Netflix: Questions and Answers
1. How strong are competitive forces confronting Netflix in the market for subscription video on demand? Do a five-forces analysis to support your answer
To a large extent, Porters five forces come in handy in efforts to not only assess, but also evaluate a business entitys competitive position and strength (Isami, Mustafa, and Latkovikj, 2020). For this reason, they could successfully be deployed in the case of Netflix to assess the strength of the competitive forces that Netflix is confronted by.
To begin with, when it comes to threat of new entrants, the market that Netflix operates in happens to be largely profitable. This essentially means that it is likely to attract other players keen on claiming a piece of the pie. It would, however, be important to note that barriers to entry in this case happen to be rather significant in terms of the range of content that a new player would have to provide to qualify as a credible threat to Netflix.
Next, we have rivalry among existing players. Some of Netflixs key competitors are inclusive of, but they are not limited to; Amazon Prime, Apple TV, Paramount, HBO Max, and Disney. In effect, Netflixs competitors have the resources, reach and knowhow to make this an intensely competitive marketplace. For instance, Amazon Prime has been consistently adapting its streaming services and offer more titles so as to stay relevant in this competitive space.
Third, with regard to supplier power, this has largely got to do with the ability to vary terms and/or prices. In recent times, we have seen Netflix lose one of their most watched content, i.e. Friends, to the actual production company, i.e. HBO (which could be deemed as the supplier in this case) for the said content following the move by HBO to set up its very own video on demand service. This is just one way in which suppliers could flex muscles in this space. Another frontier at this point in time is exclusivity window, i.e. the time it takes for content to transition to video on demand services following release and after debut in cinemas. Companies like Netflix have been pushing for a shorter period of time with limited success.
Fourth, we have buyer power. Owing to the fact that players in this industry are always seeking new ways to appeal to the customer base, it is likely that buyer power will continue to be further enhanced. This is more so the case with regard to their demand for wider content scope and subscription cost reductions. It would also be prudent to note that in this case, subscribers have the ability to cancel subscriptions at any point in time, and most pay on a monthly basis which translates to significant power in the hands of buyers.
Lastly, when it comes to threat of substitute products, it should be noted that at present, Netflix does not face significant threat of substitution. This is more so the case given that subscription video services are still the in-thing as the traditional broadcast TV model continues to decline.
2. What do you see as the key drivers impacting growth and key success factors for rivals competing in the market for subscription video on demand?
To a large extent there are three crucial drivers that ought to be taken into consideration on this front. These are inclusive of; innovativeness, ability to predict future trends, and ability to identify and respond to customer needs/demands. When it comes to innovation, this has got to do with how well firms in the market for subscription video on demand adapt the services they offer to ensure convenience for subscribers, while at the same time further enhancing customer experience. The ability to predict future trends is also crucial especially given that this is a market that is affected by technological advances and changes. For this reason, those companies that possess the ability to chart trends that will impact growth within the next one decade will be better placed to position themselves in this increasingly competitive market. Lastly, customer tastes and demands are not static. Thus, the motivations that influence their decision to subscribe could be influenced by a wide range of factors including, but not limited to; cost considerations and content scope and nature. Players in this realm ought to aware of these factors so as to ensure that they do not lose subscribers to competitors.
3. What does a SWOT analysis reveal about the overall attractiveness of Netflix's situation?
In seeking to assess the overall…per the presented financial statements, it is clear that Netflixs revenues have been on an upward trend over the last one decade. Indeed, within the 8 year period between the year 2010 and 2018, the companys revenues grew by a massive 630%. The companys operating expenses has also experienced significant growth over the same period of time. To reign in the said expenses, the company could consider outsourcing some of its non-core divisions and/or functions. A look at the companys long-term debt also indicates that it has tripled over the last three periods captured in the financial statements. The associated interest expense could put further strain upon the companys revenues going forward.
7. What 3-4 top priority issues do CEO Reed Hastings and Netflix management need to address?
There are a wide range of issues that Reed Hastings, the Netflix CEO, as well as the companys top management ought to address going forward. Three of these will be highlighted below:
a) Explore untapped markets
b) Introduce new products
c) Advance the cost leadership strategy
8. What recommendations would you make to Netflix CEO Reed Hastings? At a minimum, your recommendations should cover what to do about each of the top priority issues identified in question
To begin with, in relation to the top priority issues listed above, the Netflix CEO should consider exploring new untapped markets that offer the company a huge growth potential within the next decade. A good example of the said markets is the Sub-Saharan Africa and China. In the sub-Saharan Africa, where internet connectivity has increased significantly, the company would likely benefit immensely from first-mover advantages. In China, the countrys massive population coupled with a growing economy would likely have a positive impact on the companys bottom-line. When it comes to the introduction of new products, it would be prudent on the companys part to diversify from its core/traditional service and introduce new products such as video games on its platform. This would have the impact of not only providing an entirely new revenue stream, but also an increase in subscriber base. Lastly, I am of the opinion that the CEO could further entrench the companys cost leadership strategy by introducing an ultra-low priced package that would be appealing to persons in low-income locations. In newer unexplored locations, such…
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