Netflix Case Study

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Executive Summary

VODISNOWHERE. What do you see from the block of letters? Is it “VOD IS NOWHERE” or “VOD IS NOW HERE”? You are right if you guess the former and latter. That depicts the fast pace of technological development. VOD, which refers to Video-on-Demand, is the recent video streaming technology where pay-per-view programming merges with Internet downloading. Netflix, an online subscription-based DVD rental company, entered the video industry with disruptive technology of offering online video rental while the incumbent competitors like Blockbuster were offering retail rentals. The incumbent competitors eventually followed Netflix’s direction when their core competencies were sabotaged by Netflix’s strategy. Moreover, Netflix was a technological leader that invested in new technologies like VOD.

In this case study, we first address the pertinent problem faced by Netflix which is arriving at a decision regarding the optimal mode of entry into the VOD market. This decision in question will inevitably impact Netflix’s current position in the DVD rental industry as well as its existing business model and thus a thorough analysis of the corporation and the video market need to be made.

A SWOT analysis was done on Netflix and its strengths and weaknesses, in particular view reveal its survival in the hyper competition of video industry where dynamic and complex uncertainties render competitive advantages not sustainable. Some strengths of Netflix’s current business model include its no late fee subscription model and proprietary recommendation system where customers can be recommended movies based on their preferences as well as the availability of the movies. The main weakness of Netflix remains to be delivery time as customers do not get to enjoy the instantaneous effect of receiving the DVD upon rental as compared to a brick and mortar store. The opportunities which Netflix could capitalize include leveraging on existing strengths such as, its brand, its recommendation system and its large market share of online customers to increase penetration of the young VOD market. Threats or risks faced by Netflix will be the huge capital outlay Netflix have to invest in to enter the relative young VOD market. The SWOT analysis done on Netflix eventually led to a recommendation aimed at arriving at a decision regarding to the problem statement. The recommendation will be forming short-term licensing arrangements with cable providers to reduce the risk profile of entering a relatively young and unknown VOD market. This recommendation will ensure that Netflix do not lack behind in VOD developments while not having to commit a huge investment upfront.

Problem Statement

Video-on-demand (VOD), a service that allows users to select and watch video and clip content over a network as part of an interactive television system, is going to be the next biggest thing in the internet. It is going to become a norm in the industry or public and is also a threat to Netflix existing business model, an online subscription-based DVD rental service, which depends on the internet to send out physical DVDs to their customers. How should Netflix enter the online video market? Any decision made on this issue would impact not just the Netflix existing business model but its ability to sustain its position as a giant in the media industry.

Analysis

But before we go into an in depth discussion, we first present Netflix’s current strengths, weaknesses, opportunities and threats and reveal some of their strategies used so far. After this we can be in a better position to determine how Netflix should respond to the Video On Demand trend.

Strengths of Netflix

Netflix offers prepaid subscription service whereby customers only need to sign up and pay a fixed subscription fee a month for unlimited duration rentals. Customers will now have no more worries of returning their movies late, as Netflix has abolished the late-fee system....
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