Netflix

Presented by:

Gatos Petros

Georgiadi Despina

Moralis Despina

Vomvas Ioannis

Xenarios Nicolas

Submitted to:

Professor R. Aldous

Business Strategy

MG 4940

May 27, 2005


Table of Contents

 Introduction                                                         1

1. Company Profile                                                 2

2. Current Strategy Analysis                                         4

3. Internal Analysis                                                 8

3.1 Operational Strengths & Weaknesses                         8

3.2 Financial Strengths & Weaknesses                         9

3.3 Organizational Strengths & Weaknesses                         13

3.4 Marketing Strengths & Weaknesses                         14

3.5 Competitive position of Netflix across time                 14

4. External Analysis                                                 16

4.1 Economic Characteristics                                 16

4.2 Competitive Analysis (Porter 5 Forces)                         18

4.3 Competitive Positions of Major Companies                 19

4.4 Competitor Analysis                                         20

4.5 Key Success Factors                                         21

4.6 Industry Prospects and Overall Attractiveness                 23

5. SWOT Analysis                                                 25

6. Recommendations                                                 27

7. Decision about Stock Purchase                                 28

References                                                         31

 Introduction

This case study analyses the case of Netflix Company. This is an online DVD movie rental company. It offers innovative products and services concerning the entertainment sector and, more particularly, the movie sector. Netflix Company is considered to be a successful company. However, it will be facing  stronger competition in the near future, both from direct competitors that offer all will offer identical products and services, and from indirect competitors that offer substitutive products and services through new technologies,  both ethical and unethical.

Therefore, the point of this case study analysis is to identify and evaluate current Netflix Company’s position and strategy, comment about the future concerning the increasing (direct and indirect) competition in the context of analyzing external and internal company’s environment and make any useful recommendations.


1. Company Profile

Netflix was based is Los Gatos, California. Reed Hastings, current CEO, and colleagues formed Netflix in 1997 and launched the subscription service in 1999 (Thompson et al, (2005) Case 2: Netflix). It belongs to AMEX Internet concerning its stock index membership, as a company of service sector and recreational activities industry, according to NYSE listing ().

Being the world’s largest online DVD rental service, it had a library of more than 40,000 titles (spanning more than 200 genres including, Action & Adventure, Anime, Children & Family, Classics, Comedy, Documentary, Drama, Foreign, Gay & Lesbian, Horror, Independent, Music & Concert, Romance, Sci-Fi & Fantasy, Special Interest, Sports, Television, and Thrillers.) offering more than three million members (since launching its subscription service in 1999, Netflix reached one million subscribers faster than industry giant AOL.) access to this library ().

Figure 1.1: Netflix’ front website,  

Their appeal and success are considered to be built on providing the most expansive selection of DVDs; an easy way to choose movies; and fast, free delivery.

Concerning the company’s service profile, for $17.99 a month, Netflix subscribers can rent as many DVDs as they want, with three movies out at a time. There are no due dates and no late fees. Netflix provides subscribers extensive information about DVD movies, including critic reviews, member reviews, online trailers, ratings and personalized movie recommendations.

DVDs are delivered directly to the member's address by first-class mail - with a postage-paid return envelope - from shipping centres throughout the United States. More particularly, the company operates more than 30 shipping centres located throughout the United States. It reaches nearly 90 percent of subscribers with generally one-day delivery. On average, Netflix ships more than 4 million DVDs per week.

Their proprietary Cinematch technology personalizes recommendations based on customer's tastes and preferences and allows them to promote smaller, high-quality films to customers who otherwise might miss them (Thompson et al, (2005) Case 2: Netflix). Netflix subscirbers who rate movies will receive unique and personal movie recommendations every time they visit the Netflix website. These personalized recommendations are based on a member's individual likes and dislikes (determined by their movie ratings and rental history). The recommendations allow members to discover great new films they may not have otherwise considered watching.


2. Current Strategy Analysis

According to Tompson, a company’s strategy indicates the choices made by top executives about how to attract and satisfy customers, how to respond to changing environmental conditions, how to compete successfully, how to grow business, how to manage internal capabilities and weaknesses and how to achieve performance targets.

Netflix’s Vision

According to Reed Hastings, Netflix CEO, the company’s vision is to change the way people access and view the movies they love. According to Netflix’s annual report of 2004, goals set for 2005 are aggressive but realistic. They intend to continue their rapid subscriber growth and reach more than 4 million subscribers by the end of the year. It is also mentioned that Netflix’s long-term strategy is to seize leadership of the Internet delivery market by building a large subscriber base and offering those subscribers the choice of mail or Internet delivery.


Netflix objectives

It is obvious that the main objective of Netflix is to strengthen its subscribers’ base by both acquiring new customers and retaining the existing ones. In order to achieve that it will apply innovation across all company’s levels. They want to expand their distribution channels by applying both the existing mailing service and by developing Internet delivery. They are also eager to expand their services lines tightened to its core business of renting movies.

Netflix current strategy identification

According to Thompon’s et al (2005) five generic competitive strategies, Netflix can be considered to follow a number of them jointly. More particularly, in terms of target market, Netflix is considered to follow a focused market niche strategies, as online rental DVD movies business is actually a niche market of the total home entertainment market or even of the total DVD rental market, among others, to some of the Blockbuster Video Company’s executives. In terms of differentiation, Netflix offers its product through an alternative channel –online rental-, however being differentiate from direct competitors by offering a range of parallel services like recommendations system, absence of due dates and late fees, ect. Therefore, combining target market and differentiation, it is concluded that Netflix follows a focused strategy based on differentiation. However, Netflix trying to exploit high scale economies compared to physical retail stores which has far more reduced costs and, thus, it can also be considered to jointly follow a best-cost strategy provider strategy, as it has the opportunity to offer lower prices than traditional rental movies’ channels.

Netflix’s strategic actions

Concerning the attraction and satisfaction of customers, Netflix applies a simple idea. Its customers just sign up for a subscription and create a ‘wish list’ of all the movies they want to see. This list could be changed at any time. Provided the movies were available in Netflix’s inventory, DVDs were shipped to the customer free of charge. Therefore, attraction of customer didn’t required physical approach and physical stores involving.

The free of charge shipping was not the only offer of to its customers. Actually, the company provided all the benefits of a typical movie rental store but without the hassle of having to return the rentals at a specific time. This was a unique aspect of Netflix. It is clear that the company’s strategy focused on customer’s needs having identified that a special problem in renting movies was the pressure to customers to watch the movie and return it back at within a short time period. Netflix’s absence of dates due and late fees was considered as a great competitive advantage.

Concerning the satisfaction of customers, Netflix offers them a lot of possibilities. By applying the innovative service of CineMatch expert system, Netflix offers customers several recommendations about what is the proper movie to rent and watch, according to their past preferences and rates. Indeed, it has been observed that over half of company rentals come from this recommendation system.

Moreover, in order to provide fast services, Netflix has developed a sophisticated distribution system to speed up mailing times. This distribution system ensured as fast delivery as soon as possible and allowed Netflix an advantage over competitors.

Although, Netflix is considered as a successful company on online movie rental business, company’s executives don’t stop to study any possible future opportunities and threats come from the external environment. Different channels for rented DVDs are being developed, along with new players entering the online movie rental business. Moreover, technological and socio-economic factors may change the market conditions. Netflix’s executives recognize these revolutions and prepare relevant future actions.

Join now!

Netflix’s rivals’ actions

As it has been already mentioned, Netflix faces both direct and indirect competition. Direct competition comes from companies that apply the same distribution channel (online rental). These companies can be considered as Netflix’s key rivals. More particularly, these companies are Blockbuster Video, Wal-Mart and Movie Gallery, but  the immediate competitor is Wal-Mart.

Wal-Mart developed a rental DVD offer nearly identical of that of Netflix. In terms of pricing, it offers one price that corresponds for unlimited service, while Netflix offers a range of prices corresponding for a number out of time in each ...

This is a preview of the whole essay