1.

How strong are the competitive forces in the rapidly evolving global market for
streamed video content? Does a five-forces analysis support your answer?

The competitive forces in the rapidly evolving global market for streamed video content
are robust. Currently Netflix’s main competitors are Amazon Prime Video, Hulu, and
Disney+. Amazon Prime Video has been making significant investments in their content
with plans to release new content such as Live Sports, New Originals, New Movies, and
Double Feature Movie Nights. For Hulu, they have been taking advantage of revenue
from advertisements as a strategy to keep subscriptions cost low. Additionally, they are
unique in the way that they offer various packages and subscriptions including live TV
and cable channels. There is a basic subscription and users can add on top of that if they
want to watch more. For Disney+, their competitive advantage consists of their
unparalleled collection of intellectual property, brand uniqueness, and higher caliber
content monetization capabilities. Disney’s brand has helped them significantly in scaling
Disney+ because people gravitate towards what they are familiar and comfortable with.
For Netflix, the threat of new entrants is moderately high because organisations who are
already established in the entertainment industry will be able to immediately launch a
streaming service with their own content with an already existent fan base that could
support them from the get go. In terms of the other competitive forces, Netflix has two
more issues to address: the threat of substitutes and growing bargaining power of
buyers. With more and more streaming services available to the public, people have
more options than ever before. Each competitor would be seen as a substitute for the
other. This increases the bargaining power of buyers because it gives them more power
to select a low-cost platform and save some money by watching a couple
advertisements.

New Entrants is low because they would have to build up their content from the bottom,
whereas already established names in the industry have an extensive library. Substitutes
threat is moderate it only becomes a high threat is the substitute offers a value proposition
that is completely different from what competitors in the industry already offer. Buyer
power is high, the buyer can easily cancel a subscription to one company and go to another
company and buy a subscription based on their library. Buyers also want to pay the lowest
price for the best library/content. Supplier power is moderate companies have to make
connections with suppliers to gain access to their content and get it at a price where it
doesn’t drive their costs up. Rivalry is High power because demand is growing at a fast rate
and the only thing that is different from your competition is your content and your price.
New Entrants- Low

2) What key factors will determine a streaming company’s success in this industry in the
next 3–5 years?

Flexibility

Netflix’s audiences can watch different content on demand, on any screen (phone / laptop /
pc), and the user experience is personalized depending on individual taste.

Unlimited Options

Netflix subscribers can find a wide range of movies, series, shows, performances, and
documentaries from their distribution partners. Basically this makes Netflix’s offer
practically unlimited since they have many distribution partners.

Netflix’s Original Contents

Even though Netflix has their distribution partners as their source of contents, Netflix also
makes their own original content. According to Variety, Netflix spent around $15B for their
own original content last 2019 which is more than any of their competitors like Amazon and
HBO invest in original content which puts Netflix on the top.

Netflix Has No Ads

Netflix knows their audience doesn’t want any ads while binge-watching their favourite
series. That is why Netflix provided an ad-free experience to its user base.

Netflix Pioneered Binge-Watching

Netflix’s user experience has determined binge to take on a new meaning which refers to
watching multiple episodes of a series without getting little to no sleep. With this idea in
mind, Netflix decided to put a show’s entire season at once as it was another way to disrupt
the industry where people will no longer watch the shows on the other networks since they
can watch them all in one sitting whenever they want on Netflix.

Easy To Use User Experience

Netflix has a custom preview video that will automatically play whenever you scroll over the
poster of the series. Netflix also added a download button for people to download their
chosen episodes/movies for them to watch offline. Netflix also has the ability to share their
Netflix account to others for other people. Lastly, Netflix has a 30-day free trial for curious
people to experience Netflix for free.

Personalization Through the Netflix Recommendation Engine

Netflix uses machine learning to help their algorithms learn without human assistance. This
machine learning gives the platform the ability to automate decisions based on user
activities meaning that this machine learning can recommend Netflix’s audience to many
different shows depending on the audience’s past watchlist. With the help of this
recommendation engine, users don't need to spend a lot of time to go through thousands of
movies and series just to look for this certain one movie / series.

3) What is Netflix’s strategy? Which of the five generic competitive strategies discussed in
Chapter 5 most closely fit the competitive approach that Netflix is taking? What type of
competitive advantage is Netflix trying to achieve?

They want to grow their number of domestic and international streaming subscribers,
enhance the appeal of their content especially Netflix Originals, spend aggressively on
marketing and advertising, expand the number of titles that members can download when
offline, and enhance their interface. I think that Netflix has a broad differentiate competitive
strategy. I think they are trying to achieve the best cost strategy.
4) What is your appraisal of Netflix’s operating and financial performance based on the
data in Exhibits 1, 2, 5, 6, and 7? What positives and negatives do you see in Netflix’s
performance? Use the financial ratios in Table 4.1 (Chapter 4) to carry out calculations to
support  your assessment of Netflix’s financial performance. 

Netflix revenue increases over the four year time span , including during the recession . The
ability for the company to not only hold on to current subscribers during a recession but
also add on over a million new subscribers each year shows the strength of it . From 2006 to
2007 the company ' s revenue grew by 20.93 % , this is a drastic increase for any company ,
especially in the movie rental industry . While other movie rental companies were losing
members Netflix was increasing its revenue and subscribers . In 2007 to 2008 , during the
worst part of the recession , the company had an increase of 13.22 % in its revenues and
during the scare of there being a double dip recession from 2008-2009 the company ' s
revenue soared up another 22.39 % finally bringing the revenue to over one and a half
billion dollars . The increases in Cost of Goods Sold throughout the years are not necessarily
to be portrayed as a negative financial attribute to the company . With more and more
subscribers , a larger quantity of DVD ' s and VOD need to be purchased to keep up with the
Netflix promise of having a movie delivered in one business day . Even though COGS in 2009
took 64.62 % of the company ' s revenues , the company was still able to keep 6.94 % of its
revenues as net income . Something that is a bit concerning is the increase of marketing
expenses from 2008-2009 after it had been on a steady decline from 2006-2008 . The $ 38
Million making up 14.23 % of its revenue for that year increase may be due to the company
having a annual subscriber cancellation for that year of over 34 % , 6,444,000 subscribers
cancelled of the total 18,712,000 that the company had during 2009 . Another notable
financial aspect is the steady decrease in equity since 2007 . The company began buying
back it stocks in large sums annually with the company ' s net income . This buyback may be
seen as a good thing or as a bad thing . Some would view this as a company saying that they
have more revenue than they need.

5) What are 2–3 top priority issues Netflix's management need to address?

There are several things that Netflix management needs to address in order to remain
competitive . The biggest being cost , as the price rose two times last year , almost doubling
the price . As a result of this many customers cancelled or reduced their accounts . The next
issue would be more recent movies and TV shows , they currently have mostly older or non-
popular movies available for streaming and rental . What 2-3 top priority issues does
Blockbuster management need to address Blockbuster management needs to address many
issues , the biggest being cost . While they are currently in bankruptcy protection and are
looking for a buyer this can be difficult , but if they wish to remain in business at all they can
not expect to charge $ 5 a night for rentals . The next issue is expanding their online rental
service , currently it can take up to a week to receive your DVD that you rented , they also
offer no online streaming for free , you must rent a digital copy and they charge more than
Netflix for their service .

6) What recommendations would you make to Netflix CEO Reed Hastings?  At a minimum,
your recommendations should cover what to do about each of the top priority issues
identified in point 5 ?

Netflix should capitalize on advertising on streaming . It should use email marketing

especially on the customers who are using the emails to access the online DVDs . Regarding
cancellations , it should conduct a thorough research on what are the causes for the
cancellation . Then , the company should fix the problems or make a counter - attack on the
issues . The company should venture into international markets to win even more
subscribers . In this case , it should venture progressively while inspecting its performance
with time .