DELHI SCHOOL OF MANAGEMENT

DELHI TECHNOLOGICAL UNIVERSITY

SECTION - A
Netflix: International Expansion
SUBECT: Business Environment
SUBMITTED BY: SUBMITTED TO:
2K22/DMBA/18 Ansh Srivastava Dr. Sonal Thukral
2K22/DMBA/35 Chitra Swaroop
2K22/DMBA/51 Itisha Pandey
2K22/DMBA/71 Mansi Mittal
2K22/DMBA/72 Manvi Goswami

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Q1. Conduct a strengths, weaknesses, opportunities, and threats (SWOT) analysis for
Netflix, and provide strategic suggestions based on the analysis.

SWOT Framework:
Strengths:
 Strong brand reputation and market position
Netflix has a strong brand reputation and has become a household name by substituting some
top-rated television programs. The company has also shown exponential growth in recent years.
The business's focus on continuous product development, allowing the business to maintaining
a strong market position and to improve its consumer satisfaction.
 Innovative Concept
The company has high adaptability. Netflix continually modifies its service, based on the market
and the viewers' choice.
 Large Customer base and Geographical Outreach
Netflix made clear its intentions to further its international growth when it announced that its
service would be made available in 130 new countries, which expanded its reach to over 190
countries worldwide. The decision meant that Netflix became available in nearly every country in
the world, except those that had sanctions imposed upon them by the U.S. government.
 Strong business models
The popularity of Netflix’s business model quickly resulted in the obsolescence of the model that
Blockbuster had so successfully utilized.
In 2007, Netflix began to reengineer its core business model away from mail-order DVD rentals
to Internet streaming and video-on-demand (VOD), accurately predicting that the volume of
DVD sales and rentals would eventually fall.
 Rise of Netflix over Blockbuster

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Randolph and Hastings launched the Netflix website on April 14, 1998, as a pay-per-rental
DVD-mailing service, charging $0.50 per rental. They introduced the concept of a subscription
based service in 1999, moving away from the idea of stand-alone rental stores that Blockbuster
had popularized
 Developing Exclusive Content
Netflix's original movies and TV shows offer ample opportunities to budding filmmakers. The
audience enjoys the mode of the content presented by the platform as their original content.
Hastings stated that the company wanted its original content to be “as broad as human
experience.”

Weaknesses:
 Lack of Financial and Technical resources
The business has actually experienced absence of monetary and technical resources, which
has restricted its capability to grow its business locally and internationally.
 High premium costs for global business
In order to compete with both global and domestic competitors, Netflix paid significant premiums
for these global licensing deals, which resulted in very high costs for its international business
segment. Although Netflix’s international expansion aimed to be profitable in the long term, the
high costs of undertaking its ambitious strategy resulted in it operating at a significant loss in the
short term.
 Local Adaptation
Netflix was outpacing its ability to provide area-specific, modified content to international
subscribers and to develop market penetration strategies that were specific to the host country
Despite its presence in more than 190 countries, Netflix only had service available in 20
languages, which put it at a severe disadvantage when competing with the domestic content
providers that were present in each country.
 Limited Copyrights
Netflix doesn’t own most of the content it shows in its library, affecting the company directly. The
licenses taken from the production house expire after some time; content should be taken down
from their library after expiration.
 Over dependence on North American Market
Even though Netflix operates globally, it relies heavily on the North American market. If the US
market were to stop using Netflix’s services, the company would experience a tough period.
Besides the users, the company will also suffer if the US economy is affected.
Opportunities:
 Increase demand of theme parks

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 The business can avail the opportunity of increasing demand of theme parks in U.S. by
getting in the U.S. entertainment industry.
 Rise in demand for OTT platforms
The need for OTT platforms is also rising, which is a good sign for Netflix. As Netflix has a brand
reputation, the great demand for OTT platforms in the current market can allow the brand to
expand.
 Developing original content
Since Netflix is signing up for exclusive Netflix-only content, they can bring in other product
lines, including video games, comic books, and more. They pursued exclusive licensing
agreements and partnerships to develop original content. This move helped Netflix decrease its
reliance on content providers.
 High Internet penetration and increased mobile phone usage
The industry benefited from the improvement of streaming technology and in the further
development of mobile devices, from which viewers could access streamed content. The
Internet television and video-streaming industry revolutionized the way people accessed
entertainment.
Threats:
 Government regulations
The government regulations in certain countries can hold them from expansion. As an American
company, Netflix was still subject to regulatory restrictions imposed by the U.S. government.
The impact of these restrictions was apparent in its January 2016 expansion announcement,
with countries like Syria absent from its line-up.
 Content piracy
Netflix is suffering majorly from content piracy. Many people choose to watch the pirated version
of the original series available without paying, threatening the company with video file sharing
websites like the Pirate Bay and Megaupload, which offered content for free by avoiding
expensive licensing agreements with content providers.
 Multiple users of single account
Another reason for fewer customers for Netflix is that many people share one account
simultaneously.
 Intense domestic and international competition
Netflix International Expansion deals with extreme competition from worldwide and domestic
competitors along with rapidly altering patterns of show business and consumer preferences.
This may result in company losing its identity as a strong brand and key player
 Risk of replication of its business model
Business experiences an increased risk of replication of its business model by different rivals.
Business model is the core strength of the business and the primary factor of business's
success.
 Currency devaluation

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The increasing devaluation of Mexican Peso versus the U.S. dollars might decline the
business's financial stability.

Q2. Analyse the overall profitability of the industry in which Netflix is

operating using Porter's Five Forces Model?
Threat of New Entrants:
 Threat of new entrants refers to possibility of new companies entering and competing in
an industry.

 Streaming industry has high barriers to entry due to high investment and large
subscriber base requirement.

 Established players like Netflix have brand recognition and subscriber advantage.

 Growth of streaming industry will lead to more players and stronger competition.

 Smaller companies may enter the market with niche offering as technology becomes
more accessible.

 Netflix must innovate, improve service, invest in new technology, create original content
and expand services to counter the threat.

 Netflix should closely monitor the market and adapt to new entrants.

Threat of Substitute Products:

 Threat of substitute products refers to potential of alternative products taking market
share.
 Streaming industry faces competition from traditional TV, cable, and other streaming
services like Hulu and Amazon Prime.
 High threat of substitute products due to wide range of options for customers.
 Streaming companies need to differentiate and offer unique content to retain customers.
 Netflix faces moderate threat as other services offer similar content and features.
 Amazon Prime Video and Disney+ pose threat to Netflix due to bundled services and
popular content.
 Competition and threat of substitute products expected to increase as more players enter
the streaming market.

Bargaining Power of Suppliers:

 Bargaining power of suppliers refers to ability of suppliers to control prices/terms.

 In the streaming industry, suppliers are content creators, producers, and rights holders.

 Suppliers have high bargaining power, putting pressure on streaming companies to keep
costs low.

 Netflix has strong bargaining power due to large customer base and demand for content.

 Netflix has reduced dependence on external suppliers by investing in original content.

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 Netflix's bargaining power over suppliers is dependent on availability of alternative
suppliers.

 As streaming industry becomes more crowded, suppliers may have more options,
reducing Netflix's bargaining power.

Bargaining Power of Customers:

 The bargaining power of customers in the streaming industry is high due to multiple
options for customers to choose from and the ease of switching between services.

 This puts pressure on companies to offer low prices and a variety of content to attract and
retain customers.

 Customers are demanding more personalized and tailored content, which requires
streaming companies to invest in advanced data analytics and recommendation systems.

 To maintain its customer base, Netflix must offer a high-quality service at a competitive
price and focus on providing a good customer experience.

 As the streaming industry becomes more crowded, the bargaining power of customers will
increase, making it important for Netflix to continuously innovate and improve its service.

Competitive Rivalry:
 Competitive rivalry refers to the level of competition between existing companies in an
industry.
 The streaming industry is highly competitive with many players, including streaming
services like Netflix, Hulu, Amazon Prime, traditional cable and satellite providers, and new
entrants like Disney+.
 Intense pressure for companies to offer high-quality content, low prices, and a great user
experience to stand out.
 Netflix has established itself as a dominant player with a strong brand, large customer base,
and diverse range of content.
 Investment in original content and exclusive rights helps Netflix maintain a competitive
advantage.
 To maintain this advantage, Netflix must continue to innovate, invest in new technologies,
create high-quality content, expand services, and closely monitor competitors.
 The competitive rivalry in the streaming industry is moderate, with many players but
Netflix's strong brand, large customer base, and diverse content give it a competitive
advantage.
 The streaming industry is highly competitive and profitable with high barriers to entry.
 Netflix needs to invest in content, marketing, and technology to maintain its advantage.
 Companies need to be aware of bargaining power of suppliers and customers, and threat of
substitute products to stay profitable in the industry.

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Q3. Define Netflix's competitive advantage. Why is Netflix so successful?

1. First Era: Establishing a Scalable Business Model

 During the first era, Netflix focused on establishing a scalable business model in the
form of DVD rentals offered to mainstream segments at a competitive price.

2. Second Era: Developing Novel Resources and Capabilities

 In its second era, Netflix developed reliable online streaming and sophisticated data
algorithms to customize a variety of content to customer preferences.

3. Dynamic Capabilities: The Introduction of "Netflix Originals"

 The company exercised its dynamic capabilities with the introduction of "Netflix
Originals", original content produced by the company itself.

4. Business Model and Competitive Advantages

 Netflix's business model determines its value chain and the associated competitive
advantages.
 The business models include a platform (digital media or internet) and pipeline (content
production) business model, an ignoring-out-the-middleman model (production to
distribution), and an unlimited subscription model (profit model for unlimited online
access).

5. Key Partners

 The most important partner of Netflix is Amazon, whose AWS cloud servers provide
crucial support and host all the company's digital needs.
 Maintaining this relationship is crucial, as a server outage would prevent customers from
accessing their content.

6. Generic Competitive Strategy

 Cost Leadership: Netflix's generic strategy is cost leadership, where the company aims
to achieve a competitive edge through minimized costs and selling prices.
 Differentiation: In addition to cost leadership, Netflix also uses differentiation as a
strategy for competitive advantage in its operations.