Netflix Strategy Analysis
The company Netflix is the leading online entertaining media-service provider in the world. This company allows the subscribers to watch movies, TV shows and the wide range of internet connected plans. It also offers DVD rental plans through which it supplies the movies. It was formed in 1997 by Marc Randolph and Reed Hasting in Scotts Valley. The headquarter of the company is in California. In 1999, the company started its subscriptions based digital distribution services. From 2009, the company provides more than 1,00,000+ movie titles and it has more than 10 million subscribers. The company uses data mining in order to identify the needs of customers. After identifying the customers’ requirements, it provides suggestions which depend upon the customer sales data. Netflix face challenges from their competitors such as – Hotstar, Redbox, Hulu, Amazon Prime and Apple TV (Netflix, 2019).
Mission of the company
To revolutionize the way people watch movies and TV shows.
Vision of the company
• To become the best global entertainment distribution center
• To create markets that are accessible to film producers
• To help the producers in finding the audience globally
Business model of Netflix
The business model of Netflix includes – Target audience, value propositions, revenue source of the company etc.
Target audience of the company – The target audience of Netflix are male and female both. The age of the people lies between 17 – 60 years and income level of most of the subscribers of the people who use Netflix is $30,000 or above.
According to Psychographic factor, people who use Netflix are based on three categories –
1. In first category, Netflix involves those people who are too busy for outing and shop for movies
2. In second category, the people target those who are movie experts and frequent renters.
3. In third category, the people who like to explore web series and interesting international stories (Gomez-Uribe & Hunt, 2015).
Value propositions – Netflix provides a legal access to its customers for watching TV shows and movies database. It also offers the best- personalized suggestion algorithm and the continuous services without interrupting the advertisements. These services are supported with wide range of devices which include TVs, Mobiles, Computers and play stations. Netflix offers new and exclusive series as full seasons and not one scene at once which keeps it users snared.
Source of revenue of Netflix - The primary source of Netflix is to make money from its Subscriptions. Subscription means that the subscriber has to pay money in order to access the content on Netflix and to get the DVDs. Thus, the revenue source of the company is the Monthly Membership fee. For this, the company offers three different plans according to the content quality. These plans are discussed as –
a) Basic – The basic content can be streamed in Normal or Standard Definition such as 144P, 240P etc.
b) Standard – The standard content can be streamed in High definition (HD) such as 360P, 480P,720P etc.
c) Premium – The premium content can be streamed as Ultra High definition or Quad High definition such as 1080P, 1440P, 2506P etc. (Burroughs, 2018).
Cost of Revenue
While attaining revenue, Netflix has to bear different types of costs. These costs are –
1. Licensing cost – For legally streaming movies and TV shows, the company has to bear the cost of license for acquiring the content that is different from the other contents.
2. Marketing cost – There are many competitors existing in the market against the company Netflix. These competitors are Hulu, Hotstar, Amazon Prime involving a huge marketing cost. In addition to this, marketing cost of the company includes payments to device partners and affiliates, advertising expenses and the first month fee of every new subscriber.
3. General & Regulatory cost – These costs depend upon the nature of the human assets of the company. These expenditures incorporate finance and the expert and association charges of the organization.
4. Technology & Development cost – These costs comprise of streaming delivery technology cost, application designing cost for new devices and other Infrastructural cost.
5. Research & Development cost – In the research & development department, Netflix is a very keen Investor. With the adoption of R&D skills and the subscription-based business model, it has become the online leading market in the world (Assink, 2006).
6. General & Administrative cost – The administration of Netflix includes Payroll and other expenses related to the human resource, partnership and professional fee of the company.
7. Production cost – In 2013, Netflix introduces the Netflix Originals for the purpose of eliminating the licensing costs. These original series of Netflix comprise a lot of production cost. These huge expenditure cost leads the Netflix as the biggest spenders in media.
8. Miscellaneous cost – There are several other costs that are incurred by Netflix. These cost are – DVD postage cost, Processing cost, Amortization of the streaming content library cost etc. (Cronin, 2013).
Assink, M. (2006). Inhibitors of disruptive innovation capability: a conceptual model. European Journal Of Innovation Management, 9(2), 215-233. doi: 10.1108/14601060610663587
Burroughs, B. (2018). House of Netflix: Streaming media and digital lore. Popular Communication, 17(1), 1-17. doi: 10.1080/15405702.2017.1343948
Cronin, M. (2013). Netflix Switches Channels. Springerbriefs In Business, 25-35. doi: 10.1007/978-3-319-03901-5_3
Gomez-Uribe, C., & Hunt, N. (2015). The Netflix Recommender System. ACM Transactions On Management Information Systems, 6(4), 1-19. doi: 10.1145/2843948
Netflix. (2019). Netflix United Kingdom – Watch TV Programmes Online, Watch Films Online. Retrieved from https://www.netflix.com/