After a thorough analysis of Netflix’s business model including its competitive analysis, SWOT analysis and financial analysis, the three main issues have been identified. The issues include, the intense competition in the home entertainment industry, the suppliers’ bargaining power and the effect of movie-pirating. Rational For Issues
Within the video entertainment industry, Netflix’s biggest competitor is Blockbuster, as it remained the global leader in the industry in 2010 c-99). However, the firm faces intense competition in the home entertainment industry due to the broad range of technologies and channels of distribution (Appendix B-4). Netflix is in direct competition with cable companies and VOD streaming services such as Wal-Mart’s acquisition of Vudu, which enabled the delivery of entertainment content directly to Internet-connected TVs imposes a threat. The competition is further intensified by the availability of video streaming websites such as Amazon Video-on-Demand, Apple’s iTunes and Hulu. Many of these competitors have greater brand recognition, larger customer bases, and greater financial stabilities and resources (Appendix B-7). The related pricing strategy, quality of experience and service level of its competitors may adversely impact Netflix ability to attract and retain subscribers. Therefore, buyers have a strong level of power and could easily shift their preferences from Netflix to rival companies, thereby imposing a further threat to Netflix’s profitability. Moreover, if excessive numbers of subscribers switch their services to competitors, Netflix may need to incur higher marketing expenditures to attract new subscribers, thus business results may be adversely affected. Currently, Netflix employed a subscription-based business model in which it acquired its video content from movie studios and distributors through direct purchase, revenue-sharing agreements and licensing. Therefore, its suppliers such as Universal Studios, Twentieth Century Fox, Warner Bros., and Indie Films have strong bargaining power over the pricing structure that Netflix must abide to (Appendix B-4). Moreover, Netflix generally paid a fee to license the content for a defined period (C-95); the company is susceptible to the terms and conditions of the renewal of the license agreement as distributors have excessive flexibility in licensing content. To the extent that studios withdraw their contents from Netflix to license content exclusively to a particular competitor due to the inability of maintaining an agreeable relationship, Netflix will fail to deliver its service to the subscribers and competitors may gain a competitive advantage. As such, Netflix’s operating result is heavily dependent on them, and the failure to secure content with distributors will lead to lower customer acquisition and retention which can potentially lead to a lower revenue generation for Netflix. Finally, Netflix management is committed to expand the instantly watchable movies content offered to subscribers by acquiring the rights to stream greater numbers of movies and TV episodes (C-95). However, Film studios are extremely wary of online piracy and as a result, Netflix and other video streaming companies are unable to purchase as much licensed content as they would prefer. In the event that Netflix failed to prevent infringement of this genre, the value of the company’s brand to content providers will be damaged. Moreover, lawsuits connecting to patent infringement may incur substantial expenses, attract negative publicity, as well as occupy a substantial amount of management’s time and effort. These could adversely affect Netflix’s operation and strategic position. An Integrated strategy for Netflix
Netflix operates in an intensely competitive marketplace and the method in which consumers’ access to video entertainment is changing rapidly. Netflix must implement a market penetration strategy to protect its current position from...
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