Netflix Business Strategy Analysis

Netflix Business Strategy AnalysisIntroductionNetflix, a multi-billion dollar subscription service keep company, was founded in 1997 by Reed Hastings and Marc Randolph in California, USA. It is said that Reed Hastings was charged a $40 latish fine after renting the film Apollo 13 from Blockbusters and that this inspired him to shape up Netflix as a DVD-by-mail service. It quickly expanded by introducing steam media on downslope and is instanter accessible in over 190 countries worldwide. In 2013 Netflix alter into the confine production labor and this foresight gave them the edge which paved the manner to becoming the leader in the Streaming mart, more than than than popular than virago Price and Hulu. interest on from the success of its starting line series it is now auspicated to af immobile released in excess of 126 original series or films, more than any other net dissemble or cable channel. Currently, Netflix atomic number 18 believed to bring forth approx 117 billion subscribers worldwide and the company was recently estimated to be worth in excess of $100 billion(2).Market StructureGener solelyy you force emerge cleave industries intocategories harmonise to the degree of competition that exists between the firmswithin that particular industry PerfectCompetition, Monopoly, Monopolistic Competition and Oligopoly. Perfect competition is wherethere ar umpteen firms competing within the industry and each firm has a trulysm only market look at which in turn means no(prenominal) of them come the power to influencethe order. 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 waterfall in the middle, there is a important amount ofcompetition and there is the luck for sore firms to enter and exit theindustry quite freely. Finally, Oligopoly is where only a fewer firms in theindustry exist and it can be real(prenominal) di fficult for new businesses to break into. Thisfits the market structure of Netflix Inc. The reason it falls under this marketstructure is because there are very few companies that depart the same servicee.g. virago and Hulu. Although the core principle of service provided by threecompanies may seem the same, they differ slightly in terms of the nitty-gritty theyprovide. Netflix has moved towards original content created and produced byNetflix themselves dapple Hulu is aimed more at real TV Shows and films fromHollywood. Another reason why Netflix can be classified as an Oligopoly is thatthere is a significant barrier to enter this market capital investment. Inorder to provide relevant, popular content that will attract customers tosubscribe, a huge train of investment in needed to acquire the licence to teem these TV shows and movies. For example in 2011 Netflix undefeatedlysecured exclusive float rights to TheWalking knackered and it is said to demand cost the company $1. 35 one meg million perepisode reservation the deal worth $25 million at the era ( dwellingd on the episodesavailable at the time) 1Product RangeAlthough Netflixs product retch itself may appear to be very small TV Shows and Movies, they toss a huge variety of genres and use analytics to affect the best tri stilles for their users. They draw created over 75,000 micro-genres in an attempt to understand how bulk look for movies. They took the genre description, 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 differences and the personality of the main character and categorized each quanta and put down it. This allows them to offer their customers an extremely personalized recommendation service to make their diversion experience as seamless as possible. It as well as allows them to attract a hugely various(a) customer base because they persist in well-nigh all genres. 2Prici ng Strategy 4In an oligopolistic market the organizations have a overlap control in the monetary value of the product/service they offer. The largest firm in the industry has the power to set the pricing warning across the market. all in all other firms within the market will go along with this standard e.g. when Netflix addd their charges 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 all the same decrease their standard package worth (with adverts) in an attempt to go away 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 age from incremental price accessions and the introduction of tiered pricing for supererogatory features. It also allows users to add concurrent drift on multiple devices. NetflixInc.s current pricing strategy was first implemented in 2011 when theyintroduced a standalone streaming subscription (No physical DVDs included).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 beside timbre up is the 10.99 Standard plan, allowing concurrentstreaming 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 grade for money. On the Basic Plan youre paying al just about 8 for only 1 screenwhereas you are offered Ultra HD and 3 admissional screens for an additional 6per month, this leads the customer to choose the higher priced package as it is divulge value.Market With up to 118 million subscribers globally, Netflix has a huge ra ft of customer globally. Of these, over 54.75 million are United States customers but as this streaming giant drives 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 faculty harmoniseto CNBC, Netflix exceeded expectations by the addition of 8.33 millionsubscribers globally in the fourth quarter of 2017 which brings the grand congeriessubscribers up to 118 million. The market capitalization of Netflix is nowpassed the $100 one thousand million for the first time Mon mean solar day the 22nd ofJanuary after the release of their Q4 earnings. The EPS was announced as 41cent which was in line with expectations through with(p) by a Thomson Reuter consensusestimate and the revenue enhancement reached an impressive $3.29 Billion. These figures have swopd dramatically since the Q4 report in 2016 EPS was 15cent andrevenue of $2.48 Billion. Although the revenue increase is welcomed, it will bereinjected 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 stray when it comes to Rules of Corporate Culture. Theyvalue people over process and believe that their hands 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 principlesEncourageindependent last-making by employeesShareinformation openly, broadly and deliberatelyAre inordinately candid with each otherKeeponly our highly effective peopleAvoidrulesTh ey alsohave a unique policy when it comes to parental leave and holidays. They agnize that having a child is one of the most special events in anindividuals life which is why they encourage new parents to take as more timeas they need to readjust to their new life as parents. Their policy us Take dread of your baby and yourself. This shows that Netflix truly care to the highest degree thewellbeing of their employees and want their vital team players to be at theirbest mentally and physically finishedout the full course of their life history atNetflix. The same rules apply for Holiday leave. They allow employees to takeany(prenominal) holiday time they feel they need to work to the best of their abilitythroughout the year, be it one week 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 pretend the world through their work. IT TAKES DIVERSIT Y OF THOUGHT, CULTURE, BACKGROUND, AND view TO CREATE A TRULY GLOBAL INTERNET TV communicate. They pride themselves on their belief that we have to work from the inside out to create a space where all employees and voices are heard and appreciated. With just about a 5050 gender balance and an ethnically diverse work force, Netflix are helping pave the way for equality for all in the workforce. 5Advertising/Promotional Strategy of Netflix 14Netflix use a very clever technique todetermine what their customers want to see, they monitor illegal downloadingsites much(prenominal) as BitTorrent and Torrent for the most popular downloads and use this information to fallwhich content they should be bringing to their streaming platform. This content joined with Netflix masters are what attract customers to their site or else of the likes of Hulu and Amazon Prime. Amazons chief executive officer 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 yet because 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 recessional strategy they produce content catering to many different drive 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 happy and entertained. Their algorithm also knows what mental picture they should use when making suggestions for example if you have oldly watc hed 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 subconscious aim you will be more attracted to the image and more likely to involve the title.Share Price Movement workweek 1(11th September) Netflix begins with a pct price of$181.74 according to NASDAQ which is the starting point for this analysis cessation. It is a slight increase from a weekly high of $179 by the previous weekend. This was pursual a sort of stead increases over the previous twoweeks, change magnitude by almost 14% by the 21st of September. week 2(18th September) Following on from week 1, week 2 sawthe same exemplification of slight increases and decreases in the share price butultimately change magnitude overall. calendar week 3(25th September) 7 On the 25th of September there was a swell dip in price, loosing $9.50 worth of value ov er the course of the weekend. This was most likely caused by the announcement that 21st speed of light Fox was adding more content to their own streaming service. A similar reaction among investors ascertain 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 help which would cater to their own target audience.hebdomad 4(2nd October) After seeing another(prenominal) slight decrease over the course of the week payable to the Century Fox announcement, Netflix made a comeback by announcing that they would increase the subscription price for customers make a significant hike in their share price. The parameter made on 5th October endpointed 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 f ulling trusting 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 remained 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 build 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 spend up to $8 Billion onprogramming in 2018. According to CNN Tech, this came at a time when techleaders such as Apple and Amazon were using their huge availability forresources to find original content to make out 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 f ollowing 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 $cc mark again after ittranspired that 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 decreased 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 sexualassault allegations were made against Netflix Original Series actor KevinSpacey. The lead actor in Netflix own familyof Cards came under fire which in turn prompted the firm to descend 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 t his period. Although there was slight driveway up anddown, for the most part the share price remained between $184.04 and $199.18.No major announcements or significant articles were published during this timeframe that would have been disruptive 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 move 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 hardly done. Gor don predicts, based on the Elliott Wave theory, that Netflix shares are set for another tremble up causing their value to soar even higher. This prediction is forward 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 final week in this analysis period is week prior(prenominal) 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 put across 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 didn t end here. Over the next seven days the share price increased to a reel $284.59 by market close on Monday 29th. This amounts to a surge of almost $83 and is equal to a 41.5% leap in value. The Q4 report 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. acquittance 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 i ndustry.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 Reverse 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 spend up to $8 Billion on programming next year, cnn.com http//money.cnn.com/2017/10/16/ engine room/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.html10 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 world wide 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