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Professional Development for MarketersNetflix ReportForMs. Zacharewicz Anna & Mr. Berry RichardAnne-Sophie Kluwer w1748371Justine Astoin w1737648Anastasia Gushchina w1759536Amado Morales w1741224Kristine Alkhidze w1679912Executive SummaryNetflix 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 millionsubscribers worldwide. As a leader of the industry the main threats for Netflix today is the rise ofthe competitors, challenging it for content and price. However, the rising demand for on-demandvideo streaming internationally, specifically in Asia-Pacific region provides new opportunities forNetflix to gain new subscribers and compensate for possible revenue losses and higher costsassociated with obtaining content licenses and imposition of new regulations in other parts of theworld. Technological innovation and exclusive-to-the-platform content are the key competitivefactors for streaming services today. It is crucial for Netflix to be attuned to the demands of theirconsumersin the upcoming years.Table of contentsIntroduction .......................................................................................................... 3Background of the Company - Timeline ...................................................................... 3Ownership - Behind the Brand ................................................................................. 4
Micro Environment ................................................................................................ 5Macro environment .............................................................................................SWOT Analysis ..................................................................................................Netflix’s Business Model and Service Portfolio ........................................................Financial Performance ........................................................................................Conclusion .......................................................................................................Key recommendations ........................................................................................IntroductionToday traditional television still accounts for most TV time in the UK - 69% - however, it iscontinuously falling at an accelerating rate, as Britain’s demand for streaming on demand videosexperiences rapid growth (Ofcom, 2019). Changes in the viewing habits are most prominentamong younger people, aged 16 to 24, who watch half as much traditional TV as their counterpartsin 2010 (Ofcom, 2019). This report was prepared for the Marketing Services Directors - AnnaZacharewicz and Richard Berry in order to provide details on Netflix - one of the most popularvideo 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 thepast several years and, looking at the business model, investigate the main determinants of itssuccess.Background of the Company - TimelineNetflix was founded back in 1997 - as can be seen in Figure 1 below - by Reed Hastings and MarcRandolf as a DVD-by-mail rental service (Netflix, 2019(1)). Netflix is a relatively youngFigure 1Source: Netflix (1), 2019company when compared to the UK’s publicly owned broadcasting giant BBC, which is to celebrateits 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) thecompany 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 theirservices outside of the US and became available in the UK in 2012 (BBC, 2018). Today it isavailable 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-recognisedand 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 BrandNetflix 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 mostnumber of shares, combined their stakes constitute around 99% of Netflix’s shares. The leftoverjust under 2% are in the hands of the individual insiders and government. The chart belowillustrates the ownership breakdown in more details.Figure 2Source: Simply Wall St. (2019)Reed Hasting, the founder and the CEO, owns - 2.48% of the shares (Yu, 2019).Micro EnvironmentNetflix operates within a growing global TV streaming industry. In order to analyse the competitionwithin the industry, Porter 5 Forces analysis framework has been used.Porter 5 ForcesThreat of NewEntrants:MediumBusiness model is easily replicable, but requires substantial funding.BargainingPower ofBuyers: MediumThere are no cancellation fees, but subscription is run on a monthly basis.Loss of individual buyers is not significant for Netflix, due to large customerbase.Threat ofSubstitutes:MediumSubstitutes are often more expensive, but could be more familiar to thecustomer. Replacements, such as movie theaters are also likely to provideadditional benefits, such as socialising.BargainingSuppliers own over 90% of the content on the platform (Figure 5), which they
Power ofSuppliers: Highare able to relocate from the platform when license expires (typically within 1year).CompetitiveRivalry: MediumInflux of new cash-rich entrants significantly increased the level ofcompetition within the industry, however, the content differences from oneplatform to another are compelling, since licenses make content exclusive tothe platform. Netflix has another great advantage over the competition whichis a strong brand image.Macro environmentThere are a number of influential factors affecting the media streaming industry from the outsidethat Netflix needs to take into consideration.PESTELPlease consider Figure 3 below, which helps to visualise the PESTEL Analysis.Figure 3A huge part of the company's success is driven by the vast amount of titles available on theplatform. In 2018 the EU implemented the law forcing online streaming services such as Netflix toallocate minimum 30% of their library to locally produced content, as well as to contributefinancially (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 Netflixhave greater appeal to the local customers (Bylund, 2019). The company can also benefit from
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