Netflix: An Analysis of External Environment, Five Forces, and Business Level

This paper provides an analysis of Netflix's external environment, five forces, and business level strategies. It examines the political, socio-cultural, technological, and economic factors affecting the company. The study also discusses the threat of new entrants, power of suppliers and buyers, product substitution, and intensity of rivalry competitors. Additionally, it explores Netflix's cost leadership, differentiation, focused low cost, and focused differentiation strategies. The strategic intent of the company is also discussed. Overall, the paper provides a comprehensive overview of Netflix's business environment and strategies.

Running head: Netflix
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Table of Contents
An introduction and Background of the study.............................................................................................1
Netflix’s External Environment...................................................................................................................1
Netflix – A Five Forces Analysis................................................................................................................2
Netflix – Business Level Analysis...............................................................................................................3
Netflix Strategic Intent................................................................................................................................4
Conclusion to the study...............................................................................................................................4
References...................................................................................................................................................5
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An introduction and Background of the study
In this paper, the discussion will be made on the Netflix Company. It has been examined that
Netflix is known as the American media service provider and headquarter is in Los Gotas,
California. The company was founded in 1997 by Reed Hastings and Marc Randolph in Scotts
Valley, California (Fast Company, 2018). In the first phase, the external environment will be
discussed and the next phase will elaborate the five force analysis of the company. Business level
analysis will also be described in reference to Netflix Company. The overall study will also
elaborate the business level aspects of the company. The last phase will focus on the strategic
intent that will help in considering the different strategies. At last there will be a concluding part
that will provide overall summary of the factors that are discussed in the paper.
Netflix’s External Environment
The external environment of the company can be described by focusing on the Pestle analysis
framework that helps to focus on the external factors of the company. There are different factors
that can highlight the different aspects like political factor, economic, social and technological
factor.
Political factors
In the US markets, the audience has moved from traditional TV towards the on demand
streaming services such as Netflix. The increase in the internet usage, the US telecom giants has
met the federal communications commission to implement the usage of regulations. There is
involvement of congress and due to this the internet prices has been enhanced that has threaten
the business model of Netflix internet streaming service. The EU ruling will also focus on the
streaming services like organization has to consider the rule that 30% of the content should be
European (Hackernoon, 2018).
Socio cultural factors
In the market of UK, there are younger viewers who are watching more online streaming
services for entertainment. There are also large customer base who are shifting to watch the
videos on their smartphones. This states that the demand for the online streaming services has
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been enhanced. So, it can be said that these services has enhanced the large customer base and
also providing the easy medium to watch latest videos.
Technological factors
The company has focused on investing into R&D to assist 4K streaming in an effective manner.
There is also technological shift to the 4K screen resolution that has generated a problem in
reference to the streaming services. The company has also considered R&D labs that have
created new software codenamed by “Hermes” which helps in translation of the Netflix show
(Burroughs,2019).
Economic factor
In 2016, Netflix has over 100 Million subscribers who access the services on the global platform.
One of the important factors is competitive pricing in relation to traditional services. In the
present scenario, the recession has been enhanced in which the customers focused on spending
the budgets and also the services of the company are attractive. So, these are the factors that
showcase the external business environment of the company (Fernández-Manzano, Neira and
Clares-Gavilán, 2016).
Netflix – A Five Forces Analysis
Threat of new entrants
It has been observed that in relation to Netflix there is a low entry barrier. It is not possible for
the companies to invest the huge amount to set up the business. Netflix is also considered as the
leader of the industry so the threat of new entrants is low. But on the other hand it is examined
that customer loyalty is also weak.
Power of suppliers
The power of supplier can be low as the suppliers own content that is required by the company.
There are also various factors that relates with the licensing and it is important for the suppliers
to consider overall factors. There are also various legal issues that are faced by the suppliers so it
is important to maintain it so that growth can be attained.
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Power of buyers
The power of buyer is low as the loyalty of the customer is weak. It is weak because the price
keeps on changing and also the overall revenue is related to the customers. The services offered
by the company have different prices and due to this it impacts the overall operations and
demand of the services in the competitive market (Gomez-Uribe and Hunt, 2016).
Product substitution
There are also various alternatives of attaining the content and it can be seen that the services
offered by the company can be easily substituted. The services of the company are on demand by
the customers but it could not be easy to substitute the services as the quality of the services
offered is effective.
Intensity of the rivalry competitors
It has been examined that there are many competitors but few companies are only the market
leaders. The company is trying to maintain the dominance in the market. So, it can be said that
the competition level is high of the company in relation to the services offered in the market. The
competitors of the company are Block Buster, Red Box and Voddler (Gomez-Uribe and Hunt,
2016).
Netflix – Business Level Analysis
Cost leadership
The company has cost leadership as a competitive advantage as they have originator and biggest
company in the streaming media sector. It has been analyzed that company has coupled with the
biggest library and also the company is considered as the cost leader. It is difficult for the
competitors to adopt the services of the company (Jenner, 2018).
Differentiation
The company has differentiated itself from the competitors by maintaining the quality original
programming. It is analyzed that company has given importance to low subscription price and
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also focuses on large movie selection so that it could be easy to maintain the large customer base
in the competitive market (Daidj and Egert, 2018).
Focused low cost
Low subscription cost has been set by the company in which the easy streaming process is
offered to the customers. It has helped in boosting the overall satisfaction level of the customers
towards the services (Walker et al., 2017).
Focused differentiation
To maintain differentiation the emphasis is also given on exclusive content in which the latest
content is shared with the customers. This has helped in making the services different from other
competitors.
Netflix Strategic Intent
The company focused on maintaining the content strategy in which the focus is given on
boosting the international subscribers. Netflix in the letter to its shareholders also considered the
wide variety of the content that helps in satisfying the different taste of the large audience. The
company is also emphasizing on enhancing the stand-up comedy in which they emphasize on
boosting the sales in the future. Netflix is emphasizing on creating the portfolio of the movies
that will help in attracting and retaining the viewer’s towards the services (Forbes, 2018).
Conclusion to the study
So, it can be concluded that company is one of the largest company in the sector of video
streaming. By analyzing the external environment, it is examined that different policies are
considered by the company to maintain the large market share. Also, in relation price strategy the
prices are kept low so that large market share can be grabbed. The strategic intent considered by
the company relates with building the portfolio of the movies that assist in maintaining the large
viewers.
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References
Burroughs, B., 2019. House of Netflix: Streaming media and digital lore. Popular
Communication, 17(1), pp.1-17.
Daidj, N. and Egert, C., 2018. Towards new coopetition-based business models? The case of
Netflix on the French market. Journal of Research in Marketing and Entrepreneurship, 20(1),
pp.99-120.
Fast company., 2018.Netflix. [Online]. Available at:
https://www.fastcompany.com/company/netflix [Accessed on17 May, 2019].
Fernández-Manzano, E.P., Neira, E. and Clares-Gavilán, J., 2016. Data management in
audiovisual business: Netflix as a case study. El profesional de la información (EPI), 25(4),
pp.568-576.
Forbes., 2018. A Closer Look At Netflix's Content Strategy.[Online]. Available at:
https://www.forbes.com/sites/greatspeculations/2017/04/20/a-closer-look-at-netflixs-content-
strategy/#2119cf71fc59 [Accessed on17 May, 2019].
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.
Hackernoon., 2018. Netflix: Business Model Analysis.[Online]. Available at:
https://hackernoon.com/netflix-b50868ad4f1c [Accessed on17 May, 2019].
Jenner, M., 2018. The Transnational and Domestication: Netflix Texts. In Netflix and the Re-
invention of Television (pp. 219-240). Palgrave Macmillan, Cham.
Walker, R., Jeffery, M., So, L., Sriram, S., Nathanson, J., Ferreira, J., Feldmeier, J. and Merkley,
G., 2017. Netflix leading with data: The emergence of data-driven video. Kellogg School of
Management Cases, pp.1-19.
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