'Netflix: A Case Analysis Essay\r'

'Netflix bestial on ballss a transformation of result ope charge per unit to its clients. The company offers traditional videodisk term of a contract by get off, instant be adrift of videodisk national through home PCS, and float on Netflix-ready devices that could be hooked up to iodinness’s TV. Netflix has a subscription based model, which everyows customers to utilize their products/ service of processs through a per month fee rather than a hand as you go stray. Although the company offers eight variant subscription packages, it derives its too stupendousst revenues from its $8.99, $13.99, and $16.99 subscription plans that include unlimited videodiscs per month, 1-3 titles prohibited at one cartridge pisser, plus unlimited streaming of online subject atomic number 18a. The Netflix Strategy\r\nNetflix’s strategy so farthest has been to focus on non just one or two aspects of their customer base, nonwithstanding to focus themselves in a number of directions in smart set to build upon and gain on a ripening subscriber base. Their principal(prenominal) strategy has been to build and importanttain the most comp selection of DVD titles in the exertion, and they wee through with(p) so by cr squandering mutually beneficial relationships with a number of entertainment video providers. Their second main strategy has been focused on product differentiation- not only how customers receive bailiwick and consume it, only also how customers choose what to watch. Netflix’s number one rivalrous advantage is their whimsical softw be that takes what a customer has seen or rated, and based upon that information builds a list of suggested titles similar to ones they encounter just watched. objet dart some other companies ilk Blockbuster had begun to leak into the rent-by- chain armor street corner category that Netflix had started, no other company had customer profiling softwargon kinda like Netflix. U.S. depiction, TV, & adenosine monophosphate; Video Game Rental marketplace place (2006-2009)\r\nConsumer impression Rental Market Revenue ($ million)\r\n2006\r\n2007\r\n2008\r\n2009\r\nIn- install Rentals\r\n$7,030\r\n$6,215\r\n$5,674\r\n$5,118\r\nVending car Rentals\r\n79\r\n198\r\n486\r\n917\r\nBy Mail Rentals\r\n1,291\r\n1,797\r\n1,949\r\n2,114\r\nVOD (cable, digital, & international adenosine monophosphateere; subscription)\r\n993\r\n1,077\r\n1,365\r\n1,684\r\n in the midst of 2006 and 2009, the film letting market underwent a major(ip) incline. The in-store rental market declined by nearly $2 million, while vending machine rentals amplifyd denary and by- get away rentals nearly doubled. However, VOD services through cable, digital, and subscription also saw major incr salvages. All of these changes meant companies like Blockbuster and Movie Gallery had to either reorganize and make a complete business model shift- or slope bankruptcy. Meanwhile, the increases in by- ri ng dismount rentals and VOD subscription, two services that Netflix offered, meant that the number of Netflix subscribers more than than(prenominal) than doubled in that alike time frame. get decisions from customers were focused on convenient door, price, physical body of DVD gos, ease of return/return fees. Therefore, the key advantage factors within the U.S. DVD rental manufacture were pronto becoming: 1) A build of dispersion carry ( post, online streaming, streaming to TV, vending machine, etc) 2) Superior video libraries (including revolutionaryfound releases, classics, hard to find) 3) Little to no fees associated with renting or returning DVDs 4) Ease of use (in terms of returning)\r\n5) A strong entanglement of entertainment video providers, i.e. suppliers Customers like variety; a video rental store that only stocks the stark nakedest releases provide not appeal to all markets. Increasingly, customers ar becoming more nostalgic in their delineation p references, searching for titles long past premiere. Customers adjudge also become increasely busy, often not having the time to go to a store to rob go forth a picture show or retentiveness to return their rentals on time. We live in a world of instant gratification, where being able to visit a few buttons and watch the latest Jennifer Aniston rom-com or an old cult classic like highly strung Horror is extremely important. Customers also do not like fees. More and more companies today are offering free shipping/return shipping, and the same is true in the DVD rental constancy.\r\n fiver Forces Analysis of the Industry\r\nRivalry among competing sellers: High. Buyer be of switching brands is low and product offerings are wobbly differentiated. The number of competitors is growing and rivals have diverse strategies for providing their services. rivalrous pressure from buyer bargaining strength: strong suit to high. The cost of switching to competing products is low, as w ell as the level of convenience for switching. Products are for the most character undifferentiated. Competitive pressure from supplier bargaining power: Low to medium. There are a fully grown number of suppliers within the industry and a variety of ways in with to gain access to the need material. However, most sellers cannot self-manufacture these movie titles; whereas the suppliers could easily begin offering these services themselves. Competitive pressure from substitute products: Low. The cost per DVD to buy is greater than that to rent or stream a movie. Buyer implore for buying DVDs is decreasing due to the lack of disposable income created by the fiscal crisis, as well as the practicality of owning a vast collection of corporal DVDs. Potential of new entrants: High. The market is growing at an ever increasing pace and barriers to entry are low.\r\nBuyer demand continues to increase as well, and live industry members are envisioning to expand their market reach. (See Appendix 1 for a visual representation). There are a number of drivers of change scratching the movie retail industry. As bear oned previously, there has been a shift in consumer’s resultingness to go unwrap of their way for accepted(a) products or services. The consumer climate has shifted to an instant gratification model, in which if acquiring a movie to watch requires more effort than chinking a few buttons, then it is no longer worth the consumer’s time. This specialty is sensibly unfavorable in terms of emulous strong point because it leave alone drives unfluctuatings within the industry to compete in a never ending sprint to offer the most titles in the shortest keep down of time, which leave at long out go bad hit its peak and taper off. However, this potency leave also positively impact future industry advantageousness since the more streamlined the process becomes, the more users and more uses the industry will gain. Another force drivin g change is the switch from buying physical DVDs and acquiring movie collections to accessing them online as needed.\r\nThis saves consumers valuable time and money, and they no longer need to worry to the highest degree passing their DVDs in hefty condition. This force will positively affect future industry profitability because it will reduce the number of distribution plants needed to sustain video libraries, thus significantly bring down run be. Not having to stock multiple copies of millions of DVDS will mean that companies will no longer have to spend money on: Multiple large plants\r\nStaffing express plants with a large labor force\r\nOperating said plants in terms of rent, utilities, etc\r\n cast (in terms of Netflix specifically)\r\nDVD maintenance\r\nMailing and localisation software\r\nOne more force that is affecting the movie rental industry is the introduction and proliferation of VOD services offered directly from cable electronic networks and providers. Ba rriers to entry for these already existing firms is extremely low, and if all networks chose to offer these services, a large portion of profits would be cannibalized from outside companies much(prenominal) as Netflix or Hulu. This force will negatively affect competitive intensity, but positively affect future industry profitability. If the large supplier companies (cable networks & providers) all started offering their own VOD, competition from little independent renting firms would disappear. Yet profitability would increase due to the ease of access to wide network libraries. Mapping the Movie Retail Industry\r\nThe competitive characteristics that differentiate firms within the movie retail industry are as follows: Use of distribution conduct\r\nProduct line breadth\r\nPrice\r\n geographicalal c everywhereage\r\nEase of access/use\r\nIn conducting my analysis of the strategic positioning of firms within this industry, I chose to focus on price and use of distribution c hannels (See Appendix 2). Netflix and VOD providers are positioned most favourably on the map because both(prenominal) offer approximatelywhat priced subscription packages for access to a comprehensive list of movie and TV show offerings using a variety of distribution channels. Netflix is positioned most favorably due to its coition low cost compared to the variety of products it offers access to. Redbox is priced well, but it only offers one method of distribution. Whereas Blockbuster is priced higher(prenominal) than average, but has begun to offer streaming and mail rental options in addition to in store rentals.\r\nA Financial Analysis of Netflix\r\nOverall, Netflix has fared plum well over the past several days, even surviving the financial crisis. They continue to generate a profit, and their revenue has grown at a steady rate declarative of the growth of the mail rental & online streaming movie retail market.\r\nThe company has been growing at an average rate of 20% over the last four years. However, from 2007 to 2008, Netflix only grew at a rate of 13.22%. This noticeable fluctuation in their growth rate can most likely be contributed to the financial crisis that swept the nation during that year. Aside from that dip, Netflix can be expected to continue to grow at a rate indicative of the continued growth of mail and digital movie rental industry.\r\nProduct costs for Netflix have remained relatively stable over the last four years at over 60% of revenue, fluctuating only by 4% or less. This is despite the fact that revenues for the company have been steady increasing. This clearly shows an inability to control manufacturing & direct costs. As Netflix expands, so does its physical DVD account and size/number of distribution plants. Although one of their strategies is mutation subscribers to streaming delivery as opposed to mail delivery, it is obvious that they have yet to be truly successful in that endeavor.\r\nNetflix’s R OA hit an all-time high of 17.05% in 2009, which is somewhat surprising condition that the company is deriving most of its revenues from a mature market. The mail and digital movie rental industry is still growing, so to have an ROA that high is quite an accomplishment. It is clear that the company’s investments in new assets are succeeding in generating returns. (See Appendix 3 for a complete financial analysis of Netflix from 2006-2009).\r\n jam Analysis of Netflix’s Standing within the Market\r\nStrengths\r\nOpportunities\r\nNetflix cornered the market on direct mail renting before anyone else offered it Has a wide geographic coverage and the fastest turnaround rate cognize for its 1 month free trials\r\nThe brand has a following across a wide variety of consumer segments Their strong relationship with a large network of entertainment video providers Top management realizes the wideness/emergence of the digital environment and is trying to shift subscriber use ac cordingly Netflix has developed unique and comprehensive movie selection software that customizes the consumer eff by capitalizing on their movie tastes and making straight suggestions Netflix offers the most detailed movie information including customer reviews, critic reviews, etc The increasing demand for digital streaming is clearly an fortune The shift from by mail rental to digital streaming gives Netflix an opportunity to reconstitute its subscription packages and price them even more competitively The firm can look at joining forces with some of the networks that are beginning to offer VOD streaming\r\nWeaknesses\r\nThreats\r\nNetflix is a market leader in by mail rental, which has now capped off and started to become a declining category The company’s comprehensive DVD libraries and distribution centers are eating up a large chunk of their revenues Unlike other movie rental/streaming companies, Netflix does not offer access to newly released films Changing subscri ber preference towards online streaming will affect Netflix’s current portfolio smorgasbord The increasing intensity of competition from other companies, such as Hulu with their Hulu Plus program will eat into Netflix’s consumer base Increasing number of networks that are beginning to offer free streaming of content on their websites\r\nFor the moment, Netflix’s overall situation is fairly attractive. Being the first company to introduce a new niche in a market is a huge asset. A company cannot simply ‘buy’ cornering the market on a good or service. Since Netflix already offers unlimited direct streaming, that puts it out front of some of its competitors. However, Netflix will need to restructure and value the profitability of its by mail rental service in the near future.\r\nCompared with Blockbuster and VOD Providers, Netflix has the highest level of competitive strength at 46 points. Netflix by far has the most comprehensive number of product s and distribution channels, prone that consumers can either rent DVDs by mail or stream them on their PC or TV. The number of distribution channels factors into the company’s ease of use, as does the fact that their DVDs come with pay return envelopes. VOD Providers are a similar ease of use to Netflix given that consumers can just click a few buttons on the TV and today be watching their chosen film. Blockbuster is rank lowest in terms of price & fees because their prices are based on a per DVD cost, and when sales began to decrease, the company increased its prices. Not to mention that there are late fees associated with renting, whereas with Netflix you can keep a DVD for as long as you like without incurring fees. Blockbuster also score lower in terms of the number of products because their library is limited by store space, whereas Netflix and VOD Providers can have a virtually unlimited library of titles spanning the entire duration of the movie industry.\r\n Performance Concerns\r\nOverall, Netflix’s cognitive process is quite satisfactory. The company persevered through the financial crisis and has managed to hold on to market majority despite growing competition from rival firms. a) My main concern for Netflix is the amount of revenue that is currently being eaten up by product costs. Despite steadily increasing revenues, Netflix’s COGS continues to take up more than 60% of said revenue. In the coming years when the market shifts whole to direct streaming, Netflix will be left with millions of DVDs and operating costs associated with the large distribution centers required to post these DVDs. If the company takes too long to phase out this aspect of its product/service portfolio, it could lose out on major profits and potentially rescind up in debt. b) A second restitution I see for Netflix is that more and more companies are beginning to offer streaming of their own content either for free to the public, or free to subscribers of certain cable companies. Since Netflix has a cost associated with it, its customer base could be cannibalized by these new entrants.\r\nRecommendations\r\na) Given that by mail renting is on the decline, Netflix should work quickly to phase out this service from its current offerings. respectable now there are still companies out there willing to take on blanket(a) DVD libraries- five or so years from now, that may not be the case and Netflix will have lost out on an opportunity to avoid a significant loss. b) Netflix needs to look at restructuring and re-pricing their current subscription packages. The number of packages and their prices that the company offers are no longer relevant to demand. With more and more entrants into the market, Netflix is losing its competitive pricing advantage. In sum, in order to remain competitive Netflix needs to restructure both its product offerings and pricing strategy. The company should be expression ahead to see what the nex t big intimacy in movie rental/streaming will be and capitalize on that, while other firms are still entering the market and developing what Netflix already has.\r\n'