Netflix Strategy

Netflix: Strategic Analysis Strategy I – Winter 2012 Basic Information & Assessment of
Strategy Netflix is a U. S provider of on-demand Internet streaming media. Launched in1997,
it originally offered DVD rental on a pay-per-use basis. In 1999, the company moved to a
subscriptionbased model. In January 2008, Netflix began offering unlimited steaming
content.

Initial approach aimed to position the company as a low-cost video rental service competing
with the brick and mortar stores and movie theaters.Since the product they were offering was
not easy to differentiate, Netflix began focusing more on the services provided with the DVD
rental rather than the price alone. Netflix introduced a No-Due-Dates-No-Late-Fees model
and offered an excellent customer service. It provided a quality customer experience with
their user-friendly website, recommendation software, queue function, vast content library
and free overnight straight-to-home delivery. A differentiated strategy has enabled Netflix to
provide distinct value to their customers.Netflix’s first mover advantage allowed them to
garner a large subscriber base and helped them transform the video rental business model.

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Netflix in entering into multi-year licenses with studios and distributors to continually
provide newer content, attracting more subscribers and allowing for organic growth. Due to
the technological advances as well as changing trends in movie viewing and consumer
preferences, Netflix’s focus has shifted towards wireless video-on-demand services.The rise
of complementary products, such as smart mobile devices and TV’s as well as the
proliferation of broadband internet access allowed a fundamental shift in content distribution.
Overall, Netflix’s strategy is to retain and attract new subscribers by continually providing a
larger selection of content and incorporating new technology to enhance the user experience.
The company started its expansion into international markets to leverage their gains from the
US market.
It launched its services in Canada, Latin America, the Caribbean, UK and Ireland. 2 Netflix –
Strategic Analysis 011 – Strategic Group Map Netflix Subscriber Value Paid TV (content
catalog) Amazon/Hulu Kiosk OO Theater Access to Content (online, stores, etc) BB 3 Netflix
– Strategic Analysis Strategically Important Activities/Resources Largest subscriber base and
social communication data ~ 24M subscribers as of Q3 2011 Obtained through first-mover
advantage, low-cost offering, as well as providing customers with distinct value for the
service On-line community connected through recommendations, sharing movie lists and
reviews Unrivaled portfolio of digital content rightsEarly established relationships and
licenses with studios and content providers offer largest movie library Recent deals done with
DreamWorks Animation, Open Road Films, Epix, Relativity Media, Nu Image/Millennium
Films, BBC Patented method of web-based DVD selection Cloud computing services
improve business agility and increase movie streaming capacity Continuously gaining new
distribution channels (mobile devices, gaming devices, Internet T V’s, etc. ) increases product
penetration High investment in technology architecture and innovation Access to most
distribution channels 4Netflix – Strategic Analysis Sustainable Competitive Advantage
Netflix’s Large Subscriber Base Is Their Most Sustainable Competitive Advantage Valuable
because it allows Netflix to funnel more money into their acquisitions, increasing people’s
willingness to pay. In addition, more customers create a more comprehensive experience on
their website with their expansive movie reviews and recommendations no competitor can
match.

Rare because no other competitor has been able to come close to its 24+ million subscriber
base. One of its main competitors Hulu just celebrated reaching 1. million subscribers. 1
Imperfectly Imitable because Netflix acquired such a vast network of consumers through its
unique history, utilizing its first mover advantage and accepting losses for its first six years of
existence. To replicate its size today would require a competitor to offer more content at
lower prices, and be willing to accept hefty losses for an even longer period of time. Non-
substitutable because a large number of subscribers cannot be replaced by anything else.

A large subscriber base creates a cyclical competitive advantage that feeds on itself.More
subscribers creates more available capital that allows Netflix to pay the large amounts of
money necessary to acquire the vast content library that they possess. In turn, this large
library brings in more customers and helps them retain current customers since Netflix offers
more content in one place than any competitor by far. In addition, Netflix’s large subscriber
base acts as a form of free marketing, with more satisfied users recommending the service to
friends, growing upon itself even further. 5 Netflix – Strategic Analysis Porters Five Force
Analysis High: Most television and movie content is owned by very few corporations.
Netflix currently produces no content on their own (although they have some coming),
leaving them extremely vulnerable to price hikes when their licensing deals come up for
renewal. One analyst believes that its licensing costs will rise from $180 million in 2010 to
$1. 98 billion in 2012. Low: With major players like Netflix, Apple, Amazon, and Hulu
already in the industry, along with the owned and operated offerings, capital requirements
would be high to gain market share. High: Netflix faces competition from many big name
companies with lots of money to spend.

If the battle over streaming content comes down to a price war, they do not have the money to
win. If companies like Amazon and Apple began to pay extra for exclusive streaming rights,
that could seriously hurt Netflix’s ability to retain customers. Companies like HBO and Starz
have already, or soon will, remove their content from Netflix streaming. Low: Mainly
individuals buying single subscriptions for personal use giving them little power. However,
they did show the collective clout that they possess with their backlash to Netflix’s new
pricing strategy and forcing the company to quickly squash their Qwikster spin off
site.Medium/High: Entertainment options for individuals are extremely fragmented.

Most of Netflix’s current offerings are available elsewhere. Where their uniqueness lies is the
comprehensive collection they possess in one place for the consumer. 6 Netflix – Strategic
Analysis Takeaways from studying Netflix When competing on economies of scale, as
Netflix does, being the first mover and building a very large customer base quickly, is critical
to sustained success. The strategy that made the company successful will not necessarily be
the strategy that carries the company forward.An awareness of the market drivers and a
willingness to change strategy (even from one that has been successful in the past) is key to
maintaining an advantage once you have achieved it.

This is evident in how Netflix outcompeted Blockbuster, a much larger and better established
firm that was slow to adapt or innovate. Netflix implements strategies that maximize their
primary strengths – their low cost, large subscriber base, recommendations/review data and
ease of service.Netflix has focused on their core strength and has not diluted those core
strengths by branching their product lines into music or gaming. 7 Netflix – Strategic
Analysis References Q3 2011 – Financial Data and Letter to Shareholders Netflix. com
http://money. cnn.

com/2011/09/01/technology/netflix_ starz/? iid=EL http://money. cnn.

com/2011/09/19/technology/netflix_ cash/index. htm http://www. broadcastingcable.
com/article/478980CES_Hulu_Plus_Subs_Hit_1_2_Million_in_2011.
php 8 Netflix – Strategic Analysis

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