Strategic Analysis of Netflix: External Environment and Intent

This report provides a strategic analysis of Netflix, a leading digital streaming service. It begins with an introduction outlining Netflix's global presence and revenue growth, followed by an examination of its external environment, including political, economic, social, technological, legal, and environmental factors impacting its operations. The report then applies Porter's Five Forces analysis to assess the competitive landscape, highlighting the bargaining power of buyers and suppliers, industry rivalry, the threat of substitutes, and the threat of new entrants. A business-level analysis explores Netflix's target market, revenue model, and reliance on various industries like telecommunications and cloud computing. Finally, the report delves into Netflix's strategic intent, outlining its vision, mission, strategy, and competitive approach, which has evolved from a cost leader to a differentiator through original content. The conclusion emphasizes the need for proactive strategies and technology adoption to ensure continued growth and sustainability in the competitive streaming market.

Running Head: NETFLIX 0
STRATEGY MANAGEMENT

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Table of Contents
Introduction................................................................................................................................2
Netflix’s External Environment.................................................................................................2
Netflix – A Five Forces Analysis...............................................................................................3
Netflix – Business Level Analysis.............................................................................................5
Netflix Strategic Intent...............................................................................................................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
Netflix, Inc. is an American digital streaming service provider offers various opportunities to
the customers to stream TV shows episode and movies with the help of internet. The
enterprise was founded in 1997 and its headquarter is situated in California, U.S. Till now,
the company has gained around 139 million subscribers and having presence in more than
190 countries (Brennan, 2018).
In 2018, the total revenue of the Netflix amounted to around 15.79 billion U.S. dollars, has
grown from 1.36 billion U.S. dollars a decade ago (statista.com, 2018). Netflix vision is to
turn out to be the best international entertainment distribution service.
This report undertakes a strategic analysis of Netflix including its business environment,
existing competitors and the strategic content.
Netflix’s External Environment
The sustainability and growth of Netflix in the ever-competitive online steaming industry
signify their strategic decisions the organisation must adapt to thrive and grow. However, to
ensure its future sustainability, the company must invest in cutting edge technology to gain
competitive advantage over its rivals such as Hulu and Amazon (Adhikari et al, 2014).
Various external environment factors impact Netflix business operations includes –
 Political aspects – Due to various political restrictions in countries like North Korea,
China and Syria, the organisation has not tap various potential market yet. Various
permission and censorship also impact Netflix to showcase their particular
programme and TV shows in a country. For example in China, if Netflix wants to
telecast their shows, the company is required to heavily censor their content and this
will limit the plot of a show in various ways (Yan, 2018).
 Economic aspects – As Netflix operates in more than 190 countries, the company are
liable to fluctuating exchange rates as the company bottom line can be impacted. In
addition, their increasing monthly subscriptions over the years induce customers to
backlash their services.

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 Social aspects – Netflix has a big brand reputation and it was identified there is
fantastic work environment for the employees as there is no dress code in the office
and each year, they gets number of vacations. In addition, the company is also well-
known for its donation and charity as in 2016, the company launches a $100 Million
education foundation in support of college access for minority apprentices (Brown,
2016).
 Technological aspects – The Company is trying to adopt latest technology focused
towards enhancement in techniques of compression that may enhance inclusive
quality of streaming in relation with fewer data and thus provide users a high quality
videos and content. The company also enhance personalization with the New Thumbs
Up/Down Rating System and making the front screen on Netflix even more
significant to the customers.
 Legal aspects – Considering legal factors, the company needs to compete in
contradiction of Geoblocks and copyright infringements as video privacy is one of the
huge reason impacting Netflix revenue negatively. For example, recently Amazon and
Netflix sued Shady Streaming Service for $150,000 per copyright defilement (Jones,
2018).
 Environmental aspects – With following of sustainable environmental standards, the
company is emphasizing to reducing its carbon footprints with the help of wind power
to balance its energy for the purpose of cloud storage.
Netflix – A Five Forces Analysis
The competitive forces for Netflix are immense. A five forces analysis of Netflix is
elaborated below –
 Bargaining power of buyers – In case of Netflix, it is high due to presence of
number of streaming companies offering shows at the same rates every month. It is
important for Netflix to come up with wide range of genres and shows in order to
keep buyer engaged with their services.
 Bargaining power of supplier – Considering Netflix, supplier power is medium as
Netflix is showing their content from various big networks including ABC, Disney,

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DreamWorks and Showtime (D'Alessandro, 2018). However, the company is trying
well to create Netflix originals while competing with other exclusive streaming
networks.
 Rivalry – In online stream category, the two biggest competitors of Netflix are
Amazon and Hulu. Other than this, different streaming technologies are also coming
out such as Google Chrome cast, Roku and Apple TV which can be an opposing
threat for Netflix.
 Threat of substitute – In spite of online streaming has become the new way to watch
TV, there are several threats to Netflix as most of the television network consist of
their own streaming app offering customers varieties of genres and shows. Hence, it is
important for Netflix to offer new content continuously to the users to retain interest
of the buyers.
 Threat of New entrants – The company is also facing threat of new entrants as
various companies are entering into digital streaming services such as Disney plus and
AT&T as these companies are investing billions of dollars in offering high end
content. This will have a huge influence on the business actions of Netflix.
Strong Brand
Identity
Low Impact on
Industry
High Impact on
Industry
Weak Brand Identity

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Netflix – Business Level Analysis
Netflix has reinvented the wheel when it comes to Rules of Corporate Culture (Aemstrong,
2017). This represents their business strategy also to be viable considering the competitive
business environment. The organisation target market comprises males and females among
the ages of 17-60 and gives legitimate access to immense motion pictures without the
intrusion of ads. Considering, the business model of the company, their essential source of
income is membership.
However, Netflix depends upon various industries for its survival. The major three industries
include telecommunication/Broadband, electronic and web service/cloud computing industry.
As per reports, Netflix consumes 15 per cent of the global net traffic. Considering six-month
result, it is also founded that 70per cent of total global Netflix streams ending up on
television set and 10% on mobile devices (Morris, 2018). Moreover, AWS (Amazon web
services) from the cloud computing industry allow Netflix to quickly deploy thousands of
servers and terabytes of storage within minute. Without the absence of these cloud servers
and security mechanism, it will be impossible for Netflix to come up with their digital
streaming services. Other than this, with consumer electronics industry, Smart TV users can
access popular streaming services such as Amazon and Netflix.
This shows that Netflix is required to depend upon various external industry for its
sustainability and survival.
Netflix Strategic Intent
Netflix strategic intent refers to the purpose of what they want to achieve and why. Their
hierarchy of strategic intent includes vision, mission, strategy, values and objectives.
The company vision is to become the best global entertainment distribution service. In
addition, their key strategy is to develop their streaming subscription business at equally
international and domestic level. Concerning this, their generic competitive strategy started as
cost leader as they are the one who provided cheapest option to the customers, however, they
raised the price considering some major competitors and trying to differentiate themselves by
adding blockbuster level content and thus gain customer that way.

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Conclusion
Netflix has established itself as an industry leader in digital streaming services offering
customers hour of entertainment constantly. To ensure its future growth and sustainability,
the company is required to proactively develop various strategies and adopt disruptive
technologies. This will not only help Netflix to raise customer engagement and loyalty but
also help the brand to survive in a competitive environment.

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References
Adhikari, V.K., Guo, Y., Hao, F., Hilt, V., Zhang, Z.L., Varvello, M. and Steiner, M. (2014)
Measurement study of Netflix, Hulu, and a tale of three CDNs. IEEE/ACM Transactions on
Networking, 23(6), pp.1984-1997.
Armstrong, M. (2017) Armstrong on reinventing performance management: Building a
culture of continuous improvement. USA: Kogan Page Publishers.
Brennan, L. (2018) How Netflix Expanded to 190 Countries in 7 Years [ONLINE] Available
from: https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years [Accessed
21/05/2019].
Brown, E. (2016) Netflix chief announces $100 million fund for educations [ONLINE]
Available from: https://www.washingtonpost.com/news/education/wp/2016/01/13/netflix-
chief-announces-100-million-fund-for-education/?utm_term=.217671efd687 [Accessed
21/05/2019].
D'Alessandro, A. (2018) How Paranoid Should Studios & Exhibitors Be About The Disney-
Fox Merger In 2019? [ONLINE] Available from: https://deadline.com/2018/12/disney-fox-
merger-2019-impact-on-box-office-theaters-major-hollywood-studios-1202525476/
[Accessed 21/05/2019].
Jones, R. (2018) Amazon and Netflix Are Suing a Shady Streaming Service for $150,000 Per
Copyright Violation [ONLINE] Available from: https://gizmodo.com/amazon-and-netflix-
are-suing-a-shady-streaming-service-1825466072 [Accessed 21/05/2019].
Morris, C. (2018) Netflix Consumes 15% of the World's Internet Bandwidth [ONLINE]
Available from: http://fortune.com/2018/10/02/netflix-consumes-15-percent-of-global-
internet-bandwidth/ [Accessed 21/05/2019].
statista.com. (2018) Netflix's annual revenue from 2002 to 2018 (in million U.S. dollars)
[ONLINE] Available from: https://www.statista.com/statistics/272545/annual-revenue-of-
netflix/ [Accessed 21/05/2019].
Yan, A. (2018) Chinese censors are clamping down on foreign TV shows, videos [ONLINE]
Available from: https://www.scmp.com/news/china/society/article/2165274/chinese-censors-
are-clamping-down-foreign-tv-shows-videos [Accessed 21/05/2019].