SWOT Analysis of Netflix
By: Ashley Avallone
Netflix started as an online based movie rental service in 1999 when it was created by founder Reed Hastings, the current CEO of the company. Hastings’ goal for the company was to be “the world’s best Internet movie service provider and to deliver a growing subscriber base and earnings per share every year” (Thompson, C-92). The company has been able to become a leader in the movie rental and streaming industry for several reasons. Netflix was an early entrant to the industry and has been able to build an extensive subscriber base due to aggressive promoting and advertising of the brand, exclusive contracts with movie suppliers, and their superior customer service and knowledge. Netflix has used a subscription based model that has proved lucrative for the firm. Subscribers can choose from eight unlimited plans at various price points so they are within their budget. The company targets three main customers; those interested in the convenience of home delivery, bargain hunters, and movie enthusiasts. By knowing their target clientele, Netflix has been able to create and effectively deliver their services to become an industry leader. The company became public in 2002 and since then its revenue rose to an 2.6 billion dollars in 2012 (Statista RRS). Stock prices for the company from the early 2000s can be seen in Appendix A. This chart shows that the company has enjoyed positive growth and its earnings per share peaked in 2011. However, since then the company has faced unrelenting competition as well as internal mistakes that have caused the once untouchable firm to falter. The following report looks into several aspects Netflix as well as the industry as a whole in order to understand what must be done in order for Netflix to maintain its status as a leader of the industry.
Originally, the money in the movie distribution business was generated by retailers selling movie DVDs or by stores renting out movies to customers. Blockbuster, Movie Gallery, and other businesses with actual store fronts began seeing a decline in movie rentals and sales in the early 2000s. Blockbuster began to see a downward trend in rentals starting in 2003 which has continued since (Thompson, C-88). The movie industry has changed drastically from the early 2000s when new technology and electronic devices made it easier for consumers to view movies. There are many different ways for consumers to watch movies and television that are very convenient. Consumers have the option to buy movies, rent them from a brick and mortar store, rent from machines or kiosks, rent online or stream them from firms like Netflix, watch them on basic cable, subscribe to movie channels, pay per view, or illegally downloading them. Another major change we have seen in the movie business is how quickly movies become available to consumers after the film is no longer being shown in theaters. Initially, it took about three to six months for movies to be distributed as DVD’s to retailers and rental companies, three to seven months for them to be shown on pay-per-view and VOD providers, premium movie channels would have to wait about a year, and it took as long as two to three years for those on basic cable to get these films (Thompson, C-89). However, today streaming media companies like Netflix and Redbox have access to DVD’s in about 28 days (Tuttle). Recently, streaming videos to various electronic devices has become the most popular option for movie enthusiasts. Streaming movies is such an attractive option because it allows the consumer to watch the video instantaneously on their TV, computer, phone, or tablet. As consumers are turning more to streaming movies more frequently, their need and consumption of DVDs has declined. According to Sam Laird, in 2012 alone there have been 3.4 billion users that have streamed videos compared to...