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Strategic Management

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Valérie Joyal

on 22 March 2014

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Transcript of Strategic Management

I. Introduction of Netflix
- Overview of the company

Its logistics partner US Postal Service(USPS) hoped
to increase postage rates as it faced revenue losses
caused by an e-commerce and digital downloading

Accelerating demand for streaming video content: consumers don’t wait until DVDs are delivered, rather they prefer to stream movies

Low barriers to entry in the market

DVD sales was the most valuable revenue stream for TV and movie studios, so they required to delay its rental of new releases

Netflix should provide contents as soon as possible
for consumer’s convenience

A market leader in online DVD rental and streaming video service

Co-founded in 1997 by Reed Hastings and fellow software executive Marc Randolph
in Scotts Valley, California

Launched the subscription service in 1999, offering unlimited rentals for one low monthly subscription with no due dates or late fees

Had a total of 12.3 million subscribers just ten years after its founding

Serves more than 44 million streaming members in more than 40 countries
( United States, Canada, Mexico, South America, United Kingdom, Ireland, Netherlands, Nordic countries, Northern Europe )

Achievements of Netflix

- Dramatic growth of subscribers

- Subscribers using streaming
Subscribers watching at least 15 minutes of a movie or TV episode during the quarter ended

Current situation:
General Environment :

Increased world population (6.1 billion to 7.2 billion in 2015)

English speaking countries mostly from the U.S.(North American market)

Chinese and Indian users
Age diverse via Internet-connected consumers

Demographic segment
Economy of the U.S showing slow steady growth to the recovery
Economic Segment

Legitimate free film downloads are currently at very low levels

Revenue sharing agreements with movie studios

Little government regulation over delivery of streaming content
28-day delay on newly released DVDs

Legal Segment

Sociocultural Segment

Video contents are emerging and the proliferation of the video content

Both physical and streaming video demand forecast to increase significantly

License fee exists

Video streaming trend(billions of streams annually)
Dawn of the Digital Age
High Quality personal computer devices
Tablet PC is emerging: proliferation of electronic devices
Technological transformation coupled with increased consumer demand for digital content delivery
Internet video capabilities increase
Higher capacity for Internet connection

Technological Segment

Emerging market: China and India

Worldwide access of the internet

Global Segment

Physical Environment Segment

Raised Postal Service fees
Industry environment (5 Forces Model)
1. Rivalry among firms: what is the capability of competitors?
2. Threat of new entrants : how easy new firms enter into the industry?

Relatively low barriers of entry in the streaming arena

High number of new entrants

Good substitutes and very low switching cost

High economies of scale for digital industry access to distribution channels

3. Threat of substitute products: any substitute goods or services. What are the alternative?

Finding alternative is very easy due to low switching costs and substitute options

Free illegal downloads and internet hackers

Price are very competitive among firms

The qualities of the substitute has similar/better features

4. Bargaining power of suppliers: how easy it is for suppliers to drive up prices?
Few large suppliers: small number of large movie studios

No substitutes: each studio that provide content is special and differentiated

Threat of forward integration: possible that studios start up their own business

High switching cost due to the contract with the studio

5. Bargaining power of buyers: how easy it is for buyers to drive prices down?
Depending on the release time of the new rental the potential rental pool might differ

Higher expectation: timely and reasonable priced new releases via mail order and streaming service is required

Price sensitive: Time and Money is the major issue

Buyers has low switching costs

Numerous competitors
(Movie Studios, Brick-and-mortar stores, TV, Online streaming sites and etc)

Low Exit barriers for firms

High industry growth of the DVD
rental service industry

Users’ access to online streaming service increases

Low Switching cost for the buyers

1) Possibility of losing its low cost advantage
2) Increasing threats of new entrants in streaming video segment
3) Conflicting interests with content providers
Netflix Direct Competitors for ONLINE Service
Video on demand segment:

Advertising-supported segment:
Netflix Direct Competitors for Rental Movie
Competitor Environment

- Video package with satellite provider:
Netflix Indirect Competitors
for ONLINE Service:
Netflix Indirect Competitors for Rental Movie
Entertainment video store
Comparison with primary competitors
Conclusion of external environment analysis
Opportunities :
Demographic trend increase to 6.1 billion in 2000 to 7.2 billion in 2015 = Internet users increase

International expansion

Proliferation of electronic device for watching VOD

There is a growing demand for digital movies provided by Internet

Using its customer base as a sustainable competitive advantage

High consumer loyalty

DVD rental industry will deteriorate in the next two decade
Threats :
DVD rental industry is changing. That’s give opportunities to other companies to enter the market – low barriers of entry in the streaming and video on demand

Proliferation of illegal video pirating and downloads affect the video market

Depends on content provider

Netflix is facing inflated content prices

Industry is not standardized and still changing
Full transcript