Strategic Management Report: Netflix's External Environment Analysis

This report provides a comprehensive strategic analysis of Netflix, a major player in the online entertainment industry. It begins with an executive summary highlighting the study's focus on Netflix's external environment, assessed through PESTEL analysis, which reveals the impact of political, economic, social, technological, environmental, and legal factors. The report then delves into a Five Forces analysis, identifying key competitors like Amazon Prime, Hulu, and Sling TV, and assessing their impact on Netflix's competitive landscape. A business-level analysis explores Netflix's market position, subscriber base, and market capitalization. Finally, the report examines Netflix's strategic intent, focusing on content production and plans for live events and sports streaming. The conclusion synthesizes the findings, emphasizing Netflix's competitive advantages and the need for strategic adaptation in a dynamic market.

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EXECUTIVE SUMMARY
The primary aim of the report is to study the strategic management process of an online
entertainment industry. In order to fulfill the same, the report investigates the external
environmental factors of the concerned company that impacts the complete work process of
the same with the help of the limitation of the study of PESTEL analysis. After the
examination, the report finds that all these macro-environmental factors leverages huge
strengths and opportunities to the company to gain a higher amount of competitive advantage.
Along with this, the factors also leads to adherence of strict laws and regulations to the
concerned company. Moreover, with the analysis of the Five Forces Model, the report comes
with a conclusion that the intense competitors of Netflix are primarily known as Amazon
Prime, Hulu and Sting TV. However, with the analysis of the business level of the concerned
company it was examined that Netflix stands higher to its potential rival companies and in
this connection, the report ends with the analyses of the strategic intent of the concerned
online business-Netflix.

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Table of Contents
Introduction and Background to the study.................................................................................3
Netflix’s External Environment – PESTEL Analysis................................................................3
Netflix – A Five Forces Analysis...............................................................................................5
Netflix- Business Level Analysis...............................................................................................6
Netflix – Strategic Intent............................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction and Background to the study
The given paper is focused on the study of strategic analysis of the online
entertainment business – Netflix (Voigt, Buliga and Michl 2017). In this connection, the
given report critically analyses the external environment of Netflix, in which the same is
known to operate. Further, the report is focused on analysing the five forces analysis that
impacts the working plans and criteria of the concerned company. Furthermore, the report
tends to investigate the business level analysis of the same. Moreover, the study also analyses
the strategic intent of Netflix, which the same is to implement in its future working and plans.
Netflix’s External Environment – PESTEL Analysis
As stated by Burrell and Morgan (2017), to understand and study the external
environment of a business entity, the most effective organisational behaviour method is the
analysis of PESTEL factors. The same is used in the given report to undermine the macro-
environment of the company Netflix. The strategic tool of PESTEL analysis will help Netflix
to make better decisions for their business process (Bosbach, Tesch and Kirschner 2019). As
examined by the studies that Netflix operates in a dynamic business environment, and thus,
the same get highly influenced by its macro-environmental factors. The same is specified as
below.
Political  The taxation policies of the western hemisphere region have
advantaged the business of Netflix because of its lower rate. The
lower rates of taxation policies help the company to gain a high
amount of profit.
 Netflix is recorded to work in the global perspective, and
therefore, it remains accountable to make policies based on each
country it operates in. This may affect the political stability of

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existing market connected with Netflix.
Economic  The increment in the liberalisation of the trade policy in the
countries of operation of Netflix has helped the same to invest
and expand in the areas which still remains an off-limit to the
company.
 Netflix is open to access the opportunities of the vibrant finance
market in the countries it operates in. The easy availability of the
liquidity assets in the equity market gives an opportunity for
Netflix to expand into the further global market.
Social  The attitude of the customers towards health and safety.
Therefore, the content of Netflix should be created in a manner
that the stays away from the perspective of hampering the health
and safety of the viewers or else the company has to bear a high
cost of failure.
 The demographics of the countries Netflix operates in is termed
to be higher. In this connection, it becomes an opportunity for
the company to gain a higher number of subscribers.
Technological  The innovations based on the technological advancements,
implemented by the potential competitor of Netflix, becomes a
threat to the same.
 The restructuring of the value supply chain of Netflix as per the
technological innovations to meet both the demands of the
customers as well as the cost structure and maintenance.
Environmental  The designing of the content produced by Netflix by keeping the
environmental rules and norms in mind is necessary.

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 The awareness of the customers regarding the environmental
factors has brought the centre of Netflix's strategy to follow the
legal standards as well as maintaining the corporate social
responsibility.
Legal  The constitutional law of employment is to be strictly followed
by Netflix at the time of recruitment.
 The law towards the data protection of the subscribers connected
to Netflix.
Netflix – A Five Forces Analysis
As stated by Adner (2017), Porters Five Forces help in the critical determination of
the market structure of the organisation an industry works in. In this connection, the five
forces analysis for the company of Netflix is specified as below.
Substitute Products and Services
The business entity of Netflix has a high risk of entertainment programs entering into
the online market as similar to their content. This makes the company accountable to leverage
effective and efficient research and development team in their business to understand the
market situations and strategies.
Existing Rivalry
The intense level of competition already living in the market for the company of
Netflix has affected their profit, earning a percentage in the business of the online market. In
this connection, the potential competitors of Netflix are recognised as Amazon Prime, Hulu
and Sling TV.

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Suppliers Bargaining Power
The suppliers connected to Netflix are considered to incur high level of bargaining
power, and thus, they charge high price from the concerned online company, and the same
affects the revenue of the company.
Customers Bargaining Power
The buyers or the subscribers connected to Netflix also incurs high power of bargain
along with its suppliers, and they tend to lower the price of the subscription and thus limits
the profit earning capacity of Netflix.
The threat of New Entrants
There always lies a danger in the plans and processes of business of new companies
debuting in the market of online business and affect the competitive advantage of the
company. The same is valid for Netflix as well.
Netflix- Business Level Analysis
As stated by Axelsson and Easton (2016), the business level analysis is termed as the
strategy of a firm that determines its position in the industry of the market it deals with. In
this connection, the business level analysis of Netflix is defined as the largest firm in the
sector of online entertainment. The same is considered to have a number of over 18 million
subscribers and also a considerable amount of customers in the global nature. The market
capitalisation of the concerned company is known to cross the earning of 100$ billion.
Netflix – Strategic Intent
As examined with the help of the study it was analysed that the Netflix has currently
stated its strategic implementation to be working on a variety of content producing that would
be effective enough to satisfy the different tastes and preferences of its subscribers (Hallinan

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and Striphas 2016). Along with this, the company is also looking forward to streaming with
live events as well as sports contents (Thompson 2018).
Figure 1: Showing effectiveness of Netflix as compared to its competitors
Conclusion
Based on the above pieces of illustration, it can tend to conclude that the online
entertainment company Netflix has gained a considerable amount of competitive advantage
in the past few years with the changes made in its strategic implementation. However, the
same is also recorded to have intense competition with Amazon Prime and needs to make
changes to compete effectively.

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References
Adner, R., 2017. Ecosystem as structure: an actionable construct for strategy. Journal of
Management, 43(1), pp.39-58.
Axelsson, B. and Easton, G., 2016. Industrial Networks (Routledge Revivals): A New View of
Reality. Routledge.
Bosbach, K.E., Tesch, J.F. and Kirschner, U.C., 2019. A Business Model Perspective on
Innovation Susceptibility. In Business Model Innovation in the Era of the Internet of Things
(pp. 145-164). Springer, Cham.
Burrell, G. and Morgan, G., 2017. Sociological paradigms and organisational analysis:
Elements of the sociology of corporate life. Routledge.
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.
Thompson, R., 2018, October. Maximising content with cloud, virtualisation and AI. In
SMPTE 2018 (pp. 1-8). SMPTE.
Voigt, K.I., Buliga, O. and Michl, K., 2017. Entertainment on Demand: The Case of Netflix.
In Business Model Pioneers (pp. 127-141). Springer, Cham.