Education

Netflix Case Study

Instructions: Read the Netflix case study and the additional readings then answer the questions. Your answers are to be well developed and reasoned and given in essay format. As with other assignments in this course, you must convince me your analysis is correct, so please include adequate justification for your answers. You may include additional sources in your responses. Please cite any additional sources in APA. This exam is the time to show off and demonstrate how much you know. Please note there are multiple parts to some of the questions. Please number your answers. Further, you can use headings to organize your answers, but you need to write your answers in essay format.

Table of Contents

1. What are Netflix’s core competencies? (10%)

Netflix’s core competencies include the acquisition, production, and distribution of content along with the branding of the platform. Netflix’s core competency is cost leadership, and its competitive strategy is the high capacity for original content creation which function as the primary strategy for Netflix’s competitive advantage. Netflix’s competitive edge is supported by differentiated yet excellent customer experience and keeping up with the times of technology while focusing on innovation. One of the core competencies of Netflix also includes a competitive pricing strategy driving higher popularity across all consumer classes especially providing one-month free access to new customers (Alexander, 2020). Moreover, Netflix’s culture is characterized by direct communication, open information exchange, anti-rule philosophy, autonomy, high effectiveness, and high diversity and inclusion in the work environment.

The home video entertainment industry has been thrice disrupted since the rise of Netflix. First was the launch of the original model of mailing DVDs to customer’s residence. Second was when Netflix switched to streaming videos. The third is during the pandemic when multiple new entrants grew or started their video streaming services (Disney +, HBO Max, Peacock, Paramount +, etc.). Explain how the home video entertainment industry dynamics changed during these three phases. Use Porter’s 5 forces to guide your analysis. Hint: conduct a separate 5 forces analysis for each phase. Be sure to include a rating (low, medium, high). (30%)

The home video entertainment industry, a profitable industry involving a variety of different media, services, and devices for watching video content at home, has indeed undergone significant changes, particularly with the rise of Netflix and the subsequent shifts in the market (Adalian, 2023). Analyzing these shifts using Porter’s Five Forces framework for each phase, rating the forces as low, medium, and high based on their impacts is as follows:

Phase 1: Mailing DVDs

  • Threat of New Entrants: (Medium) The logistics and initial costs of setting up a DVD mailing service were significant barriers to entry.
  • Bargaining Power of Suppliers: (High) Movie studios and distributors had significant power over the availability of content and pricing.
  • Bargaining Power of Buyers: (Medium) Consumers of the services had limited choices for home video rental. This gave them the power to stream from their homes but not a lot of alternatives.
  • Threat of Substitutes: (Low) Online streaming was not prevalent at that time because alternatives were on the decline.
  • Rivalry among Existing Competitors: (High) Although Netflix offered a unique value proposition model, competition with traditional rental stores was intense.

Phase 2: Switch to Streaming

  • Threat of New Entrants: (Low) Some of the significant barriers to starting a streaming service were technology and licensing.
  • Bargaining Power of Suppliers (Medium) Content creators started witnessing potential in streaming, so they began to negotiate better deals in the market.
  • Bargaining Power of Buyers (High) With more options and alternatives available, buyers could choose between different alternatives of streaming services.
  • Threat of Substitutes (Medium) Physical media and cable TV were prevalent during this phase. However, streaming offered a growing library and convenience to the consumers.
  • Rivalry among Existing Competitors (Medium) Netflix was a leader in the home video entertainment industry. However, the platform faced serious competition from early streaming services in the market.

Phase 3: Pandemic and New Entrants

  • Threat of New Entrants: (High) Many companies and platforms entered the home video entertainment industry and the streaming market. Those companies capitalized on the increased demand during the trying times of the pandemic.
  • Bargaining Power of Suppliers (Low) The surge in streaming services while many companies entered the streaming space led to reduced suppliers’ power as well as increased competition for content.
  • Bargaining Power of Buyers (High) With many companies in the streaming market, consumers had a plethora of options and alternatives to choose from the streaming services which led to increasing the bargaining power of the buyers.
  • Threat of Substitutes (Low) The pandemic reduced the viability of substitutes for streaming options like live entertainment events and movie theatres.
  • Rivalry among Existing Competitors (High) The streaming and home video entertainment industry saw intense competition among a growing number of options and companies which provided streaming services during the pandemic.

In a nutshell, the analysis of these three phases through Porter’s Five Forces framework shows how the dynamics of the home video entertainment industry have evolved over time. It just not only shows how the industry has moved from a model with rivalry and high supplier power to one where the power is evenly distributed but also how the varying degrees of competitive pressure across different stages of the development of the industry led to competition remaining the fierce power.

3. How has Netflix’s platform strategy changed from their earlier streaming days to now? Hint, remember each individual component of the platform model. (20%)

The platform strategy of Netflix has evolved significantly from its early streaming days to now. The breakdown of the evolution in each component of Netflix’s platform model is as follows:

  • Technology and Consumer Experience

Early Days: The platform of Netflix was famous for its state-of-the-art technology. It was also known for its recommendation algorithm.

Present: Netflix has continued its policy of innovation in the streaming services. Currently, it has introduced several new features including an ad-supported plan (Adalian, 2023). This feature is introduced to cater to the preferences of different users.

  • Market Expansion

Early Days: The platform focused on rapid expansion into international markets.

Present: Netflix continues to expand but with a focus on content creation. This focus has catered to different local tastes and partnered with world-class talents from around the world.

  • Content Strategy

Early Days: The platform initially emphasized content creation and focused on acquiring a wide range of content from world-class talents globally. This strategy was adopted to attract a broad audience. The range of content included many licensed titles.

Present: Netflix has adopted a current strategy which focuses on quality over quantity more aggressively. This has led to cancelling shows that do not meet the platform’s quality requirements. Therefore, the platform has become highly selective and seeks older intellectual property. Netflix has also adopted a strategy of offering some content for free to its consumers.

  • Monetization

Early Days: Their primary revenue came from subscription fees. This revenue was adopted without any advertisements.

Present: Netflix has introduced an ad-supported plan. This plan has diversified the revenue streams of the platform. It has also addressed different market segments.

  • Community and Membership

Early Days: In its early days, Netflix built its model on a positive image focusing more on community building and user satisfaction.

Present: Netflix still prioritizes its members’ experience. The platform has also implemented various measures to address shared accounts and ensure profitability for Netflix.

Strategies adopted whether in the early days or current scenario aim to maintain the platform’s position as a leading streaming service in the market while ensuring the long-term profitability and sustainability of Netflix (Sherman, 2023). These strategic changes reflect Netflix’s adaptation to consumer preferences, serious competition, and the evolving media landscape.

4. Netflix growth in the United States seems to be maturing. How can Netflix increase demand for its services in the United States? What other services could Netflix offer to drive future growth? Choose an acquisition target for Netflix and explain how this acquisition will help Netflix increase demand in the United States and justify. Hint, the acquisition target must be strategically viable. (20%)

To address the maturing growth of Netflix in the United States, the platform could explore signs of maturation. Continuing to invest in original content creation, Netflix could involve third-party video content providers to leverage its content-delivery infrastructure and large subscriber base. This way, the platform can transform a multisided space allowing cloud gaming developers and marketers to sell their video content or services to Netflix to cope with its increasing demand for content creation services. This would attract a different segment of the entertainment market while engaging consumers in a new way and increasing their time spent on the platform through offering such interactive video content.

Developing content such as choose-your-own-adventure series or movies through partnering with high-profile content creators can capitalize on the growing interest in the home video entertainment sector. Improving personalization algorithms for an acquisition target can also offer a strategically viable option for better-suggesting content to users of the platform. Moreover, for a more immersive viewing experience, virtual reality experiences could be potentially incorporated to establish a strategic infrastructure to improve Netflix’s position in negotiations with other content providers and distributors (Rubin, 2020).

In addition, Lionsgate could possibly be the strategic option that would give Netflix access to a valuable library of TV shows and movies in order to grow its content library. The acquisition of Lionsgate would benefit Netflix to enhance the appeal and quality of original content which would be a significant move for Netflix and Lionsgate as well. However, this acquisition needs to be carefully considered in terms of cultural fit, financial viability, and regulatory approval.

5. The streaming industry is in a new phase where easy growth is over and streaming services need to become profitable. Additionally, linear TV is in its final throws and all media conglomerates are considering vertical integration which will greatly reduce linear TV and make streaming the main access to all content. Given this new industry phase, consider which media company (e.g. Netflix, Disney, Paramount, Comcast, Paramount) will be on top of the streaming industry by the year 2028. In your answer, choose the media company you think will be at the top of the streaming industry by 2028 and describe how its strategy will set it apart from the competition. Be sure to provide adequate supporting details for your analysis. (20%)

Predicting the future of the streaming industry based on the services of each platform is a complex task. The prediction involves an appropriate consideration of various factors such as the quality of the content, technological advancements, strategic decisions for business, and market trends. However, based on market movements and current strategies of streaming services of each platform, Disney appears to be a strong contender and leading giant of the streaming industry by 2028 because of its focus on leveraging its multifaceted approaches. In the recent decade, Disney appears to be actively expanding its streaming service by tailoring its offerings to local tastes. Disney+ is also actively expanding into new international streaming markets by forming strategic partnerships.

Moreover, Disney’s control over production, distribution, and direct-to-consumer approach can tap into diverse audiences and integrate more consumer-cohesive experiences. This would not only allow a seamless content pipeline but will also lead to cost efficiencies enhancing trust and loyalty among users which Disney has built over the years (Alexander, 2020). The main reason why Disney would be a strong contender by 2028 is that the platform is reportedly planning to introduce always on-streaming and standalone channels which could open up new revenue streams on one hand and provide a unique viewing experience for price-sensitive consumers on the other hand making its services more accessible to users globally (Adalian, 2023).

In a nutshell, considering other companies like Netflix and Comcast making significant strides in their streaming strategies, I have differentiated Disney for its potential industry leadership by 2028 based on its combination of content diversity, strong brand recognition, strategic integration, and global reach. However, the streaming landscape is highly dynamic, so unforeseen changes could impact any predictions that are made today.

References

Adalian, J. (2023, June 6). Who’s Winning the Streaming Wars Now? Vulture. https://www.vulture.com/article/streaming-power-ranking-2023.html

Alexander, J. (2020, December 16). 2020 was the year everyone streamed. The Verge. https://www.theverge.com/21989177/2020-streaming-netflix-disney-plus-hbo-max-peacock-apple-tv-plus-hulu-pandemic

Rubin, R. (2020, December 9). Streaming Salvation: How Studios Made Bank Selling Movies to Netflix and Amazon During the Pandemic. Variety. https://variety.com/2020/film/features/hefty-streamer-deals-covid-pandemic-theater-shutdowns-1234848687/

Sherman, A. (2023, May 10). The streaming wars are over, and it’s time for media to figure out what’s next. CNBC. https://www.cnbc.com/2023/05/10/streaming-wars-are-over-whats-next.html

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