SYSTEMS ANALYSIS ON

NETFLIX

INTRODUCTION

• Netflix represents a classical service business model in the video-on-demand industry where users of the service and payers are the same entity.

• Netflix is a subscription-based film and television program rental service that offers media to subscribers via Internet streaming and via US mail.

• Netflix founded by Reed Hastings, started as an American DVD-by-mail service in 1997, and began streaming in 2007

• Netflix was the pioneer who used this business model to offer entertainment content using video streaming technology in exchange for subscription fee.

• Netflix is the largest online movie and TV show streaming provider with more than 75 million streaming members as of 2016

STRUCTURE OF INDUSTRY

COMPETITIVE FORCES

⊡ Players in the industry compete on price, exclusivity and range of content, user experience in terms of personalization and compatibility with different devices.

⊡ Some of the large competitors include Hulu, which uses a hybrid business model partly based on advertising revenues, and Amazon’s Prime offering as a complementary to their retail business.

⊡ Rich movie database (20 000+ episodes) and the personalized service expressed in the personal suggestion of movies for each customer without interruption of advertising.

⊡ The rating algorithm makes better use of movies available on the website tailored to his/her taste to watch.

⊡ Netflix also creates value by having one of the widest supported devices ranges, including game consoles, tablets, PCs, and internet TVs

SWOT ANALYSIS

1. First Mover Advantage2. Strong Brand Recognition

3. High Customer Satisfaction 4. Large Movie Selection 5. Low Overhead Costs

6. Predictable Monthly Revenue Streams 7. Affordable Pricing

1. Monthly Fee Discourages Membership 2. Lack of Control Over DVD Return Time3. Comparatively Small Movie Library Available to Stream 4. DVDs Can Arrive Scratched or Broken Due to Mailing Process

1. Product Line Expansion – Video Games 2. Expand Downloadable Movie Offerings

3. Print 3 rd Party Advertisements of Red Envelopes 4. . Expand on Partnerships With Content Providers

Technology Providers.

1. Staying power of DVDs 2. Contractual restrictions on streaming content

3.Bigger competition in the streaming video market 4.DVD competition from Red Box, and Blockbuster

SWOT Analysis

PORTER’S FIVE FORCES

POWER OF CUSTOMERS : HIGH

⊡ Two sections: needy and convenience consumers.

⊡ Customer’s dissatisfaction

⊡ Widespread response.

⊡ Move to substitutes for movie rentals.

⊡ Customer always has the option to not spend their free time watching movies, no matter what the source, so the price of rental services cannot climb much higher than they currently are.

⊡ Individual customers do not hold bargaining power over the price of products in this market; however, the prices themselves are regulated by the substitutes and preferences of customers as a whole.

POWER OF SUPPLIERS : MEDIUM

⊡ Studios that create the films: Buena Vista, Warner Bros., Sony Pictures, 20th Century Fox, Paramount Pictures and Universal

⊡ Buyer concentration in this new market is relatively high suppliers sell their product to maximize their revenue reduces competition for supply and therefore prevents supplier power from being very high.

⊡ In this particular market, studios may be concerned with “cannibalizing their own product”.

⊡ Strengthening supplier power studios withhold licensing agreements to movie download providers such as Netflix

⊡ No power to influence the evolution of the market

SUBSTITUTES

⊡ The main substitutes to streaming movies are:

□ brick-and-mortar rental stores

□ online rentals □ pay per view TV□ Theatres

IT IN FIRM VIS-À-VIS INDUSTRY STANDARDS

THE COMPANY VIS-À-VIS THE INDUSTRY

⊡ Netflix over the time has managed to transition from a content aggregator to a content creator

⊡ It now competes with TV networks like HBO, Showtime, FX, AMC, Amazon and USA Network in terms of original content

SYSTEMS IN CONTENT EXCELLENCE

HBO

Showtime

FX

NETFLIX

AMC

Amazon

Starz

USA Network

0 10 20 30 40 50 60 70 80 90

82.3

75.1

74

73.6

73.5

71.8

71.6

65.2

Average Ratings of Original Series by Content Providers

Average Rating Points (July, 14-15)

Netflix has surpassed major traditional TV Networks in the States like USAnet and AMC in terms of content

The biggest content provider in the global level is HBO

The average rating difference between it and Netflix is closing in by the day

Big Data + Big Decision = House of Cards

HOW ‘IS’ HELPED NETFLIX TRANSITION FROM AN

AGGREGATOR TO A CREATOR

“ Since NETFLIX was built as a native digital service, it had competitive advantage over traditional TV networks when it came to collecting and mining data.”

Before green-lighting House of Cards, Netflix knew:

⊡ A lot of users watched the David Fincher directed movie The Social Network from beginning to end.

⊡ The British version of “House of Cards” has been well watched.

⊡ Those who watched the British version “House of Cards” also watched Kevin Spacey films and/or films directed by David Fincher.

ACTUAL VALUE CHAIN

POTENTIAL VALUE CHAIN

POTENTIAL VALUE CHAIN ANALYSIS – STRATEGY AND

IS

⊡ In context to the firm’s value chain, Information Systems have been deeply embedded in the organizations core processes of content sourcing, creation and delivery

⊡ Due to a competitive edge, NETFLIX could transform itself from a video-rental service to a content creator

⊡ While it previously used to compete with mom-and-pop video rental stores, IT has enabled it to take on global TV and movie studios like Viacom, MGM and Warner Brothers right from production to distribution

⊡ A fast growing base of 74.76 million worldwide streaming customers allows the organization to gather a tremendous amount of data.

POTENTIAL VALUE CHAIN ANALYSIS – INDUSTRY AND

IS

⊡ Synergy : While NETFLIX uses data to create its own TV Shows, it also syndicates content from other networks for distribution to its users. In such cases, everyone wins

⊡ N/W Economics : Currently accounts for 34.2% of downstream data usage in US.

Strategic tie-ups with AWS and Akamai can ensure network scale and robust architecture during the global roll-outs.

ALIGNMENT WITH GOALS AND BUSINESS STRATEGY

PERFORMANCE OF NETFLIX

⊡ Alignment with core strategy“Growing our streaming subscription business domestically and globally”

⊡ Reference to its brand as a “quest”Fulfilling its promise, providing customers with the service they desire

⊡ Nine vision statements: Judgment, Productivity, Creativity, Intelligence, Honesty, Communication, Selflessness, Reliability, Passion

More emphasis on the first four visions

CONTRIBUTION BY IT TO BUSINESS PROCESSES

⊡ New Business ModelShutting down of DVD-by-mail service

⊡ Better decision makingRecommendation on what users have watched in the past and what are their most favoured genres

⊡ Recommendation better than Two-Sigma processes71.2% choices of viewers are based on what Netflix recommends them

⊡ Competitive advantageFulfilling consumer demand, setting it apart from competition

METRICS USED BY THE FIRM

⊡ Data for the User’s PreferencePause, rewind, fast forward, date, time, concept, device, browsing and scrolling behaviour, searches, content etc.

⊡ Length of UserUsage of data to know whether the person has closed the app or just paused

⊡ Evolving AlgorithmTeam of 800 developers who work to better the choices of recommendations to users

POTENTIAL ALIGNMENT WITH GOALS AND

STRATEGIES

⊡ Strategic Level□ Maintain its #1 spot

⊡ Management Level□ Develop newer goals and strategies□ Expand its “disruptive technology” model (for e.g. Optimum

development of database

⊡ Operational Level□ Continue its operational events and co-ordinate with the

other levels of management to focus on “communication”□ Acquire more feedbacks to focus on “selfless-ness”

CURRENT STRATEGIES BEING PURSUED

NETFLIX – CURRENT STRATEGY

⊡ Pursue market penetration strategy by excellent service and low prices

⊡  Focus on creating its own content to maintain competitive advantage

⊡  Increase its innovation budget by 5% next year and continue to do so

⊡  Use pricing as a last resort measure to increase margin ⊡ Choose to stream content only⊡ Create more partnerships to create perfect hardware

platform for its software ⊡ Continue its high availability distribution strategy

BUSINESS STRATEGY

• Watch instantly works great, even on mobileDISTRIBUTION

• people love the all-you-can-eat subscription model - especially compared to Apple where a HD movie rental costs $5 (~50% of your monthly subscription)

PRICING MODEL

• So far the Best in the industryMOVIE RECOMMENDATIONS

• people already associate/trust Netflix with movies/TVBRAND RECOGNITION

CURRENT STATE OF TECHNOLOGY

• Measuring customer response• Delivery and Presentation of personalized

information

CUSTOMER ANALYSIS

• Matchmaking• Building consumer profiles

DATA MINING

• Collecting Customer Data• Securing Customer Data

INFO MEDIATION

POTENTIAL STRATEGIES / ALTERNATIVES

POTENTIAL STRATEGIES

⊡ Expand beyond Subscription only and branch into International markets

⊡ Internet Streaming of Content, Specifically Netflix, Continues to Grow, Ultimately Becoming  the Fastest Growing Subscription Service

⊡ Large Players in the Media Industry become Content Sponsors due to availability of accurate consumption data

⊡ Replace Cable Boxes in the Living Room with Streaming hubs

5 THINGS NETFLIX CAN DO BETTER

BIPASHA GHOSH | SAMPAD ACHARYA | SHASHANK GUWALANI | SHREYAN LAHA | SWATI MOHANTY