Strategic Management for Netflix in Online Video Streaming Business in UK

This report provides an insight into strategic management for Netflix in relation to online video streaming business in UK. It discusses key drivers of change in the macro environment, drivers of profitability, opportunities and threats faced by Netflix, and the company's leadership in exploiting opportunities and countering threats.

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Executive Summary:
The report aims at providing an insight into strategic management from the point of view
of the management consultant for Netflix in relation to online video streaming business in UK.
Netflix is a media service provider headquartered in California. The report commences with a
discussion on the key drivers of change in the macro environment in relation to the online
streaming business. The report thus focused on the political, economical, social, technological,
legal and environmental factors of the chosen geographical area in relation to the online
streaming business. The report also puts forward the drivers of profitability within the industry
by focusing on the five forces of porters. These factors includes bargaining power of the buyers,
bargaining power of the suppliers, degree of rivalry amongst the competitors, threat of the new
entrants and threat of the substitutes. The report also indentifies the opportunities as well as the
threats faced by Netflix in the online streaming of video. The opportunities include Netflix’s
assurance in streaming original content, collaboration with the mobile data and ensuring add free
entertainment. Netflix also faces threat in terms of the cultural and the political censorship,
unlawful means of streaming of the videos and the liabilities based on the ‘off balance’ sheet.
The report also portrays how the leadership of the company is capable of exploiting the
opportunities and countering the threats. It shows that Netflix utilizes the opportunities in
becoming a niche in the online video streaming companies, adopts a conglomerated strategy and
ensures a dominant global presence. The report also shows that to overcome the threats, Netflix
adopts strategy for entering the UK market, for dealing with the online streaming and the
issuance of the income statements for preparation of the content for the ‘Off balance streaming’.

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Table of Contents
Introduction:....................................................................................................................................3
Q1. Key Drivers of Change in Macro Environment of UK for Online Streaming Business..........3
Q2. Drivers of Profitability in the Online Streaming Business.......................................................5
Q3.a. Main Opportunities and Threats Netflix Faces in Online Video Streaming........................9
b. Company’s Leadership in Exploiting Opportunities and Countering Threats..........................11
Conclusion:....................................................................................................................................12
References:....................................................................................................................................12

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Introduction:
The report aims at providing an insight into strategic management from the perspective of
a management consultant for Netflix in respect of online video streaming business in UK. Netflix
is a provider of media services headquartered in the Los Gatos, California. Marc Randolph and
Reed Hastings in the Scotts Valley California found the company in the year 1997(netflix.com
2018). The primary business of the company is the subscription based media streaming service
that offers online streaming of television programs and films including the ones produced in
house. Netflix has close to 137 million subscribers across the world with 58.46 million
subscribers from United States. The initial business of Netflix were restricted to the sales of
DVD which was jettisoned by Hastings and expanded in the year 2007 through introduction of
the streaming media in addition to retaining the Blu ray and DVD rental service. Netflix
underwent an international expansion in the year 2010 with streaming facilities in Canada,
Caribbean and Latin America. As per the records of 2017, the net income of Netflix had an
annual income close to US$559 million (nasdaq.com 2018). The report focuses on the key
drivers of change in the macro environment of United Kingdom for online streaming business
put forward by Netflix. The report also focuses on the drivers of profitability of the industry
with the help of Porter’s five forces. There is also identification of the key opportunities and
threats faced by the online video streaming industry. The report also focuses on the company’s
leadership in exploiting the counter threats and opportunities.
Q1. Key Drivers of Change in Macro Environment of UK for Online Streaming Business

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The key drivers of change in the Macro Environment of UK for online streaming of
business are done through the PESTLE analysis.
Political Factors:
The key principle on which the Internet service providers and government depend is
network neutrality that implies that the data should receive equal treatment. There should not be
any discrimination or differentiation of charge imposed by subscribed site, user, content,
platform, type of the attached content and the communication mode. Proposed regulations for
implementations of neutrality have been a serious matter of conflict (Jackson and Lilleker 2013).
Besides, network neutrality, it was also necessary to influence the other laws that was not in
favor of the industry. One such law has been the Video Privacy Protection Act (VPPA) that
Netflix should influence for incorporating changes and sharing features over the social media
that would hold relevance for online streaming.
Economic Factors:
The online streaming business of Netflix is influenced by amendments in the customer
spending that remains influenced tax rate, growth rate and the interest rate. The increase in the
customer spending will result in an increase of the subscriptions of the online streaming
business. At the end of the 2016, customer spending increased slowly thereby put forward the
opportunities of growth for the online media streaming business of Netflix in United Kingdom
(Schaltegger and Wagner 2017).
Social Factors:

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Customers having more time prefer watching movies, television shows and play games
from various companies within the industry (Hajli 2014). The fall in the rate of unemployment in
the next five years will result in people preferring more online streaming services for saving
time. To ensure driving in the change Netflix needs to ensure effective plans for marketing.
Online video streaming services can result in the gradual downfall of sports and the other
activities of leisure.
Technological Factors:
The emergence of internet has brought about a revolution in life of people and served
innumerable functions. Media streaming represents one of the services associated with internet
and technology. Netflix also gained popularity through its media streaming services. The Netflix
application allows the people to watch movies and television shows during free time on their
laptops, tablets and smart phones (Hallinan and Striphas 2016). Netflix remains compatible with
each internet enabled device that acts as the driving force for accessing the online streaming
service from anywhere at any particular location.
Legal Factors:
There exist instances of the legal action against the companies within the media
streaming industry due to the wider use of the licenses for the contents and contracts in relation
to the privacy issues of the customer and the content providers.
Environmental Factors:
The online streaming business of Netflix has a huge environmental impact. The driving
force for online streaming business has been in the partnership of the company with Greenpeace

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for reducing the carbon footprint (Darrow 2017). Besides, the online streaming business put
forward by Netflix remains accessed by the various groups for enforcing the usage of renewable
sources of data for the data centers.
Q2. Drivers of Profitability in the Online Streaming Business
Porter’s five forces determine the drivers of profitability in online video streaming
industry:
Bargaining Power of Buyers:
It depends on various factors like switching cost, video and preferences, television and
movie show selection and refinement of the brand. The switching cost refers to the biggest issue
faced by the online video streaming business put forward by Netflix, as it seems to be an easier
option (Gonçalves et al. 2014). It also becomes easier due to the lack of annual contract and the
minimal cost of signing up for the service. As most of the video streaming business offers a free
trial so it becomes easier for the customers in making a switch between the services. Netflix also
addresses video preferences by charging premium for the HD services. It has been necessary for
video streaming industry in building a number of video preferences for competing against newer
entrants. The online video streaming industry like Netflix should pay attention to the viewer
preferences. This takes into account the ability of streaming the wants of the content viewers
with the addition of the viewing features that includes incorporating foreign languages and
closed captioning. In case of movie and television show selection, the subscribers of Netflix have
bargaining power concerning the television and the movie show. Besides, buyers of the online
video streaming service bargains on its brand. To create an appeal, Netflix should refine the
brand for appealing to a broader customer range.

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Bargaining Power of Suppliers:
It is determined by the various factors like contract cost, role of competitors and
exclusive content and the supplier alliances. In relation to the contract cost, the video streaming
business of Netflix should not only keep but also secure contracts with most popular studios and
net work for ensuring customer happiness(Lyubareva, Benghozi and Fidele 2014). Provided, the
number of subscribers of the company falls below the break-even threshold it results in loss of
the company. It might have to lead to severance of contract that is not only costly but causes the
existing subscribers in cancelling the service or absorbing the cost until it is capable of attracting
newer customers. As increasing number of movie networks and television studios have started
their own streaming services, they have made competition all the more difficult. Besides, some
of the suppliers might develop strategic alliance or partnership.
Degree of Rivalry amongst Competitors:
Competition is fierce in the online video streaming industry. Netflix has to compete with
the Amazon directly where each not only creates some content but also stream movies and
television shows (Weill and Woerner 2013). Besides, Netflix also had to compete with the other
providers. Other video streaming services offered next day viewing of the current hits that is not
a feature with the Netflix. This acts as an important feature of a person who wanted to replace
the cable with the video streaming service. As far as product differentiation is concerned, there
exists very low differentiation between the providers of video streaming services. This helps in
enhancing the competition between the providers. In case of price wars, the cost differentiation
between the primary video streaming providers is at the minimum level. Netflix remains priced

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at premium to the rivals. Therefore, the firm remains under pressure for making sure that the
selection of the title justifies higher price.
Threat of the New Entrants:
One of the contenders for the online video streaming industry has been You Tube Red
that is the premium version of the You Tube with certain additional features (forbes.com 2015).
It not only allows the subscribers in watching the content in a commercial free manner but also
provides access to the original shows thereby linking it to the music app of You Tube that
enables the creation of playlist from the videos streamed. In terms of cost and scale, the new
entrant in the online video streaming industry do not have same support and scale and cannot
compete with the well established rivals like the Netflix. This is because the kind of the long-
term contract that Netflix possess is expensive due to cost of the server and tech support.
Therefore, for making an entry the new entrants requires needs to collaborate with established
network, studio or brand for competing with Netflix. However, the new entrants can have an
impact on the established online streaming business by putting forward niche offerings that also
enables the subscribers in switching service. On the other hand, online video streaming service
like Netflix can provide individual experience for expansion of the catalog or in offering
differentiated services to ensure effective competition against the newer entrants. Some of the
video streaming companies have created different identities of viewing so that they are able to
attain individualized experience based on the preferences and the habits.
Threat of the Substitutes: Many people do not seem to be interested in the online
streaming service and they prefer entertainment via the cable service for entertainment. In
addition, it is also hard to compete against free services and online video streaming service like

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Netflix faces the competitive forces on the several fronts. The company also faces the risk when
people substitute the service through pirating (Borja and Dieringer 2016). Besides the aspect of
being social also possess as a risk to Netflix as people seem to spend more time being social
rather than spending on the streaming of video. People also look forward to not only connecting
through social media services but also play online games, interact with the friends and spend
time on the face-to-face interactions with the loved ones.
Q3.a. Main Opportunities and Threats Netflix Faces in Online Video Streaming
Opportunities:
1. Originality in Programming: Netflix puts forward various original programs and owns
an exclusive right for streaming them. Netflix has comedy, series, documentaries, movies and
television program (Sweney 2018). The originality in programming directly influences the
marketing and membership that in turn influences the financial status of an organization. This
even defines the value since Netflix has better cost to value ratio in comparison to the
competitors who does not own an extensive program offering.
2. Deals with Mobile Data: The teaming up of Netflix with various cellular providers puts
forward various data deals where Netflix streaming do not influence the monthly allotment of
mobile data of the consumers (Scott 2017). This seems important, as until then the consumers
without larger data plan had not as online streaming of video required immense data access that
seems expensive. As Netflix, do not affect the monthly allotment of data so it became accessible
to increasing number of consumers. This also acts as a suitable example of market segmentation
as the Netflix customers seem to fit particular demographics. Therefore, through segmentation of

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the market the company is able to target the user who can afford a Smartphone and the
segmentation.
3. Advertisement Free Entertainment: Netflix presently offers not a single membership
price but also an advertisement free entertainment. There exist no levels of membership
necessary for accessing an uninterrupted streaming of video service. This acts as opportunity
from the point of view of marketing. For instance, Amazon offers an ad free streaming of online
videos at a yearly cost higher than Netflix’s yearly subscription of $96 (Sulleyman 2017). This
adds value since it allows Netflix remains at a better cost to the value ratio compared to the
competitors.
Threats
1. Cultural and Political Censorship: Netflix looks forward for expansion in the given
geographic market. However, the expansion seems difficult as there are some government
controls over the contents of the online video streaming in the country. The government also
censors the content and the officials of the government ban anything that seems objectionable.
The content is made to pass through the screening process and anything failing to meet the mark
is pulled from the distribution. This is vital since Netflix offers variety of shows. With the
content being censored or disapproved, there will be very little reasons for the UK market to pay
for the subscription (Mou, Atkin and Fu 2013). Besides, Netflix faces the challenges of socio
cultural difference that also implies that the company needs to worry about the attitude, value,
language and the cultural differences in the targeted foreign markets. This might influence the
type of programming that the foreign users want to view thereby creating an impact on the
customer expectations.

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2. Unlawful Means of Video Streaming: Netflix faces the challenge of competing with
the illegal streaming of the online video that presently is a free service (Ellis 2015). Although the
demand for Netflix is higher but when the users discards their ethics for watching the free hit
shows it directly influences the expected revenue of the company.
3. Liabilities Related to Off the Balance Sheet: This represents the cost for the future
programming (Mazzolini 2016). Netflix categorizes the cost in association with the preparation
of content for streaming as ‘off balance’ since it is not considered the current cost until the show
goes live. The cost seems to be increasing at a rapid pace due to the original price of the
programming. This is vital as it relates to the company’s financial perspective and must be dealt
with caution while accessing the risk related to the finances off balance sheet.
b. Company’s Leadership in Exploiting Opportunities and Countering Threats
Netflix can exploit the Opportunities to become the following (Anokhin and Wincent 2014):
1. Become a niche online video streaming companies: Netflix can adopt the compression
technology coupled with the higher speed internet service to easily stream over internet.
2. Adoption of conglomerated strategy: This helps the company in developing programs
based on the different audience interest
3. Dominant Global Presence: With innumerable subscribers and increasing opportunities
for growth in the UK market, Netflix can claim to be become one of the first global networks for
television.
Netflix can counter Threats by adopting the following steps (McDuling 2018):

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1. Entry into UK Market with original content: The Company plans to enter into the
market by spending huge amount of money for not only producing original content but also
acquire such content.
2. Dealing with Illegal Streaming: Netflix strengthens its crack team for battling against
the online pirates that illegally streams the popular television and the movie shows. With
increased amount of investment of their own content, Netflix look for ways in stopping the
online pirates from illegally accessing the movies and the television shows. For clamping down
piracy, the company is bolstering its in-house team.
3. The company has also put forward the income statements that help in preparing
content for ‘Off balance’ streaming.
Conclusion:
On a concluding note, it can be said that Netflix is gradually becoming one of the
household names for adapting and shifting the focus for serving the ever-changing market filled
with increasing competition. The online streaming service offered by Netflix seems to dominate
close to thirty percent of all the downstream internet traffic in streaming the video content to the
users. The report shows how the company generates its revenue through digital distribution.
Illegal downloading and streaming will exist to certain degrees with failed attempts of either
normalizing it or reducing its impact on the Netflix bottom line.

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