Netflix Case Study.docx

Case Study Name

Contents Intro ..................................................................................................................................................... 3 Theory ................................................................................................................................................. 4 Story telling ......................................................................................................................................... 6 Conclusion ......................................................................................................................................... 11 Bibliography ..........................................................................................Error! Bookmark not defined.

Figure 1 Netflix challenges TV networks at the 2014 Emmys ............................................................. 5 Figure 2 Shortly Timeline .................................................................................................................... 6 Table 1 International Decision making model……………………………………………………………………………….10

Introduction Netflix has a competitive edge in the DVD rental industry over competitors such as Blockbuster, Redbox and Coinstar because of its strategies of market entry, diffusion, domination and its revolutionary patented business model. It uses a combination of patents, trademark, copyright and trade secrets to protect its intellectual property. This paper will analyze the key patent decisions by Netflix as well as their novelties. Netflix patented the online DVD rental business model including open-ended rentals for a fixed fee and sued Blockbuster for infringement shortly after release of the patent. Netflix also uses a patented in-house video streaming technology with an interface compatible to desktop and mobile devices. The location of Netflix warehouses is a trade secret in order to protect the resources and to prevent people from returning DVDs at the warehouse location. Netflix, Inc. was founded in 1997 by Reed Hastings, Marc Randolph and Mitch Lowe in Scotts Valley, California (Funding universe, 2012). According to Hastings, the company’s CEO, the idea for Netflix came to him after he was charged a $40 late fee on a Blockbuster movie rental (O'Brien, 2012).

Theory Since the company’s establishment in 1997, Netflix has drastically adapted and improved its business model to accommodate its customer base. Their vision in forming the company was to provide America with access to thousands of movie titles via an Internet ordering and shipping method. The process has been consistent throughout the years because of their monthly subscription model. However, since the early 2000’s, there have been major adjustments that have propelled the company to heights that could not have been foreseen. As of today, Netflix is the world’s leading Internet network and has reached more than 50 countries compiling over 50 world-wide million subscribers. The company’s ability to stay ahead of the game while remaining innovative is their driving force behind its attractive profitability. A major game changer for them these days is their monopolized ability in providing its viewers 4K streaming. With this extremely high resolution service, viewers are able to immerse themselves while watching their favorite shows and movies. 4K service will not be available for cable or satellite viewers until spring of 2015, giving Netflix a competitive advantage in viewers’ experience. In 2010, Netflix began extending its services to Canada and the Latina American countries. This is after they expanded to a few countries in Europe. These expansions have proven to yield a sustainable amount of growth in subscriber sign ups per month. Netflix is in a continually studying its markets in order to provide content those subscribers want. In September 2014, Netflix had announced that it was going to extend its reach to Germany, France, Austria, Switzerland, Belgium and Luxembourg. These countries have a household broadband access that the company found very appealing since the broadband has capabilities of streaming video content. Netflix is also planning to expand to the Asian Pacific regions of the world in the coming years. The company’s ultimate goal is to be the global leader in Internet television within the next three to five years. Netflix currently coordinates with its users’ Facebook accounts, and analyzes subscribers’ viewing history. This has allowed the company to get real-time data that could not be accurately assessed in surveys due to the inconsistency of response rates. By allowing its subscribers to rate content on a one to five star scale, the company is easily able to access what

genres are most popular, actors that users prefer, or even specific titles that people would possibly enjoy watching. Netflix has also constructed a simulated A.I. system called “Max” that assist subscribers with finding content that they would possibly want to view based on movies they have rated favorable, personal preference, and history. “Max” asks the viewer questions that help them narrow down a possible movie or show choice in a comedic fashion. It is very interactive. These tools have helped reach a customer base that has exceeded their prediction back in the early stages of Netflix. Figure 1 Netflix challenges TV networks at the 2014 Emmys

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PBS ABC Streaming FX

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Storytelling

2015 Netflix expanded to Europe and garners 31 primetime Emmy nominations including outstanding drama series, comedy series and documentary. They were the first internet TV network for the primetime Emmy

2009 Netflix partners with consumer electronics companies to stream on multiple platforms

2012 Netflix expands into Latin America

Figure 2 Shortly Timeline

2019 Netflix has 58.4 million U.S. customers as of the end the third quarter of 2018, with a worldwide total of 137.1 million streaming members.

Entry Modes into International Markets – Netflix - The entry mode that Netflix used was exporting to the Canadian market. This strategy is especially useful for companies that are initially entering to the global market.-Later on, Netflix could be expected to identify other foreign markets that have a demand for the films that are currently offered through the streaming service, such as Europe, Latin America even parts of Asia. After Netflix gain knowledge from the service in Canadian market, these learned efficiencies will be able to be carried over into the other potential foreign markets. It is also a reasonable expectation that Netflix will begin to adapt the selection of videos available to fit specific markets. In 2011, Netflix was the world’s largest online movie rental service. Its subscribers paid to have DVDs delivered to their homes through the U.S. mail, or to access and watch unlimited TV shows and movies streamed over the Internet to their TVs, mobile devices, or computers. Marc Randolph and Reed Hastings founded the company in August 1997 in Scotts Valley, California, after they had left Pure Software. Hastings was inspired to start Netflix after being charged US$40 for an overdue video.1 Initially, Netflix provided movies at US$6 per rental, but moved to a monthly subscription rate in 1999, dropping the single-rental model soon after. From then on, the company built its reputation on the business model of flat fee unlimited rentals per month without any late fees, or shipping and handling fees. In May 2002, Netflix went public with a successful IPO, selling 5.5 million shares of common stock at the IPO price of US$15 per share to raise US$82.5 million. After incurring substantial losses during its first few years of operations, Netflix turned a profit of US$6.5million during the fiscal year 2003.2 The company’s subscriber base grew strongly and steadily from 1 million in the fourth quarter of 2002 to over 27 million in July 2012.3By 2012, Netflix had over 100,000 titles distributed via more than 50 shipment centers, insuring customers received their DVDs in one to two business days, which made Netflix one of the most successful dotcom ventures in the past two decades.4 The company employed almost 4100 people, 2200 of whom were part-time employees.5 In September2010, Netflix began international operations by offering an unlimited streaming plan without DVDs in Canada. (Forbes) In September 2011, Netflix expanded its international operations to customers in the Caribbean, Mexico, and Central and South America. Key to Netflix’s success was its no late fee

policy. Netflix’s profits were directly proportional to the number of days the customer kept a DVD. Most customers wanted to view a new DVD release as soon as possible. If Netflix imposed a late fee, it would have to have multiple copies of the new releases and find a way to remain profitable. However, because of the no-late-fee rule, the demand for the newer movies was spread over a period of time, ensuring an efficient circulation of movies.

Strategy Hambrick Diamond Arenas: After their first successful international expansion to Canada in 2010, Netflix proceeded to other markets such as Latin America, the United Kingdom and the Dutch land. Their European expansion is by far their biggest single launch into new territory in the company’s history. The online video-streaming company continued their European expansion launching recently into France, following a rollout into six other European countries including Germany, Belgium and Switzerland. Netflix plans to succeed in these international markets by putting a lot of emphasis on their core competencies of superior application and service created by their global technological investment, their process knowledge, data from related markets, and their brand presence. Although international expansion is one of Netflix’s main focuses, they also plan on staying the market leader of streaming video on demand in the United States. Vehicles: Netflix does not own most of the content it provides, their vehicles are through licensing. Their licensing of content is generally time based, which means they pay for a multi-year exclusive subscription video-on-demand license for given titles. At the time of renewal, Netflix evaluates how much a title is getting viewed as well as member rating feedback to determine how much the company is willing to pay. Content is bid for and licensed on a country-by-country basis, in launching Netflix’s service in a new international market; the company must license a content portfolio for that country. Differentiators: Netflix is an increasingly global Internet network offering movies and TV series commercial free; with unlimited viewing on any Internet connected screen for an affordable no commitment monthly fee. Netflix limits the complexity and frustration that embody most MVPD relationships and their customers. An example of their no-hassle online cancellation, members can leave when they want, and come back whenever they want. Netflix is about the freedom on demand and the fun of indulgent viewing. They are about the flexibility of any screen any time. Netflix is about the fantastic content that is available only through them. Another area of focus is personalized recommendations and merchandising, which drives what content Netflix features on a member’s initial screen.

Staging: Netflix’s approach is to expand as quickly as possible while staying profitable on a global basis, as long as there are compelling markets to expand into, and the company is continuing to see growth in its current markets. Economic Logic: Netflix will continue to obtain returns by retaining members and attracting new customers by winning “moments of truth” from these consumers. They win these moments of truth when members expect Netflix to be more pleasurable than their other options, based upon their prior experiences. The satisfaction comes from easy choosing, total control over when to play, pause, resume, etc. and content that suits the taste and mood of everyone in the household. Netflix invests a lot in core advantages such as streaming delivery, sign up, billing and customer service across more than 1,000 devices being used in nearly 50 countries. Netflix is well ahead from their competitors in the operational aspect, but will continue to invest heavily to make sure their service is always available, their streaming never re-buffers and their audio-video quality is pristine. Table 1 International Decision making model

Netflix Compatibility/capability

Country attractiveness/priority High

High

Medium

Primary Canada Medium

Secondary

U.K.

Mexico

Australasia

Argentina Colombia Brazil Low

Tertiary

India

Low

Conclusion Netflix has demonstrated that developing country-specific knowledge is critical for success in local markets. This knowledge needs to be both broad and deep, extending across political, institutional, regulatory, technical, cultural, customer, and competitor domains. Understanding local cultures ensured that Netflix could be sensitive to and respond to their differences. This enhanced its credibility and helped it forge smooth relationships with key stakeholders. Taken together, the elements of Netflix’s expansion strategy constitute a new approach that I call exponential globalization. It’s a carefully orchestrated cycle of expansion, executed at increasing speed, to an increasing number of countries and customers. The approach has helped the company expand far more quickly than competitors. Going forward, Netflix will face increasing competition not only from other global players such as Amazon Prime but also from new entrants and regional or local players. In that regard, it will have to continue to expand its blending of global and regional content.

Bibliografía BUSINESS INSIDER. (12 de 8 de 2015). Obtenido de https://www.businessinsider.com/netflixglobal-expansion-plans-2015-8 Forbes. (s.f.). Obtenido de https://www.forbes.com/2003/10/02/cx_al_1002nflx.html Funding universe, N. I. (10 de March de 2012). Obtenido de http://www.fundinguniverse.com O'Brien, J. M. (8 de March de 2012). The Netflix Effect, WIRED MAG. Recuperado el 20 de marzo de 2019, de http://www.wired.com/wired/archive/10.12/netflix.html?pg=1&topic=&topic_set Oxford Academic. (s.f.). Google Academic. Obtenido de https://academic.oup.com/joc/articleabstract/66/1/35/4082390