Netflix's Business Model and Market Trends

This assignment provides an in-depth analysis of Netflix's business model, market trends, and industry insights. It covers various aspects such as Netflix's content offerings, pricing strategies, revenue streams, and growth projections. The document also discusses the impact of emerging technologies, regulatory environments, and competitive dynamics on Netflix's operations. The assignment aims to provide a comprehensive understanding of Netflix's position in the streaming market and its future prospects.

Professional Development for Marketers
Netflix Report
For Ms. Zacharewicz Anna & Mr. Berry Richard
Anne-Sophie Kluwer w1748371
Justine Astoin w1737648
Anastasia Gushchina w1759536
Amado Morales w1741224
Kristine Alkhidze w1679912
Executive Summary
Netflix is the largest online streaming service founded by Reed Hastings – Netflix’s CEO to this day
- and Marc Randolf. In the 22 years since Netflix was established it has gained over 158 million
subscribers worldwide. As a leader of the industry the main threats for Netflix today is the rise of
the competitors, challenging it for content and price. However, the rising demand for on-demand
video streaming internationally, specifically in Asia-Pacific region provides new opportunities for
Netflix to gain new subscribers and compensate for possible revenue losses and higher costs
associated with obtaining content licenses and imposition of new regulations in other parts of the
world. Technological innovation and exclusive-to-the-platform content are the key competitive
factors for streaming services today. It is crucial for Netflix to be attuned to the demands of their
consumers in the upcoming years.
Table of contents
Introduction ………………………………………………………………………………………….... 3
Background of the Company - Timeline …………………………………………...…………….... 3

Ownership - Behind the Brand ……….…………………………………………………………….. 4
Micro Environment …………………………………………………………………………………… 5
Macro environment ………………………………………………………………………………...
SWOT Analysis ……………………………………………………………………………………..
Netflix’s Business Model and Service Portfolio ………………………………………………..
Financial Performance …………………………………………………………………………….
Conclusion ………………………………………………………………………………………….
Key recommendations …………………………………………………………………………….
Introduction
Today traditional television still accounts for most TV time in the UK - 69% - however, it is
continuously falling at an accelerating rate, as Britain’s demand for streaming on demand videos
experiences rapid growth (Ofcom, 2019). Changes in the viewing habits are most prominent
among younger people, aged 16 to 24, who watch half as much traditional TV as their counterparts
in 2010 (Ofcom, 2019). This report was prepared for the Marketing Services Directors - Anna
Zacharewicz and Richard Berry in order to provide details on Netflix - one of the most popular
video streaming platforms in the UK and the largest streaming service globally (Moskowitz, 2019).
This report aims to provide insights into the company’s financial and market performance over the
past several years and, looking at the business model, investigate the main determinants of its
success.
Background of the Company - Timeline
Netflix was founded back in 1997 - as can be seen in Figure 1 below - by Reed Hastings and Marc
Randolf as a DVD-by-mail rental service (Netflix, 2019(1)). Netflix is a relatively young
Figure 1 Source: Netflix (1), 2019

company when compared to the UK’s publicly owned broadcasting giant BBC, which is to celebrate
its 100th anniversary in 2022 (BBC, no date). Netflix started by providing a home delivery service
for its online rentals and success followed quickly as in 2003 (only 5 years after the launch) the
company had 1 million subscribers in the US (La Monica, 2003).
The critical point for the company happened in 2007 when it launched streaming video rvices,
which is what it is now best known for (BBC, 2018). Just 3 years later Netflix started to offer their
services outside of the US and became available in the UK in 2012 (BBC, 2018). Today it is
available in 190 countries, excluding China, North Korea and Syria (Netflix, 2019(2)).
In 2013, the company also started to offer original content and rapidly became a well-recognised
and respected trademark - Netflix Originals. Today company has over 158 million subscribers
(Moskowitz, 2019) and is considered the 5th largest media company worldwide (Shapiro, 2019).
Behind the Brand
Netflix is a publicly traded company, the closing price for one share last week (November 22nd)
was 310.48 USD - just over £241 (Yahoo, 2019). Institutions and the general public hold the most
number of shares, combined their stakes constitute around 99% of Netflix’s shares. The leftover
just under 2% are in the hands of the individual insiders and government. The chart below
illustrates the ownership breakdown in more details.
Figure 2 Source: Simply Wall St. (2019)
Reed Hasting, the founder and the CEO, owns - 2.48% of the shares (Yu, 2019).
Micro Environment
Netflix operates within a growing global TV streaming industry. In order to analyse the competition
within the industry, Porter 5 Forces analysis framework has been used.
Porter 5 Forces
Threat of New
Entrants:
Medium
Business model is easily replicable, but requires substantial funding.
Bargaining
Power of
Buyers: Medium
There are no cancellation fees, but subscription is run on a monthly basis.
Loss of individual buyers is not significant for Netflix, due to large customer
base.
Threat of
Substitutes:
Medium
Substitutes are often more expensive, but could be more familiar to the
customer. Replacements, such as movie theaters are also likely to provide
additional benefits, such as socialising.

Bargaining
Power of
Suppliers: High
Suppliers own over 90% of the content on the platform (Figure 5), which they
are able to relocate from the platform when license expires (typically within 1
year).
Competitive
Rivalry: Medium
Influx of new cash-rich entrants significantly increased the level of
competition within the industry, however, the content differences from one
platform to another are compelling, since licenses make content exclusive to
the platform. Netflix has another great advantage over the competition which
is a strong brand image.
Macro environment
There are a number of influential factors affecting the media streaming industry from the outside
that Netflix needs to take into consideration.
PESTEL
Please consider Figure 3 below, which helps to visualise the PESTEL Analysis.
Figure 3
A huge part of the company's success is driven by the vast amount of titles available on the
platform. In 2018 the EU implemented the law forcing online streaming services such as Netflix to
allocate minimum 30% of their library to locally produced content, as well as to contribute
financially (proportionally to their revenue from each country) to local productions (Dillet, 2018).
This might decrease the variety of titles on the platform due to budget constraints.
On the other hand, however, the increased number of local titles on the platform can make Netflix

have greater appeal to the local customers (Bylund, 2019). The company can also benefit from
increased globalisation and economic growth in 3rd world countries which allow more people to
have access to an electronic device, use the internet, and be a part of Netflix.
Much of the platform’s success comes from the big data analytics that it collects and uses when
deciding on the content (Markman, 2019). Increased focus on data protection in society can
eventually challenge their way of tailoring content to the individual client. This is becoming
increasingly evident as large companies, such as Apple, YouTube and Netflix face accusations of
not complying with the EU’s General Data Protection Regulation (Meyer, 2019).
SWOT Analysis
Strengths Weaknesses
 Unparalleled variety of content (Moore, 2019)
 Strong brand recognition worldwide (Benes,
2019)
 Loyal customer base (Benes, 2019)
 Tailored recommendations (Morgan, 2019)
 Use of Big data (Markman, 2019)
 Content producer (Netflix (1), 2019)
 Dependent on content
suppliers - over 90% of titles
are coming from them (Netflix
(3), 2019)
 Debt of £13bn in 2019
(Alexander, 2019)
 Lack of budget for licenced
content (Lee, 2019)
 Negative environmental
impact (Welle, 2019)
 Inability to increase revenue
through ads (Feiner, 2019)
Opportunities Threats
 Streaming is predicted to grow within the next
4 years (PricewaterhouseCoopers, 2019)
 Asia Pacific to overtake North America in
2021 on revenue from OTT video
(PricewaterhouseCoopers, 2019).
 Constant demand for technological innovation
and personalisation among consumers
(PricewaterhouseCoopers (2), 2019)
 Social focus on privacy and
data protection (Netflix (5),
2019)
 Country specific censorship
and content control (Marshall,
2019)
 Proposed laws forcing Netflix
to allocate 30% of their library
to local content (Gallagher,
2018)
 Illegal downloading and piracy
(Walker, 2019)
Netflix as the industry’s pioneer and the largest player has significant advantages over its
competitors, such as strong brand image and worldwide recognition (Benes, 2019). Another benefit
of being well-established is their vast and varied library that has been cultivated with the help of
analytics that the company has been collecting for years (Markman, 2019). The platform’s library
may be smaller in size - Amazon has 4.5 times as many movies - but the quality is on Netflix’s side,
a recent study finds (Appendix 1) (Brantner, 2019). It is likely to be the direct effect of using
extensive user analytics.
However, the threat of competitors is becoming increasingly relevant for Netflix. Launch of Disney+
and Apple TV - large companies with significant budgets for both producing and obtaining licenced
content - are likely to attract some of Netflix’s subscribers (Rushe, 2019). Simultaneously,
platforms, such as HBO and Amazon Prime, are improving the content variety and quality,

outbidding Netflix for popular shows, like Friends and The Office (US), offering cheaper
subscription prices (Lee, 2019). In fact, Netflix’s subscriber growth has already been affected by
the anticipation of Disney+ and Apple TV - 800,000 less it forecasted (Rushe, 2019).
Netflix has long been looking to enter the Chinese market (Netflix (2), 2019), but negotiations are
far from coming to a conclusion due to strict censorship and limited internet freedom in the country
(C, 2018). India - another huge potential customer base, although getting access to significantly
cheaper internet following the recent new entrant - Jio - breaking up the cartel and sharply driving
down the prices (Roy, 2019), has a very unique and particular tastes with large local media
companies saturation the entertainment market with content (Sharma, 2017). Therefore, despite
the increasing demand for streaming in Asia, Netflix is struggling to realise the opportunity to tap
into that market, as many customers in that region are hard to reach and satisfy.
Netflix’s negative environmental impact as company consumes large amounts of energy to keep
their servers running 24/7 all year round (Welle, 2019) might have a slight negative impact on sales
due to increasing social awareness and eco-consciousness. However, the issue can potentially
become a lot more prominent if the government increased taxation on CO2 emissions.
SWOT Summary
Overall, the key appeal of Netflix is the wide variety of quality content available on the platform.
However, as more and more competitors join the market and outbid Netflix for the popular titles,
this advantage is expected to diminish. The challenge for Netflix in the next few years would be to
stay appealing and relevant to the customers in the presence of strong competitors. However
before concluding on this, a closer look has to be taken at the company’s product and service
portfolio.
Netflix’s Business Model and Service Portfolio
As was touched upon earlier, Netflix has a variety of content on the platform, including movies of
different genres, documentaries, content for kids, reality shows and more. This makes their
customer profile very diverse. Company’s target market includes people of all genders, aged 17-
60, whose household income is above £23,300; which would suggest that psychographics are of
greater relevance to Netflix, than demographics (Pahwa, 2019). The service is also producing
original content, which is exclusive to the platform.

Figure 4 Source: Cook, 2018
Netflix’s library is different for each country, with many titles accessible worldwide, and local
differences (Rosenberg, 2019). Figure 4 illustrates the top 5 countries offering the largest number
of titles. However, only 16% of all of Netflix’s library are Originals, ie produced by Netflix
themselves - the rest is licensed content from different producers (data for the US local library)
(Moore, 2019) (Figure 5).
Figure 5 Source: Adapted from What’s on Netflix, 2019
The company poses itself as a convenient entertainment for various parts of a subscriber’s day.
Not only is it a cheaper replacement for cable TV (Kain, 2019), Netflix can be where the customer

is, like while cooking or commuting to work. No TV, cables or Internet connection required - movies
can be downloaded onto any device - smart TVs, new generation consoles such as Playstation or
Xbox, tablets, mobiles phones and Blu-ray.
Netflix is highly reliant on subscription fees for its revenue. However, since 2017 Netflix has started
to look for other ways to bring in the revenue. Production of Originals allowed them to delve into
the merchandise market, as a line Stranger Things appeared in retailer Hot Topic during the spring
2017 (Huddlestone, 2017). The platform does not currently sell advertising.
Financial Performance
Netflix has been financially successful over the past several years. Its overall revenue has more
than doubled since 2015 from $6.7bn to $15.8bn in 2018. Company’s last year profits are all-time
record high, doubling its 2017 figure - $1.2bn (Netflix Financials, 2019) (Figure 6).
Figure 6 Source: Adapted from Netflix Financials, 2019
Netflix’s revenue is coming in through a variety of different channels, such as revenue from paid
subscriptions, merchandise from its Originals and brand deals, such as the one with CocaCola and
Stranger Things - massively popular Netflix Original TV Series (CocaCola, 2019). Experts estimate
the newest Season (3rd) of Stranger Things to have 45 product placements, bringing Netflix over
£11bn in revenue (Pash, 2019).
Netflix has experienced rapid growth of subscribers internationally, especially compared to its
national figures (Figure 7). Just over half of the company’s revenue for the first 3 quarters of 2019
is coming from outside of the US (Figure 8).

Figure 7 Source: Adapted from Netflix Financials, 2019
Figure 8 Source: Adapted from Netflix Financials, 2019
Market Performance
Brand indices. CBBE.
C
Netflix is a pioneer of the streaming industry that has been a strong leader of the industry for over a
decade. However, rising threat of competitors will challenge its dominance in the foreseeable

future. Netflix needs to pay close attention to social trends and new technological developments in
order to stay relevant and dynamically innovate ahead of its competition.
Key Recommendations
1. In order to keep their position as market leader, Netflix needs to keep investing in their
original content to stand out from its competitors.
2. To remain relevant to its consumer, Netflix should intensify their focus on the trends in
technology to meet the demand from the fast paced innovative market.
3. Netflix could deliver more accurate recommendations by elevating their data collection from
their clients, as they are not always matching people’s interests
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