Analysis of Netflix Business

This report analyzes the different aspects of Netflix business such as its background, target audience, competitive advantage, digital disruption, challenges, opportunities, and implications. It also discusses the legal, social, ethical, and cultural implications of Netflix's digital disruption.

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ANALYSIS OF NETFLIX BUSINESS
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1ANALYSIS OF NETFLIX BUSINESS
Executive Summary:
There are different online sites such as Facebook, YouTube where users can watch
live videos, movies and watch movies and they can use these sites for social networking, for
interacting with new users. Netflix is one such expanding online site through which the users
can stream live videos and share their subscription with their friends and family to make
optimum use of the money they spend for purchasing a subscription.
It is an ever-increasing business sector across the world and Netflix has tremendously
expanded its business in different parts of the world. The following report will highlight the
different aspect of the Netflix industry and the different business objectives and operations
strategies that the organization has implemented. By the end of the report, the reader will be
able to have a clear understanding of the different working principles that are used in the
working of Netflix.

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Table of Contents
Introduction:...............................................................................................................................3
Background of the business:......................................................................................................3
Target audience:.....................................................................................................................4
Netflix competitive advantage and success factors:...............................................................5
Digital disruption within Netflix:...............................................................................................5
Present disruption analysis of Netflix:...................................................................................5
Future disruption analysis and consequences:.......................................................................6
Challenges and opportunities associated to Netflix market disruption:.................................7
Challenges:.........................................................................................................................7
Opportunities and recommendations for Netflix:..................................................................8
Different implications of Netflix digital disruption:..................................................................8
Legal implications:.................................................................................................................8
Social implications:................................................................................................................9
Ethical implications:...............................................................................................................9
Cultural implications:.............................................................................................................9
Security implications:...........................................................................................................10
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

3ANALYSIS OF NETFLIX BUSINESS
Introduction:
In today’s world, there are different technologies as well as social media sites, which
are available in the internet for the users to enjoy different kinds of services. One such
popular site is Netflix through which users can watch live television shows, movies, original
series of television series etc. Netflix is tremendously expanding its business. More and more
users purchasing subscriptions of Netflix so that they can watch movies anywhere and
anytime even on interconnected screens.
The recent statistics show that there are about 104 million Netflix members in more
than 190 countries all across the world. They enjoy around 125 million playing hours of
different TV shows. It is one of the biggest market players in the present entertainment
industry all across the world. The following report will highlight the different aspects of the
working of the business of Netflix. By the end of this report, the reader will be able to
understand the different aspects of the business such as the impacts of emerging technologies
on the Netflix business, the different implications of these technologies such as social, ethical
and cultural implications etc.
Background of the business:
Marc Randolph and Reed Hastings first created Netflix in the year 1997 in the Scotts
valley in California. Both of them were former employees of a company called Pure
Software. Micro Warehouse, which was a company for computerized mail order, was co-
founded by Randolph. Later he was also appointed as the marketing at an organization called
Borland international. Hastings founded Pure Software was found by Hastings, which he
recently sold for an amount of $700 million, and in turn, he invested an amount of $2.5
million in a startup called Netflix. Hastings came up with the idea of Netflix when he had to
pay an fine of 40$ late fine for not being able to return a movie on time, that he had rented. A

4ANALYSIS OF NETFLIX BUSINESS
more simple and traditional method pay-per-rental was used in the Netflix website which
launch on April 14, 1998 post which it started a new subscription method on September 1998
(Mithas and Lucas 2010). Since then the website has come up with its own innovations in the
subscription fee structure by eliminating complications such as due dates, shipping as well as
handling fees, late fees.
By the year 2005, Netflix had around 35,000 different films in its databases and
around 1 million movie DVDs were shipped per day. In the month of February 2007, Netflix
delivered the one-billionth movie DVD. However, it gradually shifted from the traditional
business model of shipping out physical discs and into a model of live streaming on a rental
basis, which is known as video-on-demand model (Zhang 2011), via the internet. Red
Envelope Entertainment, which is an independent division of Netflix also distributed as well
as licensed independent TV series and movies on behalf for Netflix.
Target audience:
The target audience of Netflix mainly includes males as well as females aged between
17-60. Households that generally have income levels of around $30,000 and up are the main
customers for the company. Students, teenagers as well as homemakers are generally
addicted to watching movies and following latest TV series that come up and Netflix takes a
good advantage of that. There are three basic target audience groups for the company. They
are the busy people who do not have time to go out to watch movies, people who are frequent
movie renters who are movie addicts like teenagers and college students, and the most
important category of people who are very economical and want to get the most out of the
money they spend (Soliman et al. 2013).

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Netflix competitive advantage and success factors:
The different phases of competitive advantage development for Netflix over its
competitors like Hulu and Time Warner plus, are categorized and described below in four
major points:
1. The initial pre- public offering (IPO) era, Netflix withstood the dot com trend and it came
up with a more successful business model of mail delivery of physical DVD’s on a rental
basis. It turned out to be major success factor as well as an advantage in the market since no
other companies offered such benefits at that point f time to the users (Turban et al. 2017).
2. The initial public offering was held by Netflix in phase of DVD Growth era, which had
expanded their user database to around 850,000 annual subscribers. This had again
contributed greatly to the success of the company (Oat 2013).
3. In the Streaming era, the online on-demand video service was introduced by the company,
which in turn led to the market advantage of only offering streaming-only model of
subscription on a paid basis.
4. Finally in the Content era, Netflix came up with its own original TV programs and movies
that the users can watch on a subscription basis. The company implemented this model due to
the ever-increasing content licensing costs. This in turn also helped Netflix to increase
revenue and strengthen its place in the market by attracting more users from different age
groups (O'brien, Knight and Harris 2017).
Digital disruption within Netflix:
Present disruption analysis of Netflix:
Netflix is considered as the first major disrupter of the television as well as the movie
industry. This is because it provides an on-demand service in a much more reasonable price
to the users as compared to the traditional expensive television service providers and it is

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done using internet. The Netflix services are also available anywhere and anytime. As it had
been described in an article in the Sydney morning herald, Netflix has a deep transactional
business model wherein people create and sell things whereas others buy and watch their
products at a much reasonable price.
Interestingly, it has been found that most of the users in Australia have shifted their
preference from a popular TV service provided and a competitor of Netflix, which is Foxtel.
On-demand video subscription services of Netflix have overtaken the revenue as well as the
market shares of that of Foxtel in Australia (McDonald and Smith-Rowsey 2016). The most
important reason why Netflix is a major market disrupter is that it has demonstrated its
capability extraordinary reach by launching its own original TV series as well as movies,
which in turn also helps in cost cutting for the organization. It produces and broadcasts local
shows via the internet, which are more appreciated and watched by users all across the world
instead of having to subscribe the traditionally available television services. Netflix has the
capability to simultaneously offer services to 190 countries, which has around 81 million
users. This is practically impossible for local cable TV operators and movie stores to provide
due to time as well as budget constraints.
Future disruption analysis and consequences:
The recent growth of Netflix has forced the TV industry as well as internet providers
all across the world to rethink their strategies of customer approach. It was not until the
recent times that the users had to consume the different mainstream TV programs within a
pre-programmed time, else they would have to lose access to the program again. Because of
the market disruption caused by Netflix television service providers are about to come up
with services like 7-Plus as well as 10-Play, through which customers will be able to watch
the TV programs of their choice even on their mobile phones at any time which is convenient
to them and from anywhere, via internet (Adhikari et al. 2012). Telstra and other internet

7ANALYSIS OF NETFLIX BUSINESS
service providers have also come up with more flexible business models regarding data
offerings wherein unlimited internet services will be available to the users at a much-
subsidized rate, so that services like Netflix can be availed by them easily.
Challenges and opportunities associated to Netflix market disruption:
Challenges:
No Download option: Users do not have the option ot download a movie or keep a
copy of the content they watch in their computers or smartphones for future watch. It
is always a on demand online streaming based subscription which the users can avail.
This can make the customers dissatisfied at times since internet speeds are up to the
mark at all places neither do all users have a regular internet services in their homes at
all points of time due their affordability and other reasons. Download options are
available in case of other competitors of Netflix such as YouTube etc (Aaron et al.
2015).
International growth will not be easy for Netflix: In the process of expanding in
countries of Latin America, UK, Scandinavia, regional competitors started showing
up. Meanwhile, the international expansion of Netflix had been staggered due the
competition from such smaller companies, which in turn caused lack of interest of the
users in the newly launched Netflix products across the world. Netflix spent a lot of
money to obtain rights on a global scale for its blockbuster-hit movies and TV shows
as it did before with Gotham even before the broadcast of the first episode on the
television. The global competition is slow but fierce for Netflix and it is not as easy as
it seems and is definitely a challenge for the company in the coming times (Matrix
2014).

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Opportunities and recommendations for Netflix:
Netflix has identified the opportunity it has to work on even if it works on the
recommendations provided to it because of which it came up with the feature called Netflix
Prize. It is further recommended that it improve the Cinematch system through which it can
experience continued expansion of customer database since they will continue to increase
their video on demand subscriptions. Cinematch also brings lesser known TV series and
movies to the notice of the viewers, which can also improve the website personalization
experience of the users. They should also start the concept of set top boxes through which
secure efficient movie rentals will be possible on a wider scale to the customers (Barkachi
2014).
Fig: Market position of Netflix in terms of streaming (Source: As used by author)
Different implications of Netflix digital disruption:
Legal implications:
Netflix allows the customers subscriptions in which they can stream movies on
multiple devices at the same time. Customers have taken its advantage, shared login

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credentials with friends and families, thereby sharing a single subscription across different
geographical locations. This is illegal and can have different consequences. The 20th Century
Fox also filed a recent lawsuit against Netflix and claimed that it had urged the employees
break their employment contracts that they had signed with Fox (Jenner 2016).
Social implications:
According to recent studies, the “Netflix Effect” has affected teens, adults as well as
children. Teens get addicted to online movies and television shows and are often late to
classes and deterioration in grades. Adults often tend to be late in work or they even tend to
gain weight by being more addicted to Netflix and hence not going out to socialize. They
tend to sit back in their homes most of the times with their laptops or smartphones watching
movies (Gomez-Uribe and Hunt 2016).
Ethical implications:
Netflix has been reducing the video quality for the users who use Wi-Fi to access
Netflix. They do it just to help the users avoid the caps in mobile data. In the process, users
do not get to enjoy the good quality of video streaming that thy have actually paid for.
Another important ethical issue that Netflix faces is that it can obtain adequate licenses to
stream movies as well as shows, which are not created by them. For instance, the company
has faced copyrights violation issues in the case of streaming of Bicycle Thieves, which is
originally a film, made in Italy in the year 1948 (Hallinan and Striphas 2016).
Cultural implications:
Since the content is stored on the cloud it is beneficial to the environment since there
will be no physical wastage or recycling created unlike in case of physical DVD’s etc.
According to a study, movie streaming requires almost 78% of the energy as compared to
what it takes to ship a physical copy. However, carbon imprints of more than 100% are

10ANALYSIS OF NETFLIX BUSINESS
accumulated in the data centers due to online streaming which is a negative cultural impact
despite lesser physical waste (Summers et al. 2016).
Security implications:
User logging details and other information are stored on the cloud on a virtual
platform, which in turn can be hacked by the hackers to access illegal aces sot the user
accounts. Customers also have to do online transaction to pay the subscription fees, which
again is a security issue since the payment gateways are often attacked by virus infections
over the internet (Huang et al. 2012).
Conclusion:
Therefore, it can be concluded from the above repot that even though there are
multiple strengths and opportunities for Netflix there are different areas like subscription
strategies and ethical considerations that should be considered by the organization order to
further improve and strengthen their business all across the world. The company can reach
greater heights in the media industry in the future provided they have all the back up plans
and proper strategies to overcome the treats and risks associated to its business.

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References:
Aaron, A., Li, Z., Manohara, M., Lin, J.Y., Wu, E.C.H. and Kuo, C.C.J., 2015, September.
Challenges in cloud based ingest and encoding for high quality streaming media. In Image
Processing (ICIP), 2015 IEEE International Conference on(pp. 1732-1736). IEEE.
Adhikari, V.K., Guo, Y., Hao, F., Varvello, M., Hilt, V., Steiner, M. and Zhang, Z.L., 2012,
March. Unreeling netflix: Understanding and improving multi-cdn movie delivery.
In INFOCOM, 2012 Proceedings IEEE (pp. 1620-1628). IEEE.
Barkachi, P., 2014. Copyright in the internet age. Policy: A Journal of Public Policy and
Ideas, 30(3), p.21.
Gomez-Uribe, C.A. and Hunt, N., 2016. The netflix recommender system: Algorithms,
business value, and innovation. ACM Transactions on Management Information Systems
(TMIS), 6(4), p.13.
Hallinan, B. and Striphas, T., 2016. Recommended for you: The Netflix Prize and the
production of algorithmic culture. New Media & Society, 18(1), pp.117-137.
Huang, T.Y., Handigol, N., Heller, B., McKeown, N. and Johari, R., 2012, November.
Confused, timid, and unstable: picking a video streaming rate is hard. In Proceedings of the
2012 Internet Measurement Conference (pp. 225-238). ACM.
Jenner, M., 2016. Is this TVIV? On Netflix, TVIII and binge-watching. New media &
society, 18(2), pp.257-273.
Matrix, S., 2014. The Netflix effect: Teens, binge watching, and on-demand digital media
trends. Jeunesse: Young People, Texts, Cultures, 6(1), pp.119-138.
McDonald, K. and Smith-Rowsey, D. eds., 2016. The Netflix effect: Technology and
entertainment in the 21st century. Bloomsbury Publishing USA.

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Mithas, S. and Lucas, H.C., 2010. What is your digital business strategy?. IT
professional, 12(6), pp.4-6.
Oat, E., 2013. Analysis of Netflix architecture and business model. Aalto University T-
110.5191 Seminar on Internet Working, Spring.
O'brien, K.H.M., Knight, J.R. and Harris, S.K., 2017. A call for social responsibility and
suicide risk screening, prevention, and early intervention following the release of the Netflix
series 13 Reasons Why. JAMA internal medicine, 177(10), pp.1418-1419.
Soliman, O., Rezgui, A., Soliman, H. and Manea, N., 2013, August. Mobile cloud gaming:
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Summers, J., Brecht, T., Eager, D. and Gutarin, A., 2016, September. Characterizing the
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