Memo

To: John Mackey & Walter Robb

From:
Subject: Executive Summary: Netflix Competitive Position Analysis

Industry Analysis

Netflix as a company can belong to different industries given the different take, however for the purpose
of this study we would take Netflix as a part of the Subscription Video On Demand Industry. The Industry
had a strong year in 2020 and revenues from the SVoD segment amounted to $59 billion in the year. There
was a 31.6% increase from 2019 revenues of $45 billion. The Industry is further set to grow at 20.4%
reaching to a whopping $71 billion in the current year and is expected to surpass $100 billion by 2025. (Data
from trading platforms website, please look at the references from the link)

Netflix as a company enjoys a superior position in the market due to its high audience demand worldwide.
From the infographic attached below we can see that Netflix beats its closest rival Amazon Prime by a huge
margin.

Most popular video streaming service based on share of audience demand for digital originals
worldwide in 2020
Most in-demand video streaming services worldwide 2020, by share of demand

CBS All Access 3.5% Other 13.1%

Disney+ 3.6%

HBO Max 3.6%

Apple TV+ 3.9%

Netflix 53.4%
Hulu
6.3%

Amazon
Prime Video
12.6%

Note(s): Worldwide; 2020

Further information regarding this statistic can be found on page 42.
17 Source(s): Parrot Analytics; ID 1035628 Consumption

In the infographic used we can also see the major players in the SVoD market worldwide which are Netflix,
Amazon Prime, Hulu, Apple TV+, HBO Max, Disney+, CBS all access etc. The players do get concentrated
and have their own versions country wise. For example, In India, Disney+ is combined with HotStar i.e. in
India it is known as Disney+Hostar. The combination is quite famous and commands a bigger market share
than Netflix in India, but worldwide, Netflix still enjoys a comfortable lead.

The Industry also at a nice position because it caters to all age groups, taking a snapshot from the USA
market in 2020 from the infographic below we can see a nice distribution, and with internet penetration on
the rise in developing countries as well we can expect a conversion to a similar distribution across
geographies
To uncover the key external factors of the industry we can start by looking at how the number of
subscriptions grow and what are the key vendors for the industry. The infographic tells us the major vendors
which are mobile apps, mobile operators, PayTv operator and Fixed broadband. Now we can further probe
into consumer tastes by taking a case of how the telecom industry is shaping up. According to a Philip
Capital report in January 2019 shows how the PayTv industry has been operating under stress as people are
moving to cheaper OTT platforms. This can also be confirmed by the an amazing 2020 year for the video
streaming services. According to a PWC report on consumer behaviour we get the insights that time spent
streaming has increased by 75%, the number of streaming subscribers in the US has doubled and there are
multiple factors that attract consumers to these platforms like : 1) Ease to use; 2) Always something to
watch; 3) Good Quality of content; 4)Access to live television ; 5) Relaxing experience. Telecoms are also
picking up on changing consumer tastes, In a report by Mint concerning the Indian market it predicts that
almost half of the people who access video streaming apps will be through telecom bundles.
Figure: Declining pay-Tv Subscribers (`000)

The major environment indicators of Consumer Spend, Telecommunication Market, ICT Consumer
Market, Penetration Rate are also predicted to grow in the coming days, please find attached the exhibits
for the market indicators mentioned above. (Exhibits 1-4)

Coming to conducting a five forces analysis, Lets take each point one by one:

1) Power of Suppliers: I would like to start with power of suppliers first because it is one of the
most important factors in the Industry and will link further ahead with threat of entry. Power of
suppliers is high. Netflix Prides itself on the volume of content it has, and content is either licensed
or original. Licensed content are contracts and when the contract terminates the supplier can shift
to other streaming platform. In 2013, Viacom’s contracted ended with Netflix and wasn’t renewed
so Netflix lost content there. The iconic TV series ‘Friends’ left Netflix in the U.S. in 2020. Further
decreasing popularity of the app. This is one of the reason why Netflix is heavily investing in
producing its original content.
2) Threat of Entry: The threat of entry in the Industry is moderate. The Industry does have barriers
of entry as it would need high investments initially to create content and set up the technology and
that lowers the threat of entry. To balance this out we have Suppliers who already have their
content in place or have a high financial backing. Hulu was a joint venture of 21st Century Fox,
NBC and the Walt Disney Company, Disney+ is a new entrant which caused major damage to
Netflix and is estimated to overtake Netflix in terms of subscribers in 2026
 3) Power of Buyers: The power of buyers is high in the industry because of several reasons. Firstly,
the switching cost is 0, a consumer can merely cancel the subscriptions and shift to the other
service, this is important because revenue from subscriptions is their major source of income since
there are no advertisements. Information is available to the larger public and there is less scope of
differentiation in the industry.
4) Threat of Substitutes: The threat of substitutes is also moderate in the Industry because
increasingly we are seeing services acquire live streaming when it comes to sports. We can take the
Indian Market for example, SonyLiv has broadcasting rights for UEFA Champions league while
Disney+ Hotstar has the viewership rights of the Barclays Premier league with VOOT taking rights
for the League 1. But, we would still have segments of the population who will stick to Satellite
and Cable TV with Movie Theatres still thriving. Pirated content also poses a threat to the industry
as people can download the content for free. Future Technology disruptions can be taken into
account, but are not considered as of now. Then there are AVoD and TVoD services which are
not currently a threat.
5) Industry Rivals: With Amazon Prime being a major rival due to its services package, Disney+ is
rising to be one of the major rivals of Netflix. Emergence of HBO Max and Apple TV as well. But
the competition level is moderate here as many consumer can have multiple subscriptions, a more
detailed analysis will be given in the coming sections of competitor analysis. The major competitors
around the globe can be found in the following link

https://www.fortunebusinessinsights.com/industry-reports/video-on-demand-market-100140

There are big players in local markets such as Tencent video in China.

Competitive Positioning & Competitor Analysis

Netflix is surely a market leader, with its presence in 190 countries and opportunities to expand into more
markets. Taking the four generic competitive positions given by Porter, Netflix can fit in 3 of them.

1) Niche: 190 countries and counting gives Netflix the advantage to create local content which other
competitors in the global scenario cannot. For Example, Amazon Prime Video is in 12 countries
as of now, so currently it cannot create the content that amazon can.
2) Low Cost Leadership: Though prices of Netflix being higher than average (Exhibit 5) but
considering the amount of heavy investment Netflix has done in production of original content
and the debt it has Netflix can be forced to increase its prices in future.
3) Differentiation: Netflix has always led the market on its variety of content and we can say that
Netflix has ‘something for everyone’. Since 1997, it has strived on innovation and making
consumer experience better.

In the case of Netflix we can clearly see how a spread out position can be detrimental to Netflix in the
current scenario of evolving SVoD space. A deeper look on the competitive scenario can reveal a lot of
insights.

In the overall market, with the trend of decreasing cable tv subscriptions and people converging to OTT
platforms, the coveted positioning in the industry would be of differentiation and that is a trend that we are
seeing in the industry with the rise of players like Disney+, HBO Max, Hulu which are production houses
with established original content which appeals to consumers. If we take the case of HBO Max it features
a lot of Emmy Award winning shows like Last Week Tonight. Meanwhile, Disney+ after taking over Marvel
has attracted a lot of consumers.

This is a major threat to Netflix and that is one of the reasons why Netflix is investing heavily in creation
of original content to maintain its content volume. It faces a direct threat from companies like Amazon,
Apple TV as well who have good financial backing and SVoD services are an add on in the product basket.
Clearly Netflix needs to do what it does best and keep innovating, Netflix was the first one to bring in a
mobile specific plan in markets like India where mobile phones are a strong channel for consumers to
access content.

Exhibits

1)
2)

3)
 4)

All the above shots are taken from Statista website : https://www-statista-
com.eu1.proxy.openathens.net/outlook/dmo/digital-media/video-on-demand/video-
streaming-svod/worldwide#key-market-indicators
 5)

References

Singapore Telecom Sector

https://internetfileserver.phillip.com.sg/POEMS/Stocks/Research/SectorStrategy/SG/Telc
oSector20190104.pdf

Forecasted gross number of subscription video on demand (SVoD) subscribers worldwide from
2025, by vendor
https://www.digitaltvnews.net/?p=34826

Industry Analysis
https://tradingplatforms.com/blog/2021/06/30/video-streaming-to-pass-1b-users-globally-
in-2021-revenue-to-reach-100b-in-2024/

PwC report
https://www.pwc.com/us/en/services/consulting/library/consumer-intelligence-
series/consumer-video-streaming-behavior.html

Telco bundles to contribute 50% to online viewers by 2023

https://www.livemint.com/industry/media/telco-bundles-to-contribute-50-to-online-
viewers-by-2023-11617951858986.html
Distribution of people installing Subscription Video-on-Demand (SVoD) apps in the United
States in 2020, by age
https://www.statista.com/statistics/1245278/svod-app-installers-by-age-united-states/

SVoD subscriber count worldwide 2020-2026, by service

https://www.digitaltvresearch.com/ugc/SVOD%20Platform%20Forecasts%200221%20TOC_
toc_309.pdf