Netflix Strategic Analysis

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COMM 401 MIDTERM EXAM

CASE ANALYSIS: NETLIX

Prepared by: Youssef Tazi

COMM 401 Section NStudent ID: 9065806

Table of Contents

I. Introduction………………………………………………………………………………3

II. External Environment……………………………………………………………………..3

1. General Environment Analysis……………………………………………………3

2. Industry Attractiveness: Porter’s Five Forces …………………………………….4

III. Internal Environment……………………………………………………………………6

1. Assessment of Netflix‘s Performance……………………………………………..6

2. Corporate Strategy and Gap Analysis…………………………………………….7

3. Netflix’s Core Competencies……………………………………………………7

IV. Strategic Alternatives……………………………………………………………………9

V. Recommendations…………………………………………………………………………9

I. Introduction:

In 2004, Netflix stood out as the nation’s leader in the online movie rental industry. The rapid growth and success of the company was primarily due to being highly differentiated about the service they offer and being the pioneers of this industry. In point of fact, sales figures have confirmed the favorable position of Netflix compared to the industry average. However, with the increasing rivalry of existing competitors and the threat of substitute technologies, whether Netflix’s leadership will sustain became a big question mark.

II. External Environment

1) General environment analysis

How can the technological changes affect the movie rental business in general and Netflix in particular?

It seems relevant to state, from the company’s perspective, that the most preponderant and influential factor of Netflix general environment is the technological segment. In the case of the movie rental industry, as DVDs are considered a commodity, customers will make their rental decision based on low price and convenience. If better delivery methods can provide those two key success factors, customers will turn up to this new technology.

a) An anticipated decrease in DVD rental

The most noticeable change in the movie rental market is the anticipated decline in the DVD rental growth. For instance, JPMorgan and associates predicted a 27.2% growth in 2004 versus 51% growth in 2003. Up to now, Netflix is the leader in the industry with 78% market share for online rentals in 2004 (exhibit 3). Since market segment for online DVD rental is the main profit center for Netflix, if they were to decrease because new technologies were to become better, studios and retailers may reduce the usage of DVD format and subscribers’ growth may slow down.

b) A better delivery method: The VOD technology to take over

Some digital cable service providers have implemented a technology referred to Video on Demand. VOD allows customers to order movies from their cable service and watch them instantly. At the date the case was written, VOD represented only 1.8% of movie studios revenues, but this technology is expected to expand and may cannibalize the DVD market in the future. The main advantages of VOD are convenience and low price. Indeed, customers will have instantaneous delivery time without having to leave their home. This cancels the headache of mailing costs, and the constraint of the availability of the stored movies. In order to maintain their competitive edge and to retain their clientele, corporations had to keep up with those changes. This movement could define a new opportunity for firms like Netflix, to enhance their customer experience and surpass their main competitors. As a matter of fact, the CEO Reed Hastings predicted that by the end of the decade Netflix would deliver most of its rentals over the internet.

2) Industry Attractiveness: Porter’s Five Forces
Netflix is evolving in the movie rental industry. Doing the Porter’s Five Forces analysis will help us calibrate the attractiveness of the movie rental industry and identify the specific forces that are shaping it, favorably or unfavorably. a) Threats of New...
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