Strategic Management Assignment: Business Strategy Analysis of Netflix

Question

Task: Write a reflective journal on computer architecture assignment analysing the theoretical concepts captured from the weekly material.

Answer

Introduction
The aim of this report on strategic management assignment is to analyze the business strategy of Netflix. Major sections of the report will discuss the internal and external factors of Netflix. The approach is to analyze these strategies and relate them with the success of company. Based on analysis a recommendation section is also introduced.

Netflix Background
The company started with DVD rental and sales services in 1977. Netflix registered for IPO in 2002 with a share price of $1 under NASDAQ (Gregory 2021). Currently, the company has membership of 200 million across the globe. Company streamed many languages and regional shows/movies, alternatively resulting in attracting customers from 190 different countries.

External Analysis: Porter’s Five Forces
Potential of New Entrants in the Industry
Biggest competitors of Netflix are HBO, Apple, Disney, and Britbox who have either launched streaming services or about to launch. However, entering to this service industry requires supplier contracts, capital investment, and network in the industry. For a new entrant, these factors can be a huge problem in competitive edge (Kumar, Gupta and Dixit 2020). As mentioned, 200 million subscribers are fan of the company making it very likely organization. The threat can be rated moderate, and thus, need monitoring.

Power of Suppliers
‘Cinema’ and‘TV shows’industry control is shifting towards the producers. Netflix is dwindling the power of cinema chains by demanding 45 days of window, despite of 90 days for streaming them. However, Companies like HBO and Disney are focusing on streaming their cinemas or shows on their own online streaming platforms (Sakal et al. 2019). Although, Netflix has itself become a large film/show production company ad almost 30% of the content is owned by Netflix itself. Thus, suppliers have moderate control.

Power of Buyers
Since, the recent pandemic (Covid-19) demonstrated how the cinema chain industry can be negatively influenced. Whereas, streaming services are growing ad expanding with new launches. Many of the services are offered at similar rate and thus, industry is not price-sensitive. Many of the suppliers are using other streaming company services like Hulu, Disney, HBO, Apple watch and others, forcing buyers to use different streaming services (Kannisto 2019). Thus, power of buyers is very high as they can opt for Netflix or not and since, there is not any contract, subscriptions can be cancelled easily.

Threat of Substitute Products
TV broadcast is declining and most youths are focused towards streaming services whether it is YouTube, Netfilx, Amazon prime or others. More likelihood towards streaming services make it really tough for the substitute product. Moreover, long running covid-19 situation forced everyone to stay at home and avail services at their home only. Thus, threat is low.

Competition in the Industry
Many producers are removing most popular streaming videos from Netflix and launching them to their own platform. Moreover, Amazon prime provide additional services like free delivery, same day delivery, early delivery, free music, and others in addition to streaming videos (Matevosyan 2020). Thus, it can be highlighted that competition is high in the industry.

Internal Analysis: PESTEL
Political Analysis
For Netflix, censorship is most crucial political factor for its launches. It has been prohibited in Chinese economy due to censorship. Many of the contents/ videos are mostly stopped from streaming, when it comes to censorship. Since, the company is operating in 190 countries at the present moment, all countries’ regulations and rules need to be followed by Netflix.

Economic Analysis
Fluctuating global exchange rate is a problem when it comes to purchase others’ contents. Steady hike in price can be a concern for the perspective of customers. Competitive threat is another major concern (Kweon and Kweon 2021). Content privacy is one of the greatest threat to the company security.

Social Analysis
Netflix and the CEOs of the companies are generous supporting the students from low family incomes and contribute 2% of their annual welcome to the black community. Staying indoors is mandatory in this pandemic situation that favors the production of the company. It is also going to last as online streaming will become trend in future.

Technological Analysis
Content rating system, suggestions based on watched videos, high-quality videos, automatic translating software ‘Hermes’ are the example of technological supports held by Netflix. Company is using the technology efficiently to manage its services (Onyusheva and Baker 2021). Auto-payment system can be an easy way for some customers however, it can be a matter of concern for most of the customers.

Environmental Analysis
Company is dedicated towards adapting sustainable way of production and improving reliability on the renewable sources. The company has adopted less paper use at office and joined hand with the EPA showing support to the renewable energy usage. Operating online has no direct impact on environment whereas, electric consumption is another indirect factor influencing environmental impact.

Legal Analysis
Netflix is abide by the law and it must follow all the guidelines and rules introduced by the government. Hike in prices can be taken as offend for the customers and many of the unhappy customers have already filled complaint against it (Ruiz et al. 2020). Copyright issues will always be a concern for the company while purchasing and streaming the videos produced by someone else. Company must develop a set of policy that allows review and analysis on the purchase and all the obligations related to the copyright.

SWOT Analysis
Strength
Growth: In past decade, Netflix has become a powerful brand for online streaming across the globe. High brand value has been gained by the company through introducing versatility and diverse video contents online. Customers around the world: As mentioned, the company is currently streaming in 190 countries that gives the company a large customer base. In 2021, the subscribers reached upto 200 million making it the greatest strength for the company (Wu and Zhou 2021). Netflix originals: As the company is producing many original contents, leading to increase in production over every quarter. Flexibility and Inexpensive: Netflix allows access of the streaming in all electronic platforms that has display. It is not expensive that makes it more attractive to the customers.

Weakness
Increase in production cost: Producing original contents costs more than purchasing other’s content and thus, it can be a demerit too for the company in perspective of production cost. Fewer copyrights: The ownership of many contents do not belong to Netflix and thus, causing negative impact on the growth of the company (Papadopoulos 2021). Other studios or producers allow right for a certain period and thus, losing many favorite contents is a major weakness. Criticism: Recent criticism on the company was for not providing caption for deaf individuals. Such incident could negatively influence the reputation of company.

Opportunities
Expansion: The services are offered online and thus, can be accessed from anywhere around the globe. Thus, company can target on markets compromising with the policies in other countries (Shi and Zhou 2020). There is a scope for more expansion where, government are currently not allowing to operate. Reviving library contents: Developing policies, expanding content licensing, gaining copyrights would allow company to have an opportunity to become greatest among the competitors. Alliances: Partnering with the telecom service providers can be a shot for the company to offer better packages and lowering the prices more.

Threats
Competitors like YouTube, HBO, Amazon, and Disney are the greatest threat for the company as they are also generating their own contents from long time now and they are all set to launch their own production on their own platforms (Wu and Zhou 2021).

Piracy and Government regulations are another major threats to the company that can hamper or stop the operations of the company in different countries.

Strategic Approach TOWS

TOWS Analysis

Strengths

Weaknesses

Opportunities

(Maxi Maxi Strategy)

ü Increasing the collection of movies through revising the online library of the platform

ü Collaborating with the telecom service providers for reducing the pricing strategy (Derr, George and Heiler 2021)

ü Expand the services in other countries too where Netflix is still not accessible.

(Maxi Mini Strategy)

ü Reducing production cost through collaborating with other producing companies.

ü Assuring there is no criticism and follows the beliefs and emotions of their customers leading to building trust among customers.

ü Gaining long time or life-time copyrights. Developing policies and strategies that can allow hold for long time on the contents

Threats

(Mini Maxi Strategy)

ü Make sure to gain competitive advantage using latest technologies like VR and AR.

ü The company must be a step ahead of the competitors to make sure that customers do not switch to other subscriptions.

ü Taking all measures to avoid local competition and assure that most of the users access the services being introduced to them

(Mini Mini Strategy)

ü Taking advantage of pricing strategy and making it low as much as possible to make sure that there is no competition in the market.

ü Adopting marketing strategy and offering additional services in the application like allowing the customers to connect with the family and friends on the same platform as it will allow to share their watch list and it is not a costly approach (Colasanti 2018).

Strategic Recommendations
Recommendation 1: Alliances with different partners
Suitability
Netflix is expanding and growth can be estimated exponentially and thus, complexity of management is also increasing. For better simplicity and smooth management of pricing strategy, the company will need to make alliances with the Telecom service providers. Moreover, the company can share production too. It will help in managing the production cost of contents (Pant and Yu 2018). Accordingly, the company will be able to effectively use its strength. The identified difficulties in the above analysis were high production cost and hike in prices. This approach will effectively contribute in coping up with these lacks. The goal of Netflix is to expand its services keeping low budget and thus, all factors are being achieved.

Accessibility
Shareholder Value analysis can be performed

Values	Analysis on proposed change
Growth in sales	Alliancing with the telecom companies and production companies will help in reducing the price for end consumers and hence, high growth can be expected
Operating/production cost	It will e reduced as mentioned above, alliance will contribute in reducing the cost.
Investments/ Fixed assets value	Since, it is an online streaming service, investment will only need for promotions and legal arrangements (Minzheong 2020).
Working capital investment	Some shares of the company might be engaged for negotiating with other companies and having their full cooperation
Taxes or policies	Policies must grant authority of the content to Netflix
Value growth duration/break-even point	It should not be more than two years as the investment is very low
Future cash flows or Residual value	Increased cash flow

Feasibility
The investment will be a great factor for estimating and understanding the feasibility. The cash flow will no doubt increase as compared to that of present status however, profit will also increase accordingly. Financially, there is possibility that the profits will shared among the other partners or policies can be made with certain paying amount. However, in other aspects, growth can be projected for the company.

Recommendation 2: Expansion of the service providing network
Suitability
As informed earlier, the company is already providing services in 190 countries. Still there are many big countries like China, Korea and others who are not allowing the company to operate due to legal factors (Putri and Paksi 2021). The company can use its reputation and compromise with some of the policy that does not influence other customer’s interests to expand in those regions. Company will be effectively using its strength to manage and provide services to a lot more customers. The identified difficulties in the above section includes low margin profit. This approach will help in expanding the margin line and increasing number of consumers will alternatively contribute in making good profit even at low margins. Netflix has been already growing and its future goal is to be at the top in competitive line and thus, meeting goals of the company.

Accessibility

Values	Analysis on proposed change
Growth in sales	High
Operating/production cost	High as compared to current production cost but low as compared to connection with new customers
Investments/ Fixed assets value	Remain same as it is
Working capital investment	Very minimum as Netflix will be offering the new customers same with an additional language option (Dwyer et al. 2018)
Taxes or policies	Depends on new countries’ legislations
Value growth duration/break-even point	It should be less than an year
Future cash flows or Residual value	Increases

Feasibility
In this section, the concern lies with the change in policies and modifications. The organizational and government of such countries’ are not on same page and thus, company was not able to expand the services in these areas. However, there can be exponential growth in overall revenue and profits of the company. The break-even point of one year suggests that the company will start making profits after one year.

Conclusion
The above report presented a strategic analysis on business strategy of Netflix. The company is already thriving however, still lacks in some areas as identified. Provided recommendations can be used by the company to make sure that the growth of the company is steady and meet all of its future goals.

References
Colasanti, L.L., 2018. The evolution of the TV industry: how technology and data analysis made Netflix the champ in a tank full of sharks.
Derr, T., Georg, S. and Heiler, C., 2021. SWOT-Analyse und TOWS-Normstrategien. In Die disruptive Innovation durchStreamingdienste (pp. 17-24). Springer Gabler, Wiesbaden.
Dwyer, T., Shim, Y., Lee, H. and Hutchinson, J., 2018. Comparing digital media industries in South Korea and Australia: the case of Netflix take-up. International Journal of Communication, 12, p.20.

Gregory, A., 2021. Complete Analysis of Netflix, Inc.
Kannisto, K., 2019. The motivations for Netflix to vertically integrate its business model.
Kumar, J., Gupta, A. and Dixit, S., 2020. Netflix: SVoD entertainment of next gen. Emerald Emerging Markets Case Studies.
Kweon, H.J. and Kweon, S.H., 2021. Pricing Strategy within the US Streaming Services Market: A Focus on Netflix's Price Plans. International Journal of Contents, 17(2), pp.1-8.

Matevosyan, E., 2020. Valuation of Netflix, Inc. using Selected Valuation Methods. Onyusheva, I. and Baker, A.S., 2021. NETFLIX: A Case Study On International Business Strategy Development. The EUrASEANs: journal on global socio-economic dynamics, 6(31), pp.40-52.

Pant, V. and Yu, E., 2018, October. Conceptual modeling to support the “Larger Goal” pivot–An example from Netflix.Strategic management assignment In IFIP Working Conference on The Practice of Enterprise Modeling (pp. 394-403). Springer, Cham.

Papadopoulos, N., 2021. Valuation of Netflix, Inc.

Ruiz, C.A.D., Baker, J.J., Mason, K. and Tierney, K., 2020. Market-scanning and market-shaping: why are firms blindsided by market-shaping acts. Journal of Business & Industrial Marketing. Sakal, DominikVugi, Pave Rebi, Ana Zrili, Antonio Gracin, DariaBubalo, and Jure Borovac. "ANALYSIS OF NETFLIX INC. STUDENT INVESTITOR 2019."

Shi, Y. and Zhou, J., 2021, October. Analysis of Foreign Video Streaming Service Entering Chinese Streaming Media Market: A Case Study of Netflix. In 2021 International Conference on Public Relations and Social Sciences (ICPRSS 2021) (pp. 337-343). Atlantis Press.

Wu, X. and Zhou, J., 2021. The Influential Factors of Developing Better in the Global Stream Media Market: An Analysis of Netflix.

Appendix

Business Model of Netflix Source internet