Netflix rose fast to become the largest online streaming platform in the world. The content was produced by Netflix itself or by big studios that were hired. Moreover, YouTube’s core product is not movies and shows despite its large collection of movies. It wants to continue with the two-pronged strategy, exploring partnerships for licensed content and producing local contents… It is serving an audience of around 195 million from 190 countries. Moreover, the consumer will definitely suffer the rise in the price. The company invests in projects that are good enough to please its diverse membership base. Still, there are other applicable laws, including labor and environment laws, that the company needs to comply with. There are few sellers in the market offering a similar experience and as large a collection of movies and TV shows in diverse genres and original content. In 1972, HBO was created, and it was the first channel with exclusive content for subscribers. A large audience spends its time playing online games and on social media. Moreover, Netflix’s debt levels understate its full obligations. Another benefit of creating its own original content is that that company has more control over the quality of the content it offers. The biggest competitive threat to Netflix is probably Amazon . The company expects to start generating positive cash flow by 2021. The global presence of the brand also offers it extra advantage over rival players trying to grow locally in the US or one of the emerging markets like Voot in India. Netflix’s strategy: more original content, but shorter runs . Its investment has successfully drawn subscribers. The fine can be a large part of its annual revenue. The company takes its environmental impact seriously and has adopted practices that help it become more sustainable. Apart from the Federal laws, there are hundreds of data protection and privacy laws among the US states and territories. Netflix Inc.’s generic strategy is cost leadership, which in Michael E. Porter’s model ensures competitive advantage through minimized costs and, frequently, minimized selling prices. With time, as it continues to add more good quality and original content, the brand equity of Netflix keeps growing stronger. Over time, stronger brand equity has started translating into higher brand recognition and brand recall. Indeed, it remains unclear whether Netflix will be able to maintain its policy offering high quality diversified products at low prices. While governments have formed laws to control businesses’ negative impact on the environment, the public is also highly aware of environmental concerns and how businesses affect the environment. The threat of substitute gets minimized by several factors including the strong brand image of Netflix, its vast array of content (larger than the competing players), as well as original content and its focus on customer experience. One Federal law with broad jurisdiction in this area is the FTC Act. Overall, Netflix customers get to choose from a vast collection of content that includes its own original content and content from other makers and shows and movies in diverse genres. The company’s key reason for creating its own content is that it will eventually help it lower its content costs in the longer term. But the rules of game in Videos streaming industry is rapidly changing. In the article “Media Companies Are Launching Streaming Services to Survive – Here’s How They Can Thrive” (2018), Daniel Jackson reports that in the US, the number of cable TV households has dropped from 103 million in 2012 to 92 million in 2017. • A product differentiation strategy. WallStreet Journal wrote about its debt in 2019, that an entertainment company’s cash obligations, and audience whims, make the profile of a content provider riskier. As of the fourth quarter of 2019, Amazon Prime Video had about 150 million subscribers—a number that's … The Bargaining Power of Suppliers: by threatening to raise prices or reduce the quality of goods or services, suppliers can greatly reduce the profitability of an industry. The future of streaming is the cable bundle. The pandemic hurt demand, sales and profitability of businesses in many industries. New York. The impact of the pandemic is expected to last. Its leading suppliers of content and services hold some strong bargaining power. Competitive Strategy Netflix Netflix was created by Reed Hastings in 1997. How much does Netflix … Apart from these, there are more players like HBO and Apple that have also released their online streaming services. The pandemic has made people and businesses turn towards digital channels to sell and buy products and services since the brick and mortar model proved ineffective during the pandemic. In just the past three years, the research and development expenses of the firm have close to doubled showing how technological innovation is driving continuous change at Netflix. Bloomberg 16 January 2019. This is achieved through omnichannel delivery of digital communication, clever partnerships with major companies, compelling original content, and attention-grabbing outdoor advertising, as detailed below: Not surprisingly, there is also the growing “rivalry between competitors, resulting from different factors such as the presence of numerous competitors of equivalent strength”. Moreover, people have grown used to digital lifestyles and using digital channels to obtain products and services. A larger number of people worldwide now access digital services including Netflix through their smartphones compared to some years ago. The higher focus on innovation gives it an extra competitive edge. The human capital of a tech organization is also a fundamental driver of competitive advantage for the company. While America and Canada account for the largest art of its revenue or around 50%, the company has also experienced a substantial growth in its revenue from the other market regions. A PESTEL analysis helps understand the impact of these factors on a business and how it challenges or supports the particular business under discussion. Apart from its credit borrowings, the company has made contractual agreements for some of its content that it hasn’t yet paid. Netflix’s competitive edge. This is the case of the NBC series “The Office”, which from 2021 will be shown only by NBC Universal streaming platform. According to Statista, by 2020, the Video Streaming segment’s revenue is estimated to reach $51.62 billion. The leading competitors of Netflix are Amazon Prime, Hulu, YouTube, and Disney Hotstar. Keywords : Competitive strategy, Netflix, Niche Market, Business Model, Competition, Blockbuster, Price Wars, Amazon, DVDs by mail. Therefore, adding extra subscribers brings enormous profits while there is nearly no additional cost incurred to provide services to more subscribers. The number of users worldwide in SVoD is expected to hit 1.34 billion by 2020. Apart from its services’ competitive pricing, Amazon has also added a large number of original videos to its collection that makes it stand out, including several shows in local languages targeted at its ever-growing audience in the emerging markets. The company has continued to improve its platform through higher focus and investment in research and development. (1979). Its recommendation system is the best of all the streaming content providers and has helped the company grow its user retention. Most of the content available on the platform is targeted at millennials. The bargaining power of Netflix suppliers is moderate. Its revenue has more than trebled since 2015. Some authors oppose Porter’s view that firms that achieve cost leadership should encourage competitors to do so as well. The share of Netflix stood at 90% according to the brand in 2014. However, to foster faster growth, it spends a heavy sum each year on research and development. From now and before the end of 2020, it plans to bring around 150 more original titles, and then more original content will follow in 2021. Like a company having signed leases, Netflix is still responsible for those payments. Apart from this, new firms can affect the access to resources for the firms that have already been long established in the industry. If it meets fewer standards, the competitive advantage will be temporary. The social media network has a large collection of videos that engages users from all over the world and most of it is user-generated content. In recent years, Netflix’s subscriber base has expanded rapidly, bringing the company lots of extra revenue. Added on - 18 Feb 2020. Views. Netflix mainly depends on the US and Canada markets for a large portion of its net revenue. While businesses like Netflix can have a zero direct impact on the environment, they may still indirectly impact the environment. In 2019, the cost of revenues of Netflix was around $12.4 billion, or 62% of the net revenue of the company for the year. The bargaining power of buyers becomes high in cases where there are multiple substitutes available in the market. Despite having achieved unprecedented market success, the company risks losing its leadership position due to the dispersed focus. Still, the costs will be much lower, and the platform will have strengthened its profitability by combining higher subscriber income with lower operating expenses. So, the chances are thin that its debt could become a major burden in the future. It also shows that Netflix enjoys the highest popularity of all the players in the online streaming industry. One of the core sources of competitive advantage for Netflix is the high-quality original content it offers. With growing competition in the market, Netflix has also increased its marketing expenses. Many people wondered: “How can I watch my favorite shows?” The marketing professionals make another question instead: considering the segmentation of the increasing television market, what would be the strategy for a company to be established in the market and grow? Porter, M. E. (1985). Large international businesses are affected heavily by economic fluctuations in the international economic environment. Other major challenges that make entry for new players difficult involve the legal and regulatory challenges. The impact of new technologies on traditional competitive models can be clearly observed in this particular market as well as in many others. Heritage, S. (2019). The Free Press. The Guardian. Profits may decline, which will require managers in the industry to have theoretical knowledge, analytical skills, and good decision-making abilities. However, while the company’s net revenue has grown substantially in recent years, Netflix has also accumulated massive debt. According to The Motley Fool, when revenue is growing quickly and margins are expanding, profits rise quickly. It means the operating margins of Netflix could be well above 20% in the near future. Content costs are fixed costs, and an enormous audience size guarantees enormous returns. Apart from the high cost of revenues, which mainly includes the amortization of streaming content assets and costs associated with the acquisition, licensing, and production of content, the company also incurs heavy marketing and R&D expenses. The company also focused on serving localized content for different societies and cultures. According to sources, the company saves big on user retention by using data to understand customers’ preferences better and serve them the content they prefer. With an audience size of close to 200 million, its profitability is poised to improve significantly in 2020. A firm creates a unique product or a service within the industry changing design, brand image or incrementing new technologies, which reinforces the sense of exclusivity and brand loyalty and, consequently, generates higher profits. Political factors have acquired a central role for businesses operating internationally. Netflix is a highly innovative brand and invests a large sum in research and innovation which is critical to maintaining growth momentum and to provide a superior customer experience. They represent the four properties that core competencies must have to give rise to sustainable competitive advantage. Van Der Werff, E. (2019). Original content draws subscribers in larger numbers and increases profitability. These tendencies are slow, but they constantly reduce the number of cable TV subscribers. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Netflix is a streaming service that offers a wide variety of award-winning TV shows, movies, anime, documentaries, and more on thousands of internet-connected devices. Share. YouTube has also emerged as a major competitor to Netflix. Without a vision of how the whole media ecosystem evolves, the tactical actions and … Netflix has clearly demonstrated that it has the capability to change the industry and become a leader in the space. However, there were also some industries that remained nearly unscathed despite the decline in economic activity that the pandemic caused. However, in the emerging economies especially, the company can find faster growth in sales and revenue by introducing more competitive plans. Its profitability is expected to grow faster in the future. The impact has not been the same across all economies but more or less key industry sectors across all regions have been badly hurt. Apart from that, the company is also spending a huge sum each year in research and development to maintain its leadership position in the online streaming industry. The platform provides films and television programs for both purchasing and rent along with venturing into other content deals to maintain its competitive edge. 16. Rising from $6.8 billion in 2015, the annual net revenue of Netflix reached $20.2 billion in 2019. At first it was just TV and it was present in almost 1.4 billion households on the planet in 2017. Higher penetration of emerging markets like India and Brazil could also allow the company to grow its sales and revenue faster. Despite being notable players, its rivals like Amazon Prime and Disney Hotstar enjoy a much smaller market share than Netflix. Stuart Heritage notes in the article “Streaming TV is about to become very expensive – here’s why” (2019) Disney “will launch Disney +, a streaming platform that … will block a huge amount of content: Disney movies, ABC shows, Marvel and Pixar movies, Lucas movies, The Simpsons and everything else produced by 20th Century Fox”. Among cable TV companies, some continued with “fat packages” containing dozens of channels. For example, the electricity that Netflix uses is not entirely derived from renewable sources. Until Disney joined the streaming wars, Netflix’s competitive strategies were rooted mainly in content innovation and revolved around perfecting their recommendation and personalization engine. So, the pandemic has affected industries, regions, and classes of people to varying degrees. The Threat of New Entrants: new competitors can change the market share of existing companies. The brand equity of a business is also a leading core competency driving superior growth through stronger brand recognition and higher user loyalty. It also boasts an audience of above 2 billion. However, the existing players like Netflix, Disney Hotstar and Amazon Prime are aggressive about maintaining their leadership and the competitive edge they have gained will be difficult for any new player to achieve. The platform offers a vast set of originals, including movies and TV shows, top-rated among millennial users. Technology has proved to be a key driver of popularity and profitability for the company that delivers content online in all corners of the world. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers. The long term debt of the company according to its annual report for 2019 grew by around 42% to $14.8 billion from $10.4 billion in 2018. Because it is an online-enable or Internet-based business that follows the general principles of electronic commerce, Netflix makes extensive use of different digital marketing activities. Among streaming services, Netflix, which in 2018 became the world’s most market valued entertainment company estimated at $ 153 billion, has several competitive advantages listed by Porter. To achieve a competitive advantage, the resource or capability that a company owns needs to be valuable, rare, inimitable, and organized. However, there are pricier premium options also for Hulu viewers. In the second quarter of 2020, its net number of memberships has reached 193 million and could be past 200 by the third quarter. Cost leadership is a secondary strategy that the company has adopted. COMPETITIVE POLICY 1 Table … Brand equity also rests on brand identity and how your customers recognize your brand. Apart from that, to grow user engagement and success in the various local markets, it must create more local content for the local audiences. bennymarty - stock.adobe.comNetflix HQ in Los Gatos, California Given its current status as an established unicorn, the origins of Netflix now seem somewhat quaint. Its market share is at 87% as of 2019, down from 90% in 2014. It is becoming an entrainment industry with its own demands and cost . It is interesting to note that that marketing strategy of the company is relatively straightforward. However, Netflix is investing in strengthening its competitive moat and investing where it matters the most. Prof. Ricardo BrittoDoctor in Business Administration at USPDean of the IBS Americas. There are several laws related to Data Privacy that leading players like Google, Facebook, or Netflix need to comply with. Apart from the direct competitors like Prime, Hulu and Disney Hotstar, there are several more indirect competitors. 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