Online based DVD rental business faces market declining and video on demand online streaming service will be major selection by users in the future along with development of internet television technology. Right now, Netflix major business model is online subscription based DVD rental service, which depend on online subscription information to delivery DVD to customers (Wesley 1). This industry is in a mature stage of life cycle and direct competition is very strong. However, video on demand business is an internet based interactive system in the growth stage life cycle. It is one of the trends of future media industry. In order to maintain media industry position, Netflix split its online based DVD rental business from its video on demand online streaming business but do not consider customers’ experience, which seriously hurt company reputation and Makes Company’s stock dropped by more than 50% (Wesley 1). In addition, customers do not like the name “Qwikster” that Netflix gives to original online based DVD rental business (Wesley 6). Analysis
Video on demand is new video streaming technology applying which depend on internet download and must be paid advance, subscription (Wesley 3). Netflix is the first company offering online subscription based DVD rental service and has been retained many loyal customers. Thus Netflix has technology advantage to run video on demand business. Blockbuster is a direct competitor to Netflix depending on physical stores to run rental DVD business (Wesley 4). Blockbuster also invests video on demand business but Netflix is in the technical leader position right now. Video on demand service is technical complex and with more opportunities and uncertainties industry. Through SWOT analysis, we know strengths and weakness that Netflix faces and opportunities and threats about video on demand business development. There are two possible alternatives: 1. Netflix is a partner with web-enable TV providers and focus on video on demand business. 2. Netflix is a partner with web-enable TV providers and bind video on demand business with online based subscription DVD rental business
Through advantage and disadvantage analysis on each of two alternatives, we give the recommendation that alternative 1 is a better choice within next 5 years. Problem Statement
In order to maintain media industry position, Netflix split its online based DVD rental business from its video on demand online streaming business by ignoring customers’ experience. This decision seriously hurt company reputation and makes company’s stock dropped by more than 50% (Wesley 1). Analysis
Main issues facing the organization
Netflix major business model is online subscription based DVD rental service, which depend on online information to delivery DVD to customers. There are many uncertainties. Delivery time is major problem that customers consider, but it is not controlled by Netflix. It is outsourcing business, United States Postal Service (Wesley 3). In addition DVD is easy to damage if customers do not pay attention to use it, but Netflix does not make fine for this. New competitors enter video on demand market to cut Netflix market share, such as Redbox Automated Retail (Wesley 2). There are not many movie resources available online because many suppliers don’t want to participate due to illegal downloads problems (Wesley 3). Low cost market strategy makes Netflix difficult to raise subscription price and illegal downloads service also rob Netflix profit. Directly rival, Blockbuster closely follows Netflix market strategy and make competition even fiercer. Binding online subscription based DVD rental service and video on demand business may limit Netflix growth in an intensive competitive market. Netflix needs to focus on video on demand business and increase its market share.
Netflix SWOT Analysis