A Strategic Analysis Report on Netflix's Streaming Business

This report provides a comprehensive strategic analysis of Netflix's streaming business. It begins with an executive summary outlining the company's mission and objectives, followed by a PESTLE analysis examining the political, economic, social, technological, legal, and environmental factors impacting the company. The report then applies Porter's Five Forces to assess the competitive landscape, analyzes the market, and presents strategic positions using Bowman's Clock, parenting, international strategies, and the Ansoff Matrix. The report also evaluates the success of Netflix's current strategies and proposes future strategies, concluding with a discussion of their feasibility and implementation.

ASSIGNMENT

1. EXECUTIVE SUMMARY
Mission Statement
“To grow our streaming membership business globally within the parameters of our
profit margin targets.”
Objective
Netflix aims to continuously grow and improve customer experience through expansion
of content streaming. Additionally, it focuses on developing programming mix that ensures
enhancement of user-interface and increments number of internet-connected screens worldwide.
Issues
The key issue regarding Netflix relates to its future, that is, whether it is adequately
positioned to deal with challenges now and ahead. Another issue is whether or not the strategies
employed by the business are effective enough to secure its position as the world's leading
internet television network.
CEO Reed Hastings must deliver an effective strategic plan to face off with growing
uncertainty that Netflix's future holds. This requires employment of rapid innovation plan of
actions so as to survive competition that various internet providers have proved to become for
the company.
Success Criteria
Pricing of Streaming Content, Quality offered, Reputation of the Business, Innovations
and Agility and Adaptability to changes are some of the most important success criteria that are
required to be considered while implementing a strategic decision.

Table of Contents
1. EXECUTIVE SUMMARY.........................................................................................................2
2. PESTLE ANALYSIS .................................................................................................................5
2.1 Political.............................................................................................................................5
2.2 Economic .........................................................................................................................5
2.3 Social ...............................................................................................................................7
2.4 Technological ..................................................................................................................8
2.5 Legal.................................................................................................................................8
2.6 Environmental .................................................................................................................9
2.7 PESTLE Conclusion.........................................................................................................9
3. Porter's Five Forces......................................................................................................................9
3.1 Threat of New Entry – Strong Force .............................................................................10
3.2 Threat of Substitutes – Strong Force .............................................................................10
3.3 Bargaining Power of Suppliers – Medium/ Weak Force................................................11
3.4 Bargaining Power of Buyers – Strong Force..................................................................11
3.5 Competitive Rivalry – Medium/Strong Force................................................................11
3.6 A Good Market?.............................................................................................................12
4. Market Analysis.........................................................................................................................12
4.1 Industry Prediction.........................................................................................................12
4.2 SBU Prediction...............................................................................................................13
4.3 Critical Success Factors..................................................................................................13
4.4 Opportunities and Threats..............................................................................................14
5. Strategic Position.......................................................................................................................14
5.1 Bowman's Clock.............................................................................................................14
5.2 Parenting and International Strategies............................................................................15
5.3 Ansoff Matrix.................................................................................................................16
6. Success or Failure of current strategies adopted by Netflix......................................................16
7. Proposed Future Strategies .......................................................................................................16

8. Feasibility and Acceptability of Strategies Recommended ......................................................16
9. Selection and Implementation of Strategy.................................................................................17
REFERENCES..............................................................................................................................18
APPENDICES...............................................................................................................................20

2. PESTLE ANALYSIS
PESTLE is adopted by organizations to evaluate the business performance based on
certain set of macro-environmental factors. These factors are wholly external to the
entertainment and mass-media industry. Also, it helps in evaluating strengths and trends which
influence the overall operations of the industry and the organisations included thereof.
2.1 Political
 Global Economic Uncertainty
In present scenario, there has been an increased advent of globalization and liberalization
among economies. Users are able to view content earlier restricted to a country or a territory.
However, uncertainty in political affairs of economies stunted growth of this industry to a greater
extent.
For instance UK's Brexit Plans, emergence of anti-globalization themes in countries such
as France, Netherlands or US, have lowered the growth for current as well as future of media
industry1. Internal imbalances of government in various economies has created an atmosphere of
uncertainty. A country may ban the streaming of content of another country if the two suffer
from geopolitical tensions such as USA and People's Republic of China.
Impact: This would lead to deprivation of users who want to watch the content offered by the
company, leading to an overall decline in the industry's contribution to Gross Domestic Product
(GDP) and politicisation of its affairs.
2.2 Economic
 Divergence, Exchange Rate and Volatility
Due to increase in cross-border transactions and expansion, Entertainment industry,
especially, has been highly profited from this as it is able to produce work worldwide. This has
led to international ventures and collaborations among corporations and entertainers globally.
However, it led to increase in volatility as exchange rates affect the income earned by
corporations in regards to different countries for same content produced by them.
In addition to this, constantly changing value of US Dollar increases differences in
production costs leading to non-alignment of planned budgets. For instance, the exchange rate of
1 <https://www.pwc.com/gx/en/entertainment-media/outlook/perspectives-from-the-global-entertainment-and-
media-outlook-2018-2022.pdf>

1 US Dollar in terms of Euro is 0.88421. The number of media and telecom deals rose to 876
indicating a 29% rise in 2017 from 2016. However, in an inverse situation 1.13095 Euros equal 1
US Dollar. This creates variation in income earned. The prevalent exchange rates in respect of
US Dollar and other countries have been provided in the given image: 2
Impact: On a negative front, the corporations are unable to follow planned budgets for every
country. However, on a positive note, the industry is able to create more diversified and
personalized budgetary plans that cater to the different needs of diverse economies and gain
income from their ventures or collaborations made internationally.
 Competition and Disinflation
The industry recorded a growth of 4.95% in 2018 from 2017. On the other hand, the
internet advertising revenue for 2017 to 2022 was recorded at 8.7% whereas Broadcast TV
advertising revenue experienced a 2.3% CAGR3.
2 <https://www.exchange-rates.org/>
3 <https://www.pwc.com/gx/en/industries/tmt/media/outlook/segment-findings.html>

For instance, Amazon has been an e-commerce platform that has dived into sectors such
as Technology, Retailing, Household Appliances as well as Entertainment and Media by
providing services through its application. This has resulted in shifting of corporations from their
traditional models to a variety of other sectors including content streaming.
Impact: This would result in higher incidents of stagnation in relation to the consumption of
content offered as well as revenues generated for US, UK markets. Conversely, a higher income
will be attained by those operating in developing economies like India or China in addition to
US, UK Markets. Thus, leading to unequal growth in various areas of entertainment and media
industry.
2.3 Social
 Advent of Mobile Consumers:
Mobile devices have become one of the most preferred means of accessing E&M content
and services both in domestic as well as international markets regardless of which area of the
industry they fall into. In addition to this, the consumers are demanding more relevant content,
largely personalizing the services provided by network programmes and editors. Entertainment
industry is largely impacting the lives of consumers and posing great influence in shaping their
personality. There are many ideas that were used by Films and TV shows back in the early days
which are now being considered as regressive due to social change.
For instance, On-Demand Service provided by many Network Programmes worldwide
has seen a growth of consumers to 2.5m subscribers in 2018. In addition to this, increase in user
engagement and reinvention of franchises by video game publishers has led to an overall
increase of 87% in 2018 itself for such corporations. Also, US films are promoting strong female
leads to change mindsets of public and empowering women. It is projected that the CAGR for
video games and other digital content is expected to grow by 27.8% and 24.2% between 2017
and 2022. Global Digital Music Downloading Revenue projected an adverse 23.7% growth rate
whereas Streaming Revenue projections show 18% increase between 2017 and 2022 indicating
rise in preference to stream music rather than download. 4
Impact: This will influence not only the content offered by the corporations but also result in a
change of business models causing identification of more innovation points in the value chain
model of the consumers across the globe.
4 <https://www.pwc.com/gx/en/industries/tmt/media/outlook/segment-findings.html>

2.4 Technological
 Economies of Connectivity:
Entertainment industry are investing largely by introducing their content on new
technical devises. Continuous improvement and investments made in technology and broadband
network structures has led to omnipresent connectivity on a global scale. This has led to increase
in competition among media industry players in several areas apart from services offered such as
content, access, distribution, global footprint, simplicity of user-interface or technology
employed, customer experience and engagement.
Increased usage of digital platforms such as social media have led to monetisation of
accessible modes projecting increase in Internet Advertising Revenue between 2017 and 2022 by
8.7% and Broadcast TV Advertising Revenue has projected mere 2.3% growth between the
same period.
Impact: In recent times, most of the dynamic players of industry are striving to develop an
ecosystem that is highly customer driven using the benefits of social media as well as e-
commerce. Additionally, technological companies are taking advantage of OTT Video and
Music Streaming to gain on digital revenue prospects and maintain competitiveness in a highly
convergent business scenario.
2.5 Legal
 Data Protection and Privacy:
These drivers of change are similar to political factors. Laws are being introduced to keep
a check on the what should be shown on media along with regulation of industry working
aspects. 5
Introduction of laws such as General Data Protection and Regulation (GDPR) has given
prioritisation to limited usage of data collected by industrial players in regards to their customer-
base.
Impact: This would create more favourable situations for users as they would be aware about the
areas where their private data is being utilized by the corporations, giving them right to demand
deletion of information, if the corporation is caught. On the other hand, companies would be able
to generate more transparency and customer loyalty through the application and adherence of
this regulation.
5 <https://eugdpr.org/>

2.6 Environmental
 Noise Pollution:
Entertainment industry impacts environment as it spends millions of dollars in production
process such using electricity for lighting, fuel for machines etc. which causes carbon footprints.
For instance, concerts organised by entertainers at various places, could lead to entertainment for
some and create noise pollution for others. Also, various action and science fictional movies
produce tonnes of Carbon-Di-Oxide while filming.
Impact: Growing sensitivity towards animal harm and noise pollution has led to creation of
soundproofed events as well as usage of artificial objects through VFX technology in the
industry.
2.7 PESTLE Conclusion
From above analysis, it can be concluded that entertainment industry should focus more
on technological factors. Customer's constantly changing preferences are due to the availability
of resources they have. New technology will bring more consumers and freshness in the
entertainment industry. Hence, the industry must carefully assess its risk factors regarding
technology, consumer preferences as well as legal implications in order to be more productive
yet diverse in this rapidly changing global business environment.
3. Porter's Five Forces
This model relates to the evaluation of competition in the Entertainment and Media
Industry. Essentially, this section of the report shall discuss how rivalry, substitutes, suppliers,
buyers and new entrants affect the profitability of International Streaming Segment in Netflix on
a global premise.

3.1 Threat of New Entry – Strong Force
 Capital Requirements:
Entertainment and media industry is highly diversified and capital intensive in nature.
Until a new entrant has a large funding available from investors or personal sources, it is difficult
for a business to enter the international streaming market. Conversely, disruption of current
technology can lead to increased competition in the market. This poses a future threat looking at
the complexity and disruptions of business in the current scenario.
For instance, Disney's takeover of Fox Media after battling out the deal with Comcast
worth $71 billion. This move aimed to integrate business to face digital disruptions caused by the
advent of streaming. Disney shall acquire 39 percent stake in Fox Movie studio6 and Cable
channels.
3.2 Threat of Substitutes – Strong Force
 Business Models with better Payment Plans:
As the international streaming market is growing, companies need to compete on not only
the content quality offered but also on the customer value provided them. Any application
providing a wider variety of content with bargain-priced payment plans can lead to failure of
existing players prevailing in the market.
For instance, 4K Television with option of streaming internet networks on its screen can
lead to decline of mobile usage and increase the demand for such televisions altogether. This
6 <https://www.polygon.com/2017/12/14/16778224/disney-fox-deal-movies-tv-rights>

would lead to substitution of traditional media by social media platform. Hence, those who do
not have compatibility with such devices shall such collaborations fall while others would
prevail.
3.3 Bargaining Power of Suppliers – Medium/ Weak Force
 Presence of Competition:
The Bargaining power of suppliers in this market is low as there is a wide array of
options available to the users. This pressurises suppliers to continuously innovate their services
so as to retain customer base as well as acquire potential users. Large number of suppliers as well
as new entrants has resulted in convergence, thus, weakening the bargaining power of suppliers
in streaming market. This is expected to decline further as more preference to this medium of
entertainment is given by the customers worldwide.
3.4 Bargaining Power of Buyers – Strong Force
 Switching Cost:
Customers tend to switch platforms or use more than one channel as per their
preferences. This is due to the fact that there is a lesser cost involved in switching from one
platform to another. As long as the buyers receive fresh content, they would be a loyal subscriber
to a given entertainment portal. This again pressurises the suppliers in creating innovative and
diverse content so as to maintain constant revenue for their concerned streaming platforms. Thus,
a higher bargaining power lies with buyers which is expected to grow in future.
3.5 Competitive Rivalry – Medium/Strong Force
 Innovative Business Models:
As industries converge, innovative business models become key to dominating the global
streaming market. Even though there are numerous players present, only some tend to take away
a larger portion of the overall profit made by the industry. However, if new entrants have a
differentiated and agile business model that is capable of offering more innovative content in
comparison to other major players, it can prevail too. For instance, Hulu is a new entrant having
considerably niche market segment. It has been able to grow popular among users worldwide
through the quality and originality of content produced and streamed by it.

3.6 A Good Market?
On the whole, International Streaming is an excellent market with a variety of
opportunities. No matter how strong the forces are, this market is still in infant stage which gives
ample room to new entrants to seize the opportunities offered by this media segment worldwide.
It is a good Strategic Business Unit (SBU) for Netflix as it has an already established base for the
same. Hence, expanding this SBU will only increase the competitive edge of the company in the
market.
4. Market Analysis
4.1 Industry Prediction
 Innovations and Disruptions:
Entertainment and Media (E&M) industry is predicted to grow by 4.4% compounded
annually between 2017 and 2022. Also, continuous innovations and disruptions are likely to be
created with the help of Artificial Intelligence by 2022. These will increase the variety of content
available to consumers.
 Internet-Driven Growth:
With advent of Internet, the E&M Industry has been predicted to be taken further. This is
likely to happen for various relevant areas such as Video Games, Video and Music Streaming as
well as Broadband network infrastructures. This would lead to obsolescence of traditional media
formats by 2022.
 Money-Making Strategies:
It is foreseen that there exists an urgency of creating new revenue streams so as to
generate more income in the face of future competition. Therefore, money making strategies
need to be aligned with prospective innovation plans so as to distil value from current
frameworks as well as ones that are developed in future through continuous experimentation.
 Customer Engagement and Experience:
85% customer will not partake in business transactions with a company if they are
concerned about their security practices. 92% prioritise control over the information regarding
them over the internet. Company's need to build more trust as extensive digitalisation would
result in increasing the likelihood of cyberattacks and leakage of sensitive information.