Netflix Inc.: Innovation History, Performance, and Capabilities Report

This report provides a comprehensive analysis of Netflix's innovation strategies within the entertainment industry. It begins with an executive summary and introduction, outlining the company's history and evolution from a DVD rental service to a global streaming leader. The report employs PESTLE analysis to examine the impact of political, economic, social, technological, legal, and environmental factors on Netflix's innovation. It also utilizes Porter's Five Forces to assess the industry's attractiveness and competitive landscape. Furthermore, the report evaluates Netflix's innovation performance and capabilities, introducing a concept called "Netflix U," a premium service designed to enhance viewer engagement. A SWOT analysis is conducted to determine the strengths, weaknesses, opportunities, and threats associated with Netflix U. The report concludes by discussing the broader entertainment industry and the drivers for innovation within it, highlighting the importance of adapting to changing consumer preferences and technological advancements. The report emphasizes how Netflix's ability to innovate, particularly in original content and technological advancements, has positioned it as a market leader, and suggests strategies to maintain its competitive edge.

MANAGING
INNOVATION IN
BUSINESS

EXECUTIVE SUMMARY
This report was based on the concept of innovation and how it helps businesses of
entertainment industry to enhance the viewing experience of their audience.
The report shows how effectively PESTLE Analysis was used to determine the influence
of external environment of Netflix, Inc. on its innovation history. The different type of
innovations on which their supported is identified as creation of their own websites, creation of
original Online show. Along with this, the current industrial awareness of the firm was derived
by using Porter's Five Forces Analysis. Some of the factors like competitive rivalry and Threat of
Substitute works as a innovation driver that force an organisation to innovate their services
which results in creation of Netflix U.
The report also addresses the existing performance capabilities of Netflix and how it can
use innovation to pursue its capabilities. For this, a new service by the name “Netflix U” was
introduced which could expand the spectrum of viewing the online content. It includes the ways
in which SWOT Analysis of the company determines the core competencies and opportunities
for this new service. More strengthening perspective of Netflix that can be determined is related
to technological driven and support of large number of subscribers that will aid in in creation of
new innovation like Netflix U successfully in future.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
THE ORGANISATION AND ITS INNOVATION HISTORY.....................................................4
NETFLIX- INNOVATION PERFORMANCE AND CAPABILITIES.........................................6
ENTERTAINMENT INDUSTRY...................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Innovation refers to a process through which a company adds extra value to its existing
offerings. The following report is based on Netflix, Inc. which is an American firm situated in
Los Gatos, California. It is a media-services provider and one of the biggest companies in
entertainment industry. The purpose of this report is to enhance the understanding about the
concept of innovation in this company. It involves the organisational overview and an insight on
its innovation history, its existing innovations as well as capabilities and current developments in
entertainment industry.
THE ORGANISATION AND ITS INNOVATION HISTORY
In 1997, Netflix was found in Scouts Valley, California. It was set up as a start-up
company with an idea to provide movies on DVD on rent through internet. This concept of
internet and DVD was new at that time. PESTLE Analysis could be effectively performed to
determine the role of innovation in shaping up the firm from a standard rental company to a
global leader in the entertainment industry. It would help to identify external environment
pointers which had an impact on the innovation happened in the firm (Stewart, Khare and
Schatz, 2017).
Political- Back in the day, there were abundant DVD firms present in developed nations like the
US and the UK, who sold pirated movies to their customers. The government and federations
made strict policies against these contents to protect the original work of the film makers. To
fight piracy, the firm launched its website “NetFlix,com” in 1998 to provide authentic content
(What Netflix looked like when it first started out - and how it's changed over the years, 2018).
Economical- The economic environment of countries like the US and the UK helped to bring
innovation in Netflix. The growth rate of both the countries in 1999 was 0.3% and 0.1%

respectively (GDP Growth (annual %), 2018). The economic environment of these developed
countries was stable as well as there was a growth in international market which helped the firm
to innovate its standard methods and launch the subscriber model which allowed viewers to pay
a standard price for subscription and enjoy their favourite movies free for a month.
Social- Netflix by 2014 established itself as a market giant. It was preferred by customers all
around the world who wanted to watch quality content easily. Its subscribers increased by the
end of 2013 to 44.35 million after the firm rolled out its first original series, House Of Cards
(Netflix now has nearly 118 million streaming subscribers globally, 2018). More people from
national and international market started to get attached from the firm as it built its app and
enabled video streaming which enabled customers to save downloading and ordering time and
see the content instantly when desired.
Technological- Netflix, Inc. is one of the most technologically advanced firms present in the
world. In its shows like Stranger Things, Mr. Robot and so forth, it has enhanced the visual
techniques used in film making. The impressive use of Visual Effects (VFX), sound qualities and
4K technologies, its shows are standouts from what the viewers have actually been viewing.
Moreover, “Hermes” is a software developed by its R&D labs which grades a translation of its
shows automatically which would expand its market in further nations (Netflix PESTEL Analysis,
2017).
Legal- The firm is currently strengthening its legal structure by innovating the methods of
providing its services. In 2016, the firm used innovative technique to block Virtual Private
Network (VPNs) because of restrictions in local and international law. Such restrictions won't
allow the non-subscribers to evade and view the copyright and censored contents which are
banned in their specific countries (NETFLIX, 10 INNOVATIONS THAT CHANGED THE
WORLD, 2018).
Environmental- Netflix, Inc. has been very concerned about the environmental impact on its
business. It knows how carbon footprint and deforestation are one of the major concerns for
global warming, Users can surf the website for 30 minutes and could save more energy spent on
delivery of a DVD. In addition to this, the firm has access to various online novels in exchange
for a subscription fee. Depleting environment is a driver for innovation in the company to
innovate new methods which could contribute in its improvement.

Industrial attractiveness of Netflix, Inc. on the basis of its innovations could be accurately
determined by Porter's Five Forces Model which is discussed as under (Herber, 2018):
Supplier Power- During its inception, the suppliers, content proprietors in case of Netflix, were
limited. This provided more bargaining power to them over the firm. Currently Netflix is
producing its own TV shows and movies, for instance Narcos and 13 Reasons Why which gives
the firm complete power over the suppliers and reduces their bargaining power.
Buyer Power- The bargaining power of buyers around 2000 was high due to presence of
different DVD rental firms. However, after 2013, this bargaining power has witnessed a
substantial reduction due to the original content being produced by Netflix like Black Mirror and
Sacred Games which can be viewed only by its subscribers (Porter, 2018).
Threat of substitutes- When the company had its website to view online content, it was a new
innovation and only few companies were present in the market. This made threat of substitutes
low. Since company produces limited original content and the range of outside content is high,
this makes the threat of substitutes higher with presence of other service providers like iFlix and
Hulu. These threats are a driver for innovation in Netflix to keep bringing something new in the
market.
Threat of new entrants- It was very costly back in the day to enter the entertainment industry
which made this threat of new companies entering the market low for the firm. The industry
currently is expanding on a wide scale and there are new firms entering the market constantly.
This increases the threat on Netflix as these firms analyse the preferences of the customers well
before entering the market. It is also easier now for the firms to enter as awareness about the
operations in industry has increased as compared to the past.
Competitive Rivalry- The rivalry of the firm has been always high with presence of companies
like Block Buster in the market. Even today, companies like Amazon is delivering similar
services and is capturing the market on a wide scale which is a major driver for innovation in the
firm.
NETFLIX- INNOVATION PERFORMANCE AND CAPABILITIES
Netflix Inc. is one of those firms which sets an example for the competitive as well as
other companies of the world in terms of innovation. The changes implemented by the firm in
terms of its services, content and subscription policies are followed by other firms as well.

This existing performance of the firm in terms of innovation is very impressive. Netflix,
Inc. was the first company which adopted Virtual Reality in 2015 (Netflix is taking a wait-and-
see approach to virtual reality, 2018). Viewers could get access to a virtual space through a Gear
VR which would allow them to grab a 360 degree view of the content they are viewing. Even
after presence of competitors like Hulu, the firm is constantly increasing the customers through
its innovative approaches and contents. All the major innovations in the entertainment industry
are somewhat related to Netflix. To enhance its capabilities however, the firm could innovate its
services to connect more from the customers. One such innovation can be Netflix U, a premium
service given by the company that would enable the viewers to shape up the content they are
watching. They will be given a choice during the middle of the episode with two alternatives
which would allow the customers to choose the most desired option. This would be a
breakthrough and would completely eradicate the concept of “IF”. It is very important that the
company perform a development audit for which SWOT Analysis could be effectively used. It
would also help the firm to determine the existing innovation performance of the firm
(Muzumdar, 2014).
Strengths- The biggest strength of the firm is that its a global leader in streaming services. It is
experiencing constant rise in its subscribers and is still preferred by many users who keep testing
other alternatives of the company like Amazon Prime. The key strength of the company is
''advertisement free content'', Netflix provide no-break viewing of desired content available on
Netflix. These are few points which would really benefit Netflix U after its launch as customers
trust the brilliance in the content provided by Netflix.
Weaknesses- The cost incurred to develop movies and TV shows is incredibly high at Netflix.
The company invested $2.5 Billion just to get the rights of its original content in 2017(SWOT
Analysis Of Netflix, 2018). High cost of operations means put additional burden on profit.
Another weakness of Netflix is their source of income. They are solely dependent on
subscription fees which will always remain biggest risk in their business. It has also been relying
on its original TV shows and movies to get viewers attention. Not all content perform great
which reduces the trust viewers have on the firm. This weakness would affect Netflix U because
even after the power given to the customers, viewers would judge the content rather than the
concept.

Opportunities- Netflix's biggest opportunities is the inclination of the viewers on the online
content available on the internet. These viewers seek something new every time they surf the
internet. This can act as a driver for innovation in the company and will be an opportunity for
Netflix U as well. This is because it is a totally new concept which would, in a way, turn the
viewers into their own storytellers. Another opportunity for the company Is the efforts of its
R&D divisions in the segment of language and technology (Jackson, Joshi and Erhardt, 2003).
New concepts about science, AI, alternate realities, and so forth are being thoroughly examined
and presented to the audience in various languages which will increase the number of customers
in regional as well as international market.
Threats- The state of competition in entertainment industry is getting fiercer with time. More
firms like Facebook, HBO and YouTube are creating their original content which are being
acknowledged worldwide. This is a constant threat Netflix faces and also is a major driver for
innovation. The content available on Netflix U must be innovative and according to customer
preferences so that it benefits the market of this new service.
ENTERTAINMENT INDUSTRY
Entertainment industry all around the globe is evolving on a rapid scale. The reason is
due to new and innovative advancements in technology. With rise in Augmented Reality (AR)
and Virtual Reality (VR), the industry is modifying itself to enhance the visual experience of its
audience. There are major trends that have shaped the industry recently. The major trend was use
of IMAX technology to make movies and TV shows. Audience can view the content in 4K
resolution which has enhanced the use of animation and VFX in movies, TV shows, and even in
advertisements. Another trend was introduction of 4G technology which made streaming of
videos even better. VR Gears are paving the way for the customers to experience a magnanimous
outlook at the content they view.
Netflix officially overtakes Disney in terms of valuation with its market value of more
than $150 (For a moment, Netflix was worth more than Disney, 2018). This has improved the
firm's competitive position in the market which helped the firm to increase its number of
customers. Currently, telecom companies are working on 5G which would cause evolution in
watching content online. To regain the customers, firms are applying different marketing

techniques to influence customers to view the content. They are penetrating new markets with
new products and services. Netflix, for instance, has entered India recently with its original
content like Sacred Games and Ghoul, which was purely based on the culture and concepts that
attract Indian public. There are developments been made in the industry regarding the content as
well as technology with a view to give a spectacular experience to the customers all over the
world.
CONCLUSION
Thus, it is concluded by this report that innovation has the integrity to make firms
competitive and sustain intense competition in the entertainment industry. Organisations'
external environment could influence the innovation happening in a company. Porter's five force
could effectively enhance the industrial attractiveness of an organisation if the strategies
developed are in the favour of the firm. Lastly, SWOT analysis could strengthen the firm
internally and help in successfully removing the weaknesses and grabbing the opportunities.
Innovation in entertainment industry could maximize the experience of the viewers and could
evolve the concept of evolution.

REFERENCES
Books and Journals
Herber, Y., 2018. An overview of Netflix. Publications Oboulo. Com.
Jackson, S.E., Joshi, A. and Erhardt, N.L., 2003. Recent research on team and organizational
diversity: SWOT analysis and implications. Journal of management. 29(6). pp.801-830.
Muzumdar, P., 2014. From Streaming Vendor to Production House: NETFLIX SWOT Analysis.
Porter, M.E., 2018. On competition. Harvard Business Press.
Stewart, B., Khare, A. and Schatz, R., 2017. Disruptions: Truth and Consequences. In Phantom
Ex Machina (pp. 299-315). Springer, Cham.
Online
For a moment, Netflix was worth more than Disney. 2018. [Online]. Available through:
<https://money.cnn.com/2018/05/24/investing/netflix-disney-comcast-market-value/
index.html/>.
GDP Growth (annual %). 2018. [Online]. Available through:
<https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?
end=1999&locations=US&start=1998/>.
Netflix is taking a wait-and-see approach to virtual reality. 2018. [Online]. Available through:
<https://www.engadget.com/2018/03/07/netflix-virtual-reality-not-a-priority/>.
Netflix now has nearly 118 million streaming subscribers globally. 2018. [Online]. Available
through: <https://www.recode.net/2018/1/22/16920150/netflix-q4-2017-earnings-
subscribers/>.
Netflix PESTEL Analysis. 2017. [Online]. Available through:
<https://businessteacher.org.uk/pestel/netflix.php/>.
NETFLIX, 10 INNOVATIONS THAT CHANGED THE WORLD. 2018. [Online]. Available
through: <https://www.le-vpn.com/netflix-10-innovations-changed-world/>.
SWOT Analysis Of Netflix. 2018. [Online]. Available through: <https://pestleanalysis.com/swot-
analysis-of-netflix/>.
What Netflix looked like when it first started out - and how it's changed over the years . 2018.
[Online]. Available through: <https://www.businessinsider.in/What-Netflix-looked-like-
when-it-first-started-out-and-how-its-changed-over-the-years/articleshow/
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