVoD is expected to hit
1.34 billion by 2020. 

Main competitors of Netflix

Amazon Prime:
Amazon Prime membership includes several benefits. Apart from free delivery on a large
range of products sold on Amazon’s marketplace, it includes access to a large collection of
videos and shows on the Prime Video Network. Prime is the largest competitor of Netflix.
Apart from its services’ competitive pricing, Amazon has also added a large number of
original videos to its collection that makes it stand out, including several shows in local
languages targeted at its ever-growing audience in the emerging markets. Amazon Prime
users in the US in December 2019 numbered 112 million. Its subscriber base in the US grew
fast last year, rising from 95 million in December 2018.
Hulu:
Hulu is among the leading competitors of Netflix and experienced sharp growth in its
subscriber base in the past year. Its memberships grew to 35.5 million from 27.9 million last
year. Hulu has also adopted many different pricing plans to cater to the different needs of
various user segments. The most basic plan costs $5.99 per month. However, there are pricier
premium options also for Hulu viewers. Netflix is a global brand, but Hulu is available only
in the US states, territories, and military bases. 
YouTube:
YouTube has also emerged as a major competitor to Netflix. The social media network has a
large collection of videos that engages users from all over the world and most of it is user-
generated content. However, YouTube has also started offering movies for rent or purchase.
With its vast collection of movies in various languages, YouTube competes with Netflix and
other online streaming services providers. It also boasts an audience of above 2 billion.
Disney+:
Launched in November 2019, Disney+ has experienced rapid growth in its subscriber base.
Its memberships grew to 50 million in just five months following its launch. With its launch,
all the movies and TV shows previously available on other streaming services were made
exclusive to Disney+. Disney has also included content from its Marvel, Star Wars, National
Geographic and Pixar franchises. In its first year, Disney+ plans to offer 7500+ TV shows
and around 500 movies. However, that has still drawn a substantial subscriber base to the
online streaming service.
Voot:
Voot is an Indian subscription Video on Demand service launched in 2016 by Viacom18. Its
business model is different from Netflix. Voot has relied mainly on advertisements as its core
source of revenue. However, its subscriber base has grown to 100 million users in 2020. The
pricing of Voot’s services is comparable with Amazon Prime’s. Its premium content can be
accessed by paying around $1.5 extra. Voot also has cheaper annual plans for Indian users. It
expects that subscriptions and advertising will together contribute equally to its revenue in
the next three years. Right now, advertising forms a substantial part of its annual revenue.
Voot’s services are limited to India and it is among the leading competitors of Netflix in the
Indian market.

Internal analysis
Netflix’s strength analysis
Competitive "first-mover":
 Competitive "first-mover" advantages comprise identifying strong brand name and
knowledge base.
 Economies of Scale in Netflix's Business Model:
 Online flexible infrastructure and interface allows Netflix to preserve low operating
expenditure whilst raising its subscription base. Netflix's position in the industry will rise if
movie downloads become the consumption technique of choice by subscribers.
Consequently, because Netflix's subscribers increase, will lead to a decrease in marginal
operating costs and increase in profits. (Amematekpo et al, 2011).
 Netflix was able to achieve competitive advantages by offering low price, free shipping,
large selection, and no late fee policy. This improves the levels of consumer satisfaction and
referrals.
 Netflix's Market Power:
 Netflix has been gaining control of a large area of the online DVD rental market and as a
pioneer in this industry, Netflix has become a household brand.
 Electronic-commerce Expertise
 Expertise of Electronic-commerce including proprietary "Cinematch" software movie
referral.
 Value in Netflix's consumer Services:
 Netflix presents a dedicated DVD recommendation facility based on the assessments and
viewed films by its previously subscribers. These recommendations coupled with Netflix‟s
extensive DVD inventory enable consumers to discover beyond the video content of the
prevailing video feature films. The service is proprietary and unique to Netflix services.
 Library Content and Large DVD catalog:
 Currently, Netflix has a large, video content library. Netflix has more than 100,000 titles
and 72 million discs, this including; TV shows, vague movies, and new releases. (Netflix,
2009)
 Experience and Skills:
 Netflix‟s employees have a passion for movies which would translate to a positive work
ethic.

Netflix’s weakness analysis

 Financial Resources:
 Small Financial resources compared to competitors like Blockbuster.
 Consumers have to wait at least one or two days to obtain their films.
 Lack of Diversification of the world:
 Despite of that fact that Netflix present its services across the U.S and some other countries,
Netflix has not expanded outside those few countries, which makes Netflix to depend on one
or few markets. The globalization can benefit the Netflix's business by increased
opportunities for growth and strength.
 Subject to technological change.
 Netflix‟s product based on its services to their subscribers, this means that the Netflix‟s
strength and growth will depend on the high Average Revenue per User, low Subscriber
Acquisition Costs, and maintaining low churn rate. These issues might be difficult to control
due to the absence of transition costs in the video entertainment industry.
 Netflix's brand Loyalty:
 Netflix's brand loyalty is not that great, while it has a high level of brand recognition

PEST Analysis
PESTLE Analysis of Netflix analyses the brand on its business tactics. Netflix PESTLE Analysis
examines the various external factors like political, economic, social, technological (PEST)
which impacts its business along with legal & environmental factors. The PESTLE Analysis
highlights the different extrinsic scenarios which impact the business of the brand.
PESTLE analysis is a framework which is imperative for companies such as Netflix, as it helps
to understand market dynamics & improve its business continuously. PESTLE analysis is also
referred to as PESTEL analysis.
1. Political Factors:
The political factors in the Netflix PESTLE Analysis can be explained as follows:
Netflix is not available in every country. China the biggest economy we know doesn’t allow
Netflix to operate because of US policies. So, because of these restrictions in various countries
by USA Netflix has many untapped market. Also, there is censorship on some of the content
shown on Netflix so some countries don’t allow it to screen. Further in EU Nations the tax rate
applicable to Netflix is quite high which is also a threat for the company.
2. Economic Factors:
Below are the economic factors in the PESTLE Analysis of Netflix:
The entire OTT industry has grown a lot during the past 2 years from the start of Pandemic
and there are more than 100 OTT platforms out of which major revenue share is occupied by
Netflix having 29% market share.
Currently, Netflix is at booming stage. With high GDP growth rate the demand for Netflix
market will increase as we can see the trend. Unemployment, wage rates, taxation, inflation and
interest rates are economic factors that affect the growth of Netflix. Because of more OTT
platforms coming Netflix need to create original content to survive in the market. Also, in
countries like India they need to keep prices less and give more offers to survive because other
platforms offer this at less cost. Domestic streaming cost and marketing expenses are other cost
which also need to be controlled to survive. Since Netflix operates in various countries so
exchange rate fluctuation is also a factor which need to be kept in mind.
3. Social Factors:
Following are the social factors impacting Netflix PESTLE Analysis:
Unemployment, wage rates, taxation, inflation and interest rates are economic factors that
affect the viewership of Netflix. Demographic trends, gender, equality roles and societal norms
are important to keep in mind for Netflix. Online shopping of customers and their spending
patterns can also help Netflix in determining the social trend of the customers. As it all depends
on the purchasing power of the company. On the other hand, the working environment of
Netflix also encourages employees to join the organization and produce quality of content. To
grow in the market Netflix can do market research in different demographic segments to
understand the needs of the people and then produce the content on their likings.
In USA, because of the entertaining content every household can be seen having Netflix
Account. Following this trend over past couple of years students has also attracted towards
Netflix and are spending more time in watching online content. Availability of reliable
broadband connectivity and wide area target networks for expansion should also be seen.
4. Technological Factors:
The technological factors in the PESTLE Analysis of Netflix are mentioned below:
Since, Netflix is an online based app so technology plays an important role for them. Trademark
copy right, patent and other intellectual property right are important for Netflix. They need o
constantly have intellectual rights update from third party to stream their content.
In countries like India they need to make sure that their websites are proper functioning
otherwise customers find ways to see series and movies through illegal hacking. They also need
to make sure about the cyber security as at the time of payment there are chances of theft.
Coming 5G technology will be a major transformation for Netflix as it will increase the speed of
surfing. This constant upgradation of technology has helped to bring various new contents at
every short period of time.
The Netflix new thumbs up option helps in improving the personalized view content as it helps
the company to know the view interest of viewers and then shows similar shows to them based
on their likings. The use of various algorithms and machine learning to promote the shows is
positive point for Netflix.

Poter’s five forces analysis

Netflix is working in content production and is enjoying a boom in sales. So, let us analyze these
five forces to determine the competitive environment and their effect on Netflix's profitability.
Since Netflix has continuously worked using various success strategies, and so far has brilliantly
faced the competition. We can learn many things from this Netflix Porter's five forces model
and apply them in our circumstances.
 Competitive rivalry or competition( Strong Force)
 The threat of new entrants (strong force)
 The bargaining power of suppliers(strong force)
 The bargaining power of customers(strong force)
 Threat of substitute products or services(moderate force)
 i. Competition in the industry (Strong force)
Netflix competitor's analysis shows that competition in the content industry is a strong force.
New entrants have noticeable barriers because of the costs and low profitability. However, it is
fairly easy for companies already playing in the field like Amazon or HBO, who are also
venturing into this operating model. So, competitors with more additional services and more
control over content are real threats.
ii. The threat of new entrants (strong force)
A variety of barriers exist for the new entrants in the consumer food industry. Just a few
entrants are successful in this industry as there is a need to comprehend the consumer
requirement, which requires time. At the same time, current rivals are well aware and have
progressed with the customer commitment over their items with time. There is a low threat of
new entrants to Netflix 2000 as it has quite a big network of circulation internationally,
controlling with a well-reputed image.
iii. The bargaining power of suppliers(strong force)
Since Netflix deals with content that is an expensive commodity to produce, there are few
suppliers. Since the suppliers are few, they have a dominant effect on the market. Now that even
the suppliers are entering the consumer or VOD market, you can understand that they want to
brand their content for their business. A recent example is removing the Friends show from
Netflix in favor of HBO.
iv. The bargaining power of customers (Strong force)
There is very less switching cost for customers with almost all services offered at a very less
price difference. So, the main factor here is not the price but the quality of content. Also, the
customers are paying every month, so Netflix's five forces model cannot rely on annual
contracts. All these factors make the bargaining power of customers in Netflix porter's five
forces a strong force.

v. Threat of substitute products or services(moderate force)

There are very few substitutes available for the content in the industry. So, the threat of
substitute services in Netflix porter's five forces is moderate. Netflix has this threat from
companies producing the same content on DVDs or streaming. But the bigger threat is the
availability of other leisure activities and entertainment opportunities.

Key Strategic Factors

1. Disrupting the industry – Disrupting itself
The first time Netflix innovated was when they were shipping DVDs via mail. Then they
abolished late fees which lead to Blockbuster’s crush & burn demise. After that they
transitioned from mailing content to streaming movies and TV shows digitally and finally,
Netflix began producing its own original content.
2. Flexibility
Consumers can watch content on demand, on any screen, and the experience is personalized to
individual tastes.
3. Unlimited options
Subscribers can find a wide range of movies, tv series, shows, performances, documentaries
licensed from distribution partners with new options entering the offer on a regular basis. This
makes Netflix’s offer practically unlimited. I’ve never heard anyone say they’ve seen everything
on Netflix.
4. Investing in original content
According to Variety, Netflix is expected to spend $15 billion on content in 2019, and about 85%
of new spending is on originals which means over $12 billion. It is more than any of its
competitors (Amazon, Hulu or HBO Now) invest in original content and it puts Netflix in the
top spot on customer-satisfaction surveys.
The more investment you’re putting in, the more people are finding content that they love and
the more they have value in the service.
Reed Hastings, CEO Netflix
5. No ads
How many ads do you see on a daily basis? 50? 100? More? Some say the number of ads which
we are exposed to is anywhere between 4000 to 10.000 ads each day.  Ads are the reason ad-
blocking software is more popular than ever with 236 million people using desktop ad-blocking
plugin in 2016.
Netflix knows people wish to enjoy watching movies with no interruptions like annoying and
sometimes irrelevant ads which is why they provide an ad-free experience to its user base.
6. Netflix pioneered binge-watching
We are pleasure-seeking animals and sometimes we go a little too far. When we drink or eat in
excess it’s called bingeing.
Netflix’s superior user experience has determined binge to take on a new meaning which refers
to watching multiple episodes of a television programme in rapid succession and getting little to
no sleep.
Binge-watching started in 2016 when Netflix decided to put a show’s entire season online at
once. It was another way to disrupt the industry – people were no longer watching the shows
when the networks dictated, they were free to watch them all in one sitting and whenever they
wanted.
All TV will move to the internet, and linear TV will cease to be relevant over the next 20 years,
like fixed-line telephones.
Reed Hastings, CEO Netflix
7. Excellent user experience
Here are some of the excellent user experience that Netflix provides:
 Custom-created preview videos that automatically play when you scroll over a title
card;
 A download-and-go feature that allows users to watch shows offline;
  The ability to share your Netflix account;
 30-day free subscription.
8. Personalization via the Netflix recommendation engine
Netflix knows everything we do on their platform. What movies we watch, when we hit play or
pause, how many episodes of a TV show we watch daily and so on. They have a huge amount of
data on all 148 million paying subscribers. It’s impossible for a human analyst to mine through
all this data – big data – and extract useful insights.
That’s where machine learning, a subset of artificial intelligence comes in. Netflix uses machine
learning to help their algorithms “learn” without human assistance. Machine learning gives the
platform the ability to automate millions of decisions based off of user activities.
Without recommendations, users would spend a lot of time going through thousands of movies
and tv shows. That’s why the Netflix recommendation engine is vital to the platform’s success
because it automates the search process for users who would otherwise run out of patience and
leave the platform.

Conclusion
In conclusion, Netflix has been extremely successful in maturing and developing to adapt to the
changing needs of customers over time. While their original DVD-by-mail business model was
effective against competitors such as Blockbuster, the rise of internet streaming’s popularity
meant they had to adjust. The comparison to Blockbuster is important, as they were a company
that failed to adapt and didn’t foresee the impact the internet would have on the movie rental
industry (Kellmurray, n.d.) Netflix was then able to gain customer loyalty by providing things
Blockbuster didn’t, such as no late fees and only needing to go to the mailbox to get the DVD
(Kellmurray, n.d). When the popularity of online streaming grew, Netflix embraced the change
and used it to their advantage to become the company they are today.
The long tail theory has been one of the most important factors for the success of Netflix. Their
ability to provide significantly more content than any physical DVD rental store has allowed
them the continuously gain customers. By being a purely internet based service, Netflix has
benefited from e-commerce advantages such as reduced costs and the expansion of the
marketplace. In 2015, 10 billion hours a month were spent watching Netflix (Smith, 2015). This
shows that it has been effective in the attention economy despite the number of competitors and
other options providing the same or similar material. It can therefore be concluded that by
optimising things such as the long tail, the subscription business model and network effects,
Netflix has developed over time to become a successful and attention gaining business in the
attention economy.

Recommendation
Netflix exceeds the predictions and exponentially increases not only the revenue but also the
customer base. Netflix has an influential both external and internal environment; thus, some
issues with domestic outreach have been apparent in recent years. Focus mainly on a vast
international expansion, has left the local audience less entertained, especially with rapidly
rising competitors. Original content has taken a large portion of Netflix’s budget, which became
their primary competitive strategy, as with the creation of unique quality content, the viewers
choose Netflix over other streaming services. Some strategy alternatives must be implemented to
remain the biggest streaming service. Alternatives must be implemented to remain the biggest
streaming service.

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