EMM – MODULE MARKETING

Préparation individuelle – Yvan DAELEMAN

1. BUSINESS MODEL TRANSITION
The Very Beginning

• Netflix was founded by two gentlemen who knew what they wanted to build and fearlessly fought for it. Reed
Hastings and Marc Randolph were the brains behind Netflix.
• The exact details about how the idea of Netflix was born are hazy. The famous story that the two men rented a
Blockbuster DVD and had to pay a late fee for the rental is more anecdotal than true. Hastings has even admitted to
making up the story to easily explain their business model and motivation for starting Netflix. 
• The idea of Netflix was born out of the need to have a better way to deliver DVDs to customers.
• Marc Randolph was a Geology graduate who founded and ran several mail-order companies such as
MicroWarehouse and direct-to-customer companies before moving on to Netflix with Hastings. At the time, he was
working as a marketing director for Hasting’s company, Pure Atria.
• Reed Hastings, on the other hand, was a tech genius. In 1991 he founded a software development tool-making
company called Pure Software. He would later sell it for $700 million to Rational Software Corporation in 1997.
We can attribute, in part, the success of Netflix to Hasting’s tech knowledge. The algorithm that he and Marc
Randolph built was superior in every way.

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1. BUSINESS MODEL TRANSITION
The media & entertainment landscape in 1997.

• While Hastings and Randolph were working on the Netflix business model, Cable and T.V. guides dominated the
entertainment landscape. Customers were used to regular programming that released episodes on specific days
every week.
• Blockbuster (the biggest movie and film rental in the country at that time) and, of course, cable channels like HBO,
who offered premium and new release content, controlled the market. The cable networks and studios enjoyed a
dual stream of income from subscriber fees and advertising. 

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1. BUSINESS MODEL TRANSITION
A. Business model Canvas Netflix as DVD rental operation (1997-2007)

• Movie creators Rent and ship DVDs • Convenience, flexibility, • Online catalogue • B2C
• Film distributors Maintain website saving time and simplicity: • Delivery by mail • People living far away
DVD for rent without visit • Placing orders via website from rental stores
a shop, delivered by mail
at home (or anywhere
else) over night, returns in
7 days back by mail
• No late-fee payments
• Unlimited access
• Max 3 dvds at a time
• Flat subscription, no
additional cost

• Content • Curiosity and fascination

• Recommendation with the internet
system

• Logistics centers • Rental fee by credit card (1997)

• Posting DVDs by mail • Subscription (1998)

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1. BUSINESS MODEL TRANSITION
B. Business model Canvas Netflix as VOD operation + streaming (transition of 2007)
• Xbox, Play Station
• Smart TVs: App and
Netflix button on remote
• Apple : Netflix featured
app on first iPad
• Content licenses
• Acquire partners
• Content creating
• Online streaming platform
• Recommendation system
• Mainstream content
licenses
• Instant access to movies
on many devices
• Mainstream/Premium
content
• Subscription
Self-setup • B2C – Internet users
Customer service by phone • Focus on families w/
Social media children
• Online/Internet
purchasing
• Streaming delivery
channel and mailbox
delivery channel
• Mobile app service
• OEM app service
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1. BUSINESS MODEL TRANSITION
C. Business model Canvas Netflix as content distribution + production company (transition of 2013)
• Gaming platforms
providers: Xbox, Play
Station
• Smart TVs: App and
Netflix button on remote
• Apple : Netflix featured
app on first iPad
• Android & Microsoft
• Google, Amazon
• TV Network companies
• Underappreciated
screenwriters
• Content licenses
• Content creation
• Content creation
• Online streaming platform
• Recommendation system
• Mainstream content
licenses
• Netflix originals
• Instant access to movies Self-setup • B2C – Internet users
on many devices Customer service by phone • Focus on families w/
• Mainstream/Premium Social media children
content 27/7
• Binge-watching: all
episodes at once
• Get one free month of
trial
• Cancel monthly
subscription at any time
• Optional Full HD
• Familly subscription to
watch multiple • Online/Internet
programs at same time purchasing
• Receive • Streaming delivery
recommendations to channel and mailbox
watch new items based delivery channel
on watched content • Mobile app service
• No ads ! • OEM app service
Subscription
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2. FINANCIAL ASPECTS

 Focus on DVD stock acquisition

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3. BUSINESS MODEL TRANSITION

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4. ROLE OF CONTENT IN TRANSITION
1997-2007
Content was less important than the
support itself. DVDs are smaller,
better quality to watch and better
format to send by mail. This is a first
revolution in the movie distribution
business coming from the bric-and-
mortar VHS rental stores.
A second inovation took place in
1999 with the launch of the
subscription instead of paying for
each dvd rented. Those 2 disruptive
innovations bring Netflix in
competion with Blockbuster, leader in
its sector of video rental.
2007-2013
The launch of on-demand streaming
services requires more and more
titles. Need to create partnerships
with content providers like Starz or
AMC in order to license content the
providers had previously acquired.
Some of them were even more
successful on Netflix than on the
original show. For ex, “Breaking Bad”
drew more viewers on Netflix than on
AMC (thanks to binge-watching).
2013
One of the main reasons for Netflix's
success in the streaming market is
its investment in original content.
This includes popular shows such as
Stranger Things, The Crown, and
House of Cards, which have helped to
attract and retain subscribers. By
producing its own content, Netflix
has been able to offer a unique and
diverse selection of programming
that sets it apart from its
competitors.
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5. USE OF DATA TO OPERATE BM
 Netflix uses a recommendation system that collects user data such as location, content
watched, interests, and search history to provide personalized content recommendations
based on the subscriber's interests. The system uses two types of recommendation
methods: content-based filtering, which is based on the subscriber's viewing history, and
collaborative filtering, which is based on the viewing habits of similar users. The system
initially asks new subscribers to provide information about their preferred genres and
other preferences and then tracks their viewing history to improve recommendations. The
system also uses user search data and ratings to improve recommendations.

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5. USE OF DATA TO OPERATE BM
 To provide personalized recommendations to its subscribers Netflix collects huge
amount of data from its user base. Below are some of the things which Netflix tracks
• When a user stops a content.
• When a user fast forwards a content.
• When a user pauses a content.
• Time during which the user watch.
• Location of the user.
• What content the user watch.
• On what device does he watch (TV, Smartphone etc.)
• Browsing behavior of user.
• Searching habit of user.
• Reviews and ratings given by user.

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5. USE OF DATA TO OPERATE BM
 In 2006, Netflix launched a challenge offering $1 million to anyone who could improve
their existing recommendation system, Cinematch, by 10%. The competition involved
using a provided dataset of 100 million ratings from 480,000 users for 17,000 movies to
predict subscriber movie preferences. The prize was ultimately awarded to the BellKor's
Pragmatic Chaos team in 2008.

 Netflix personalizes the subscriber experience by utilizing A/B testing. This method
involves presenting two different versions of content, such as images, to subsribers and
measuring their reactions. This data is used to determine which version is more effective
in attracting the subscriber to watch the content. One specific technique Netflix uses is
landing cards, which are images or video teasers on the subscriber's homepage. By
making these images appealing, Netflix can increase the likelihood that the subscriber
will watch the content.

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6. ENABLER OR DESTROYER?
 It depends on how we view the effects of Netflix on the diversity of content. Some argue that
Netflix has enabled a greater diversity of content by providing a platform for creators to produce
and distribute their work, regardless of whether it fits into traditional Hollywood genres or
distribution models. Netflix has also invested in creating original content from diverse creators and
featuring stories from underrepresented groups.

 On the other hand, others argue that Netflix has destroyed diversity of content by creating a
"content arms race" where the platform prioritizes producing and acquiring popular and
mainstream content, thereby crowding out smaller and independent productions and creators.
Additionally, Netflix's algorithm-driven recommendation system has been criticized for leading to
an "echo chamber" where the user is only recommended content that aligns with their previously
watched shows and movies, which can lead to a lack of diversity of content and perspectives.

 In summary, Netflix has enabled more diversity of content by providing a platform for creators and
investing in original content from diverse creators, but it has also been criticized for homogenizing
content by prioritizing mainstream content and its algorithm-driven recommendation system.

 One suggestion for improving the algorithm would be to take into account the user's current mood,
allowing for more targeted proposals, which would not be linked solely to the history of films 14
already watched.
7. COMPETITION ASSESMENT
The current competitive situation of Netflix is quite intense. There are a number of
other streaming platforms that have emerged as competitors to Netflix, each with
their own strengths and weaknesses.

 One of the major competitor is Amazon Prime Video. Amazon Prime Video is a
streaming service that is included as part of an Amazon Prime membership. The
platform offers a wide variety of content, including movies, TV shows, and
original content produced by Amazon Studios. One of the main advantages of
Amazon Prime Video is its strong integration with other Amazon services, such
as free shipping and access to the Kindle lending library.

 Hulu is another streaming platform that is a significant rival for Netflix. Hulu is
known for its wide variety of TV shows and movies, with a strong focus on
current and recent TV shows. Hulu also offers a live TV package, which allows
subscribers to watch live TV channels, making it more competitive with
traditional cable and satellite TV providers.

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7. COMPETITION ASSESMENT
 HBO, which is known for producing critically acclaimed and award-winning original
content, has been considering mimicking Netflix's strategy by increasing its investment in
original content and ramping up its streaming service offerings. This strategy shift is
driven by the rapid growth of streaming services and the changing viewing habits of
consumers who are increasingly moving away from traditional cable and satellite
television.

 One potential criticism of this strategy is that it could lead to a dilution of HBO's brand,
which is currently associated with high-quality and prestigious programming. By
increasing its investment in original content, HBO may be forced to take on more
commercial projects in order to appeal to a wider audience, which could lead to a decrease
in the quality of its programming and a loss of its prestige.

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7. COMPETITION ASSESMENT
 Another criticism is that HBO may struggle to compete with Netflix in terms of
the sheer volume of content it can produce and distribute. Netflix has a much
larger budget for content and a larger subscriber base, which allows it to
produce and distribute more content than HBO can. This could lead to a
situation where HBO's content is seen as less valuable and less desirable
compared to Netflix's content.

 Additionally, HBO's strategy could be seen as a reaction to the changing

market, rather than a proactive move. Netflix has been investing in original
content and streaming services for many years, and it has established a strong
brand and reputation in the streaming space. HBO, on the other hand, is
relatively new to the streaming space, and it may be difficult for it to catch up
with Netflix in terms of subscriber base and content offerings.

 In conclusion, while HBO's strategy to mimic Netflix's strategy can be seen as

a response to the changing market and the need to adapt to changing viewing
habits, it also has its potential pitfalls, such as dilution of brand, difficulty to
compete with Netflix in terms of the volume of content, and being seen as a 17
7. COMPETITION ASSESMENT
 One of the main competitors to Netflix is Disney+. Disney+ is a new streaming service
that was launched by the Walt Disney Company in 2019. The platform offers a wide
variety of content, including movies and TV shows from Disney, Marvel, Star Wars,
and National Geographic. One of the main advantages of Disney+ is its strong brand
recognition and the appeal of its content to a wide range of audiences, including
families and children.

In summary, Netflix currently faces intense competition from a number of other streaming
platforms, including Disney+, Amazon Prime Video, Hulu, HBO Max and Peacock, each with its
own unique strengths and advantages. To stay competitive, Netflix will need to continue to
invest in its own original content and make strategic acquisitions to keep its content library
up-to-date and diverse.

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8. INTERNATIONAL EXPANSION
Netflix's international expansion has been a significant part of the company's growth strategy, but it has also
presented a number of challenges. Some of the main challenges include:
 Local competition: In many countries, Netflix is entering a market with established local competitors. These
competitors often have a better understanding of the local market, including language, culture, and consumer
preferences, which can make it difficult for Netflix to gain a foothold.

 Content localization: In order to be successful in international markets, Netflix has had to adapt its content to
local tastes and cultural norms. This can be a significant challenge, as different countries have different
regulations and censorship laws, which can limit the types of content that can be shown. Additionally, different
languages and cultures can also require significant localization efforts.

 Payment and distribution challenges: In some countries, traditional payment methods such as credit cards are
not as widely used, which can make it difficult for Netflix to gain subscribers. Additionally, distribution
challenges such as low broadband penetration, can also limit the growth potential in certain markets.

 Legal and regulatory challenges: Netflix's international expansion has also been hindered by legal and
regulatory challenges. Different countries have different laws and regulations regarding the distribution of
content, which can make it difficult for Netflix to comply with local requirements (ie. Syria, Indonesia,
Vietnam, Malaysia, China, …)

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8. INTERNATIONAL EXPANSION
Despite these challenges, Netflix's international expansion is relevant for several reasons:
 Access to new markets: Expanding internationally allows Netflix to access new markets, which can help to
increase its subscriber base and revenue.

 Diversification: Expanding internationally allows Netflix to diversify its revenue streams, which can help to
mitigate risks associated with relying on a single market.

 Original content: Netflix's original content has been well-received globally, which gives it a competitive
advantage in international markets.

 Increased competition in domestic markets: As competition in domestic markets intensifies, expanding

internationally can help Netflix to stay ahead of the competition by reaching new audiences and creating new
revenue streams.

 Overall, Netflix's international expansion has been a key part of its growth strategy, but it has also presented a
number of challenges. However, the potential benefits of reaching new markets, diversifying revenue streams,
and creating original content, make it a relevant and important aspect of Netflix's overall strategy.

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 MERCI
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