Netflix Business Strategy Analysis

Netflix Business scheme AnalysisIntroductionNetflix, a multi-billion dollar subscription service comp any(prenominal), was founded in 1997 by Reed Hastings and Marc Randolph in California, USA. It is said that Reed Hastings was charged a $40 late fine after renting the film Apollo 13 from Blockbusters and that this inspired him to set up Netflix as a DVD-by-mail service. It quickly expand by introducing steaming media online and is now accessible in over 190 countries worldwide. In 2013 Netflix diversified into the centre production industry and this foresight gave them the edge which paved the way to becoming the leader in the Streaming grocery, more popular than virago Price and Hulu. Following on from the success of its first series it is now estimated to do dispense withd in excess of 126 passe-partout series or films, more than any other network or cable channel. Currently, Netflix are believed to have approx 117 million subscribers worldwide and the company was recently e stimated to be worth in excess of $ atomic number 53 C billion(2).Market StructureGenerally you can divide industries intocategories according to the degree of competition that exists between the firmswithin that particular industry Perfect contestation, Monopoly, Monopolistic Competition and Oligopoly. Perfect competition is where in that respect are many firms competing within the industry and each firm has a realsmall commercialize share which in minute means none of them have the power to influencethe wrong. Monopoly is where there is just one firm in a given industry sothere is no competition which allows the firm to charge what they want.Monopolistic Competition falls in the middle, there is a significant amount ofcompetition and there is the opportunity for refreshed firms to enter and exit theindustry quite detachedly. Finally, Oligopoly is where only a few firms in theindustry exist and it can be very difficult for new businesses to break into. Thisfits the market st ructure of Netflix Inc. The reason it falls under this marketstructure is beca practice session there are very few companies that propose the same servicee.g. Amazon and Hulu. Although the core principle of services provided by threecompanies may seem the same, they differ slightly in terms of the content theyprovide. Netflix has moved towards authoritative content created and kindled byNetflix themselves while Hulu is aimed more at current TV Shows and films fromHollywood. Another reason why Netflix can be assort as an Oligopoly is thatthere is a significant barrier to enter this market capital investment. Inorder to provide relevant, popular content that will r suppress customers tosubscribe, a huge level of investment in needed to acquire the licence tostream these TV shows and movies. For example in 2011 Netflix successfullysecured exclusive be adrift rights to TheWalking Dead and it is said to have cost the company $1.35 million perepisode making the deal worth $25 millio n at the condemnation (based on the episodesavailable at the time) 1Product RangeAlthough Netflixs product range itself may appear to be very small TV Shows and Movies, they ecstasy a huge variety of genres and use analytics to make the best recommendations for their users. They have created over 75,000 micro-genres in an attempt to understand how people look for movies. They took the genre description, stone-broke them down to their key words, employed people to watch content and tag every aspect of it from director/actor/genre all the way to how it ends and the spirit of the main character and categorized each quanta and documented it. This allows them to offer their customers an extremely personalized recommendation service to make their entertainment experience as seamless as possible. It also allows them to attract a hugely diverse customer base because they cover to the highest degree all genres. 2Pricing Strategy 4In an oligopolistic market the organizations have a shar ed control in the damage of the product/service they offer. The largest firm in the industry has the power to set the pricing bill across the market. All other firms within the market will go along with this standard e.g. when Netflix outgrowthd their prices by $1 last October, Hulu followed suit by introducing a more expensive ad-free subscription package which was more similar to Netflixs offerings. They did however decrease their standard package price (with adverts) in an attempt to commence a stronger competitor in the market. Because of the oligopolistic nature of Netflix Inc.s, their price elasticity can be said to be relatively inelastic. This has been proven over the years from additive price increases and the introduction of tiered pricing for additional features. It also allows users to add concurrent blow on multiple devices. NetflixInc.s current pricing dodging was first implemented in 2011 when theyintroduced a standalone be adrift subscription (No physical DVD s include).They have three tiers of prices. It starts with their 7.99/month Basic Plan which allows you stream TVshows and movies on one device at a time in standard definition. It also allowsyou download titles to mobile devices. The next step up is the 10.99 Standard plan, allowing concurrent streaming on two devices in HD (also includes option to download). Finally the13.99 Premium plan lets you streamon 4 devices at the same time in HD and UltaHD included in the download option.As you can see, each tier offers more features which gives the impression of honor for money. On the Basic Plan youre paying almost 8 for only 1 screenwhereas you are offered Ultra HD and 3 additional screens for an additional 6per month, this leads the customer to choose the higher priced package as it isbetter value.Market With up to 118 million subscribers globally, Netflix has a huge volume of customer globally. Of these, over 54.75 million are United States customers but as this streaming giant drive s forward and increases in size and popularity, their international subscription base is growing. This was evident in April 2017 when Netflix confirmed a licensing deal made in Mainland China for original Netflix content with iQiYi which is a Chinese video streaming platform owned by Baidu 13Profit dexterityAccordingto CNBC, Netflix exceeded expectations by the addition of 8.33 millionsubscribers globally in the fourth quarter of 2017 which brings the grand totalsubscribers up to 118 million. The market capitalization of Netflix is nowpassed the $100 zillion for the first time Monday the twenty-second ofJanuary after the release of their Q4 earnings. The EPS was announced as 41cent which was in line with expectations done by a Thomson Reuter consensusestimate and the revenue reached an impressive $3.29 Billion. These figureshave changed dramatically since the Q4 communicate in 2016 EPS was 15cent andrevenue of $2.48 Billion. Although the revenue increase is welcomed, it will berei njected into future investments on new content for 2018. Netflix says theyexpect this to cause a negative free cash flow of $3-4 Billion and willcontinue to raise capital in high yield market. 12Core Philosophy 6Netflixhave reinvented the wind when it comes to Rules of Corporate Culture. Theyvalue people over process and believe that their workforce is made up of greatpeople working together as a dream team. This is all to create an environmentwhich is flexible, fun, stimulating, and creative and allows employees to workto the best of their ability. They value integrity, excellence, respect, andcollaboration and base their culture around 5 core principles gain groundindependent decision-making by employeesShareinformation openly, broadly and deliberatelyAreextraordinarily candid with each otherKeeponly our super effective peopleAvoidrulesThey alsohave a unique form _or_ system of government when it comes to parental leave and holidays. Theyrecognize that having a child is one of the most special events in anindividuals life which is why they encourage new parents to take as much timeas they need to readjust to their new life as parents. Their policy us Takecare of your despoil and yourself. This shows that Netflix truly care about thewellbeing of their employees and want their vital team players to be at theirbest mentally and physically throughout the full lineage of their career atNetflix. The same rules apply for Holiday leave. They allow employees to takewhatever holiday time they feel they need to work to the best of their abilitythroughout the year, be it one hebdomad or four week. The decision is in the handsof the individual employee.Along with this unique attitude towards creating their employee culture, Netflix recognize that they have the ability to impact the world through their work. IT TAKES DIVERSITY OF THOUGHT, CULTURE, BACKGROUND, AND PERSPECTIVE TO CREATE A TRULY GLOBAL INTERNET TV NETWORK. They pride themselves on their belief that we h ave to work from the inside out to create a space where all employees and voices are heard and appreciated. With almost a 5050 gender balance and an ethnically diverse work force, Netflix are helping pave the way for equality for all in the workforce. 5Advertising/Pro intercommunicateal Strategy of Netflix 14Netflix use a very clever technique todetermine what their customers want to see, they monitor illegal downloadingsites such as BitTorrent and Torrent for the most popular downloads and use this information to decidewhich content they should be bringing to their streaming platform. This contentjoined with Netflix Originals are what attract customers to their siteinstead of the likes of Hulu and Amazon Prime. Amazons CEO Reed Hastings saidin an interview that they strive to make the big titles bigger. TV shows suchas Stranger Things or 13 Reasons Why are hot topics ofconversation within many friend groups and discussion boards. This pulls in thepeople who havent joined merely be cause they want to join the discussion. Hastingsays that All their friends are talking about the shows, which is the dominantaccelerator.Together with this, according to theconversation.com, Netflix Inc. has adopted a conglomerated niche strategy they produce content catering to many different target audiences, for example, action series Daredevil, horror series Hemlock Grove and exclusive films starring popular actors. By doing this, Netflix is able to service different audiences simultaneously and separately 14. While these techniques are used to initially attracted subscribers to the platform, their unique recommendation algorithm is used to keep their subscribers sharp and entertained. Their algorithm also knows what image they should use when making suggestions for example if you have previously watched more comedies than romantics, when suggesting a romantic comedy they will emphasis the comedy aspect through the actors or a snapshot of a funny scene instead of the romantic side of the firm. Their theory is that on a unconscious level you will be more attracted to the image and more likely to select the title.Share Price Movement workweek 1(11th September) Netflix begins with a share price of$181.74 according to NASDAQ which is the starting topographic point for this analysisperiod. It is a slight increase from a weekly high of $179 by the previous weekend. This was following a exercise of stead increases over the previous twoweeks, increasing by almost 14% by the twenty-first of September.Week 2(18th September) Following on from week 1, week 2 sawthe same pattern of slight increases and decreases in the share price butultimately increasing overall. Week 3(twenty-fifth September) 7 On the 25th of September there was a sharp dip in price, loosing $9.50 worth of value over the course of the weekend. This was most likely caused by the announcement that 21st Century Fox was adding more content to their own streaming service. A similar reaction among inv estors happen earlier in the year when Disney announced it would be removing all their content from Netflix in the lead up to the launch of their own streaming serving which would cater to their own target audience.Week 4(2nd October) After beholding another slight decrease over the course of the week due to the Century Fox announcement, Netflix made a comeback by announcing that they would increase the subscription price for customers causing a significant ascent in their share price. The statement made on 5th October resulted in a share price increase of 5% ($10) in a matter of hours, and by the end of the week (Oct 6th) it has risen to $198. This was an all-time high, according to Variety. This indicated that investors momentary wobble in confident has subsided and were fulling trust that the hike in price would not impact the amount of subscribers but would instead increase revenue, benefiting them.Week 5(9th October) Following the previous weeks announcement,Netflixs value re mained relatively flat line with the exception of a few minorincreases and decreases throughout the week. This absence of change was shortlived as the momentum began to form again towards the end of the week.Week 6(16th October) 8 This week sees a record high for thestock price. Reaching $202.68 on Monday the 16th. This comesalongside the news that Netflix are planning to strike down up to $8 Billion onprogramming in 2018. According to CNN Tech, this came at a time when techleaders such as orchard apple tree and Amazon were using their huge availability forresources to find original content to compete with the likes of NetflixOriginal successes such as Orange is theNew Black or Stranger Things.Each of these has brought a huge volume of customers to the site due to itsexclusivity and cult following of these shows.Week 7(23rdOctober) Thisrecord spike in the share value was short-lived. By the 23rd ofOctober the share price had dropped below the $200 mark again after ittranspired tha t Netflix were expecting to raise $1.6 Billion in debt to coverthe cost of the original content they had planned for 2018. This was cause forconcern among the shareholders but luckily it didnt impact too heavily on theshare value which only rock-bottom by 5% or $10. Week 9(6th November) 9 Although Netflix had gained 64% invalue over the past year, the shocks lost more than 5% this week after intimateassault allegations were made against Netflix Original Series actor KevinSpacey. The lead actor in Netflix own Houseof Cards came under fire which in turn prompted the firm to decide not tocontinue production of their hit show as the reputation and ethics of thecompany may come into question if actions werent taken. Week 10 16 There is very little significant increase ordecrease to report over this period. Although there was slight presence up anddown, for the most part the share price remained between $184.04 and $199.18.No major announcements or significant articles were published d uring this timeframe that would have been degenerate to the share price which is why itremained so stable for such a time period. Week 17(2nd January) The firm begin to pick up somemotion upwards again after a period of relative stability in price of theirstock. This could be as a result ofthe buzz caused by an influx of articles listing the best of whats to come in2018. For example the top 20 new and returning shows to Netflix according toTV TimeWeek 18(8th January) 10 Continuing along the pattern of steadily increasing in value day by day, by January 8th, shares have reached a new high of $212.52. This pattern in causing technical analysts to predict even further increases in the share value. According to CNBC TradingAnalysis.coms Todd Gordon says the streaming platforms run is merely done. Gordon predicts, based on the Elliott Wave theory, that Netflix shares are set for another wave up causing their value to soar even higher. This prediction is forth of January 22nd, the date on which Netflix are set to report their Q4 earnings which have a massive impact on the share value.Final Week The closing week in this analysis period is week prior to the release of the Q4 earnings. This week traders are expecting a big move according to CNBS. Up to this point in 2018 alone, shares have increased by up to 9.5% going from $201 on January 2nd all the way up to $220.46 on Friday January 19th. The release comes on Monday 22nd of January and, although is not included in the requested analysis period, it would be unjust not to report the impact it had on the value of the Netflix share price. Between market close on Monday and market close on Tuesday, shares leaped a massive 10% (rounded up) which amounts to an increased value of $22.71, but this impressive jump didnt end here. Over the next seven days the share price increased to a staggering $284.59 by market close on Monday 29th. This amounts to a gasp of almost $83 and is equal to a 41.5% leap in value. The Q4 rep ort says that Netflix added 1.98 million U.S. and 6.36 million overseas subscribers which was much higher predicted 11. This along with fourth-quarter revenue of $3.29 Billion is the likely cause for the surge. Investor confidence has strengthened as a result of exceeding expectations and predictions.ConclusionIt is evident that Netflix are a verysuccessful streaming platform who have a great team of people behind them todrive the company forward to do bigger and better things. They have expandedand diversified enormously since being founded in 1997. Going from a DVD bymail and online streaming platform to having 118 million users worldwide andproducing their own highly successful content. It is clear that thismulti-billion dollar company is a game changer in the entertainment industry.Bibliography 1 Matthew Byrd, November 2017, 15 TV Shows That Cost Netflix A Ton of Money, screenrant.com https//screenrant.com/netflix-tv-shows-most-expensive-cost/2 Alexis C. Madrigal, January 2014, How Netflix overturn Engineered Hollywood, theatlantic.com http//linkis.com/www.theatlantic.com/Sa5NA3 Blog, fusebill.com https//blog.fusebill.com/pricing-strategy-tiered-volume-pricing4 Netflix Streaming Plans, Help Center, Netflix.com https//help.netflix.com/en/node/249265 Inclusion and Diversity, Netflix Jobs, Netflix.com https//jobs.netflix.com/diversity6 Culture, Netflix Jobs, Netflix.com https//jobs.netflix.com/culture7 Michael Sheetz, September 2017, Netflix heads for the worst day since November after Fox spooks investors, cnbc.com https//www.cnbc.com/2017/09/25/netflix-heads-for-worst-day-since-nov-2016-after-fox-spooks-investors.html8 Seth Fiegerman, October 2017, Netflix to cast up to $8 Billion on programming next year, cnn.com http//money.cnn.com/2017/10/16/technology/business/netflix-earnings/index.html9 Sara Salinas, November 2017, Netflix dropped 5% this week, after rallying all year, cnbc.com https//www.cnbc.com/2017/11/10/netflix-drops-five-percent-this-week.html 10 Annie Pei, January 2018, Netflix could surge another 20 percent, says technical analyst, cnbc.com https//www.cnbc.com/2018/01/05/netflix-could-surge-another-20-percent-says-technical-analyst.html11 Todd Spangler, January 2018, Netflix Blasts Past Q4 Subscribers-Growth expectations, shares soar to all-time high, varierty.com http//variety.com/2018/digital/news/netflix-q4-2017-earnings-stock-1202672341/12 Anita Balakrishanna,January 2018, Netflix jumps more than 8% after adding more subscribers thanexpected, cnbc.com https//www.cnbc.com/2018/01/22/netflix-earnings-q4-2017.html13 International Expansion, Netflix, Wikipedia.com https//en.wikipedia.org/wiki/NetflixInternational_expansion14 Amanda Lotz, April 2017, The unique strategy Netflix deployed to reach over 90 million worldwide subscribers, theconversation.com http//theconversation.com/the-unique-strategy-netflix-deployed-to-reach-90-million-worldwide-subscribers-7488515 Netflix, wikipedia https//en.wikipedia.org/wiki/Netflix16 John Lynch, October 2017, Netflix stock hits all-time high after price hike for US subscribers, businessinsider.com http//uk.businessinsider.com/netflix-stock-hits-all-time-high-after-price-hike-2017-10?r=US&IR=T