- ONLINE MEDIA STREAMING

INDUSTRY
 INTRODUCTION

Netflix is the world’s leading internet entertainment service with presence in almost 190 countries
across the world and having more than 139 million paid members who enjoy TV Series,
documentaries and other feature films across a variety of genres and languages.

MACRO-ENVIRONMENTAL ANALYSIS

There are lot of factors in external environment that influence the decisions of the company like be
it entering new markets, mergers & acquisitions and Joint Ventures. These factors may work either
independently or vice-versa depending upon the circumstances during the particular environment.

Now let’s see what these factors are and how do they effect the organisation through PESTEL
FRAMEWORK.

POLITICAL FACTORS

Political factors play a significant role in determining the

factors that can impact Netflix ongoing operations in
different countries. It can also significantly impact the
current revenues and the profitability of the organisations.
Let’s see how these factors can affect Netflix.
1. USA has placed a lot of restrictions like Netflix
cannot be present in North Korea and Crimea and
Syria. This leaves out a lot of market which is
currently not tapped just because of the Political
relations of the US with different countries.
2. Also, another example can be seen of that Netflix currently is not available in one of the
largest and the most populated country on the earth i.e. China. This is because of the certain
restrictions placed by the Chinese government and the permissions denied by them.
However, these issues could be easily resolved by the political leaders of both the countries.
If resolved, this will definitely help in significant revenue generation for the Netflix and could
easily become the top 3 markets for Netflix.
3. Also, a lot of countries are different in respect to the culture and the norms that are
prevalent in their society. These things put up a lot of restrictions on the content that can be
 shared in these countries. In these countries, a lot of political parties and leaders’ influence
the laws regarding the content that can be shared and created.

ECONOMIC FACTORS
This is one of the most important and critical factors for any organisations that directly affect the
profits and revenues of the organisations. As it is rightly said that the most important goal of an
organisation is Profit Maximisation, Economic factors have direct impact on the profitability of the
organisation.
1. EXCHANGE RATES
Since generally the Netflix works on a subscription model and the prices per month are fixed
for each countries and they cannot be changed every month. So what happens is that
keeping the price same, the fluctuations in exchange rate can significantly affect the overall
profits.
2. TAX RATES
A lot of countries impose different types of taxes like Entertainment Tax and VAT which in
turn shoot up the prices for the end consumers in turn may move it into the luxury segment.

SOCIO-CULTURAL
Socio and cultural factors have recently gained a lot of traction around the globe and it has become
quite an important and critical issue around which a lot of debates are going on.
Recent social trends have been favourable to Netflix, where a lot of people are switching to online
streaming services from the traditional television. Netflix themselves have run a lot of campaigns
which were targeted to change the culture or maybe develop a new culture through the most
important campaign “Netflix and Chill”.
Also they have started working and are contributing majorly on different social issues that the
society is currently facing such as student scholarships. Apart from that they are also helping
charities providing low-income students financial aid.

TECHNOLOGICAL FACTORS
Technology has been playing a role of major disruptor across various industries and world. For e.g.
No one ever imagined that Taxi Business would be controlled by a company who doesn’t even own a
single car i.e. UBER or Hotel Industry would be controlled or dominated by a company called AirBnb
who doesn’t own a single hotel.
Let’s see how technology affects Netflix?
1. Technology plays a vital role for Netflix and its growth as Netflix would only be successful
where there is high speed internet connectivity and it is affordable as well. Just availability of
technology isn’t enough to ensure the success of it.
2. Since it is available in different countries around the globe, the languages spoken around the
world are also different. So what Netflix has done that they have created a software in their
R&D labs that is called “Hermes” which automatically grades
3. Data Analytics plays a critical role in helping Netflix to recommend shows to its consumers
that align with their interests. It collects data through various means by asking its users to
rate their shows, gathering their interests, analysing their past watch history and several
others.
4. It just doesn’t recommend to its users, but to the content creators as well. It helps the
producers in creating the content which the end users want to watch thus helping both and
creating a huge value for them.

ENVIRONMENTAL FACTORS
 Generally, each country has its own certain standards and norms that ned to be met or complied
with that can affect the profitability of the organisations.

These include the following;

 Laws regulating environment pollution
 Air and water pollution CATV system industry
 Attitude towards and support for renewable energy
 Generally, now, tech companies are trying their best to go for renewable energy sources
and thus even Netflix in partnership with Greenpeace is trying to reduce their carbon
footprint.
 Also all the technological companies will be required to pay environmental bill by 2025
as required by global government.
These all factors can significantly impact the overall operations and revenues as if these
compliances are not met, they may cease to operate or if not compliance, it could impact their
overall brand image and equity.

LEGAL FACTORS
All most all countries have their own laws and policies which certainly needs to be complied
with to ensure smooth and successful operations of Business. These can be in various ways such
as;
 VIDEO PIRACY: This is one of the major reason for loss of revenue for producers and
directors and thus country having very weak laws in this would be an unattractive option
for such type of organisations
 COPYRIGHT AND INFRINGEMENTS: This is also a very important factor as in lot of
countries copyrights are taken very seriously and if you violate these then you might end
up paying huge fines which will impact you negatively.

These all six factors define the overall environment under which the organisation will be
operating and organisations need to identify what are their critical pain points and it can
navigate around these all obstacles.

PORTER’S FIVE FORCES ANALYSIS

Porter’s Five Forces is a model that can analyses the

different competitive forces that impact every
industry and defines the profitability level of that
industry. According to this framework, the five
forces that determine the attractiveness of an
industry are competitors, new entrants, power of
suppliers, power of customers and substitutes.
Using the level of power held by the forces present
in the industry, the success of a company within the
industry can be evaluated.

Netflix was created in 1997 as a DVD-by-mail and video streaming service, entering the industry in its
nascent stage. It completely disrupting the existing market for watching movies, creating a new
industry in itself – the online streaming service industry. Using its first mover advantage, Netflix has
garnered 150 million subscribers with a net annual revenue of 15.76 billion dollars. However, with
changing dynamics in the external environment, Netflix’s position within the industry is changing. To
understand these changes, Porters analysis can be used.

1. Competitors –The current industry for online streaming services can be described as
oligopolistic to an extent. While there are only a few major players in the industry, each of
them have a significant number of subscribers. In addition to this, they are constantly
looking for ways to get an edge over each other in terms of pricing and content. It is evident
that competition is high in this industry.
Unlike the scenario in 1997, Netflix has faced an influx in competition over the last few
years. Presently, the services offered by Netflix can be grouped in two. The first is the
streaming service for existing movies and television. The second is a content creator. Netflix
currently creates a variety of original TV shows and movies. This is why in terms of
competitors; Netflix has variety of them within the industry. The current popular streaming
platforms are Hulu, Amazon Prime, HBO and Hotstar.

Criteria Netflix Amazon Prime Hulu

Price Medium Low Medium
Content Maximum Content Only New Content Only New Content
Ease of Usage Personalised Interface Scattered Interface Developing Interface

We can see that despite heavy competition; Netflix still has key advantages over the others
in terms of the content offered and the personalised user interface that it provides to its
subscribers. However, Hulu is making rapid updates to its interface and HBO is consistently
coming up with super hits such as “Game of Thrones” and “Big Little Lies”. So while Netflix is
in a comfortable position right now, it cannot completely discard the threat of competition.
2. New Entrants – There have been a variety of new entrants to the Online Streaming market
over the last few years. However, most of them find it difficult to penetrate the market and
poach customers from the existing companies. This threat can be viewed as low in the
industry.
While Amazon and Hulu were viewed as nascent companies a few years back, they have now
established themselves as stable competitors. However, there are still a variety of fledgling
companies hoping to make a wave in the industry. Sling TV, Direct TV Now and YouTube are
a few of the companies looking to enter the market. They all try to offer differentiated
benefits such as personalised channel selection with Sling TV and integrating their original
content with the streaming service as done by YouTube. However, none of these companies
have posed any sort of threat to Netflix in terms of subscribers, revenue or content.
3. Power of Consumers – The power of consumers refers to the bargaining power held by
consumers to impact the business and its strategies. This power can be exerted in terms of
the quality of products, pricing of the products and customer service provided. With
reference to the product provided, the consumers do have a certain level of power over the
company. There is a certain level of content that the consumers expect and Netflix
consistently tries to deliver on this front. An example is when Netflix tried to remove the
popular sitcom “FRIENDS” from the site. There was immediately an outrage and Netflix put
the show back on for streaming. However, this power does not exist for the pricing of the
product. Just recently Netflix increased its price but this did not cause any drop in
subscribers. In this way, the power of the consumer is only medium in the industry.
 4. Power of Suppliers – The supplier power refers to the power exerted on the company
through the pricing of inputs, quality offered and availability of the resources. The main
supplier for the industry are the different networks that own the rights to the movies and
television shows offered on the streaming site. In terms of the actual power of the suppliers,
it varies according to the demand for the product. A network like NBC that has the
ownership rights over friends will have significant power in terms of the price and availability
of the product. However smaller international networks do not exert much power over the
company as they want to put their product of Netflix due to its wide reach. In this way, the
power of suppliers is highly variable based on the products it offers. The power of the
supplier can also be viewed as medium within the industry.
5. Threat of Substitutes – Under Porters analysis, a substitute refers to a product that the
consumer can use instead of the industry’s product. The first substitute would be regular
television connections. However, this substitute is slowly losing its place in the market. Most
consumers prefer to access a wider variety of content than subscribe to just one network
connection. This is why network television is losing its place as a viable substitute. Another
substitute is YouTube. YouTube currently puts its content only without any charge. This is a
viable substitute for people who do not want to spend much on their online entertainment.
Finally, a substitute which might not come under the industry analysis but can prove to be
relevant threat is the pirated content available online. This can prove to be an issue as many
people prefer to download or stream content illegally online.

VRIO FRAMEWORK FOR NETFLIX

Valuabl Rar Inimitable/Non- Organize CD/CP/TCA/UCA/SC

List of Resources e e substitutable d A
Tangible Resources  
DVD rental Y N N N CP
Physical distribution Y Y Y Y SCA
Intangible
Resources
Online Streaming Y Y N N TCA
Capabilities
Variety in titles Y Y N N TCA
Convenience Y Y Y Y SCA

VRIO framework is done to help back-evaluate a firm’s return potential. When we apply this
framework, we see that when Netflix first started, they used to deliver the DVDs by mail, which no
other company did at that time. This made this resource very valuable and rare, and at that time, the
imitation of the same was costly. Now, we also see that the biggest advantage they have is that of
convenience of streaming their content over the internet, which can be accessed by various devices.
Streaming online is also a competitive advantage since this cuts down shipping costs of DVD rentals
that they used to do. Customers can directly stream the videos on their phones, TVs, laptops, etc.

They minimized the focus on DVD-by-mail once their online streaming services picked up and turned
out to be quite successful. By offering a variety of movies, TV shows for their customers, they exhibit
value to their customer base. Their original content that is streamed online as well is a rare resource.
Even though online streaming is imitable, the capability is valuable, rare, and costly to imitate. This
gave Netflix and edge over its competitors due to the first mover advantage.

SWOT ANALYSIS

STRENGTHS WEAKNESS
1. Netflix had the first mover advantage as 1. High fixed cost and debt due to
it was the first platform that offered expenditure on producing and
online streaming of movies and TV obtaining rights for their original
shows. Because of this, Netflix has content.
managed to garner a significant 2. Netflix doesn’t own the rights to their
subscriber base. shows and so the shows disappear
2. Cloud Computing helps Netflix to save when the rights expire.
cost and improve performance. It has 3. Netflix DVD services are bleeding it. The
also enabled it to extend its services to a enormous expenses related with
wide range of viewers from 190 creation of physical discs, bundling
countries. costs and operating expense of DVD
3. Large video content library at distribution centre is hurting profits.
competitive prices allows it to maintain
differentiation.

OPPORTUNITY THREATS
1. Healthy slate of upcoming original 1. Presence of substitutes and competitors
content in the near future. like Amazon, Hulu etc.
2. Expanding into more genres like online 2. Low switching cost for viewers who
sports streaming etc. (similar to Amazon) usually use multiple entertainment
3. With growing digitisation of households providers.
in more and more countries, Netflix can 3. Recent increase in prices can give a low
hope to expand its viewership base even cost advantage to its competitors.
more in the future. 4. Loss of deal with Disney can reduce
4. Netflix is entering into joint ventures or viewership by a big margin as most of
partnering with local firms to gain their movies are watched multiple
licences as well as to study the consumer times.
behaviour of that country. This provides
it the opportunity to start operations in
these countries.

INTERNAL STRATEGY OF NETFLIX

Business Strategy

1. Internationalisation & Market growth

The company is headquartered in California, has offices in many countries and has presence
in more than 190 countries. It has been able to achieve this by the use of the cloud
computing framework of Amazon web services. This internationalisation allows it to provide
entertainment to people of various countries. To ensure that the content is relevant, Netflix
has secured licences from distributors of local producers as well.
While this has permitted Netflix to extend its subscriber base, the organization is spending so
much that it doesn't really benefit from this worldwide extension. For instance, in the last
quarter of 2012, worldwide losses hit $105 million regardless of the increase of 6 million
 new endorsers. However, the picture has improved with local quality content generation
being the core of this strategy but the organization should tread with caution.

2. Marketing and Sales Strategy

Netflix looks out for strategic partnerships that help expand its customer base. One such
example is Apple. Apple TV set to box can sign up for Netflix directly and users can pay for
the services through ITunes accounts as well. Netflix also follows digital marketing strategy
by having presence across social media platforms and also engages in digital advertising by
placing their ads on search engines, mobile as, social media etc.
The one-month trial period that they provide is also a part of its sales strategy that
encourages people to sign up on the website. This way they ensure they receive recurring
income from the signed up users.
Added to this, giving several of its high-profile films exclusive theatrical runs before they
debuted on its streaming service has given it more visibility and even won some of its movies
(like Roma) significant prominence.
Expanding subscriber base has been the strategic goal of Netflix but now it has started to
move towards more content driven strategy. On demand video is the focus more than Live
streaming of sports etc. unlike its competitor Amazon who is playing big on both fronts.
Netflix believes that original on demand video content will be the key to retaining their
subscribers.

Technology Strategy:

Netflix understands that the two most important factors for them to succeed in global markets are
the ease of use of their online streaming platform and good quality content. Online streaming is in
the early majority adoption phase and Netflix has a lot to do with it. They have ensured that their
streaming services are user friendly and developed features for each segment that they have
targeted. The Skip-Intro feature is directly aimed at the so called binge watchers was a novel
innovation along with that the begin-where-you-left-off feature ensured that the other segment is
taken care of. Netflix ensures presence in every channel like DVDs, online streaming on Desktops
and mobile and tablets. The company has released applications for all platforms to improve user
experience and increase customer base. Netflix also uses machine learning to provide relevant film
and show recommendations based on the viewer historical references, profile and latest trending
videos.

Pricing Strategy:

In 2011, Netflix introduced a change in its pricing. They unbundled online streaming plans from the
customary DVD-via mail business, expanding the cost of the joint offering from $10 per month to
$16 per month. The response was stunningly negative with a loss of an incredible 800,000
subscribers. Their stock cost plunged promptly following this pricing decision. Netflix analysed what
went wrong and has introduced to more pricing changes since then with the first one coming in 2014
and the most recent in 2017.

Their Standard Plan costs $10.99 every month now up by a complete dollar ($9.99 before 2017). This
created a big gap between its competitors such as HULU and Amazon who have priced their offering
on an average $2.5- $3 lesser than Netflix. These pricing changes did not suffer the same fate as the
one in 2011. Netflix included 2 million new streaming endorsers in the US and 6.4 million abroad,
33% more than what Wall Street investigators had conjectured. Both new and existing clients
cheerfully gulped the cost increment, which lifted Netflix's income by 35%. It additionally
strengthens that even little changes in valuing can signify real enhancements in an organization's
benefit.

Netflix was able to successfully being these changes because of their increasingly good content (both
original and other old classic additions). The intent was to continuously provides the customers with
value so that they will why are they paying a premium price for the subscription. The sharp timing of
announcing the pricing changes played a crucial role here. It was done with the release of good
quality content like Stranger Things and The Crown. Hence, it was easier for the customers to accept
the price increments because they could attach those increments to enhanced value. Netflix, while
they expanded the cost of their Standard arrangement, they kept their entrance level Basic
arrangement at $7.99 every month. An economical client could by all methods minimize in the event
that they couldn't manage the cost of Netflix's cost increment. Doing as such would mean
surrendering a ton – no more HD gushing and just 1 additional screen. In any case, having a decision
makes the client feel in charge, and makes it simpler for them to swallow a cost increment.

NETFLIX IN INDIA
Netflix ventured into the Indian market 2 years back
in 2016. This year also marks the entry of Reliance
Jio in the Indian market. Due to Jio’s free data
services the demand for video consumption
skyrocketed. It grew by five times in 2017. However,
this did not only give Netflix an advantage but all its
competitors like Hotstar, Voot and Amazon Prime
also benefitted. Hotstar remains the market leader
with highest number of subscriptions leaving behind
Voot and Sony live by huge margin. Netflix is still at
nascent stages in India, it is one of the only
platforms to provide advertisement free content.
Others are mainly dependent on advertisement-fee
and subscription- fee as their source of revenue. For Netflix, connection speeds in India can be a
concern as it still lags than most other countries in the world it is already operating. Issue of piracy of
digital content raises a concern for subscription-based models.

INDIAN STRATEGY

Netflix strategy is to shift the video demands of India’s young and increasingly digital population to
its high quality ad-free content and stimulate them to have an enhanced entertainment experience.
Netflix has a range of partnerships to smoothen the payment process and create content in local
languages. It has announced partnership with key D2H and mobile operators like Airtel, Vodafone
and Videocon. The plan is to integrate the subscription fee payment with user’s monthly mobile bills.
Whereas, D2H operators can help Netflix to use their set-up of box to provide video streaming on
customer’s TV. Netflix is also aggressively working towards bringing down the data consumption by
introducing video formats that consume less data.
Netflix realises that India is a price sensitive market with extremely economical cable TV connection
and free streaming provided by various platforms, it could never be a cost leader. Netflix wants to
cater to a niche segment, which is focussed to experience high-quality global and local content. One
more aspect of market is that no one player is a complete solution for all of the customers’
demands. A customer using Hotstar for sports may be use Netflix for TV shows and movies.
Therefore, essentially when a customer wants to watch an American TV show, Netflix should be the
first option, and not any other platform.

PLANS
In India, currently Netflix is providing subscription ranging from Rs.500/month to Rs.800/month
depending upon the number of screens that can simultaneously use the services, HD and ultra HD
video service and download options.

USERS
Netflix CEO Reed Hastings said that with 1.4 billion populations and over 300 million mobile phone
users, India is strategic to growth of Netflix. Its target is to add 100 million in India. Domestically
produced content like Sacred games and Ghoul has pushed Netflix subscription to grow at steady
rates. Currently it has a customer base of 0.5 million paid customers. As per Deloitte’s report video
and audio will generate 89% of consumer internet data traffic by 2018. Netflix needs to focus on
young and young adults ranging from 15-34 years, as they constitute 75% of the total internet users
in India.

CAGE DISTANCE FRAMEWORK

CAGE framework identifies Culture,

Administrative, Geographic and Economic
differences or distances between countries
when companies wants to go for
international expansion. We can use this
framework to analyse Netflix’s entry into
Indian market when compared to its home
country U.S.
1) Culture: in terms of cultural
difference, Indian market is very
different from U.S. market.
However, there is a growing demand for American productions in Indian youth especially
who the ones who are digitally versed. In a recent report by Google India, it came out that
the non-metro population is consuming online video services surpassing the metro
population. The major language of such consumption is mainly Hindi and therefore it is all
the more important for Netflix to produce domestic content and lower its pricing model.
2) Administrative: In India, Netflix faces a number of censorship issues and had to sign a “code
of best practices” pledge to self-censor its content. However, repeatedly these regulations
are termed as self-regulation rather than censorship. They do limit the content quality and
emotions that the creators want to present. Apart from this, copyright issues prevent Netflix
to broadcast all its international content in India. This limits the capacity of Netflix to expand
in India.
3) Geography: in terms of geographic distances, Netflix had to face some issues as internet
infrastructure and quality is not same everywhere in India. The target of 100 million is only
achievable if Netflix is able to cater to non-metro population, as they are major demand
drivers. However, due to limited penetration of connectivity in these areas Netflix may face
some issues.
4) Economic: Economic distance between U.S. and India is huge. Indian market is highly price
sensitive. Moreover, the industry has several players that provide video services free or at
cheaper rates like amazon prime costs Rs.49/ month and Voot is free of cost. Netflix may
have to revisit its pricing strategy.
PERCEPTUAL MAP

Perceptual maps are used to visualise the positioning of a product or brand in the industry. We are
using perceptual map to analyse and position Netflix such that it can clearly communicate to its
customer what Netflix stands for. We have chosen two parameters: Price and Content to position all
the major OTT (over the top) players. Netflix is seen to be costly but has wide variety of content that
is both rich and exclusive. For thriving in the Indian market and achieving that 100 million target
Netflix might need to position itself at slightly lower prices and add more content. From the
perceptual map shown below, we can see Hotstar is moderately priced and has wide variety of
content such as news, sports and various non-exclusive content from different production houses.
Netflix has maintained its stance to not go for all content on single platform strategy like Hotstar.
However, by producing more domestic content can help Netflix wider its content portfolio.

DIGITAL CONTENT MONETIZATION FRAMEWORK

This framework illustrates the key levers that drive revenues in digital space and how Netflix is
leveraging them.

Dimensions Key Levers Netflix

Revenue Source A. Subscription Subscription
B. Advertising
Subscription A. Term- Daily, weekly, Term- Monthly
monthly Structure- limited in terms of number
B. Structure- Niche, limited, of users per subscription and ultra HD
 all content and HD content only available to
limited subscribers
Pricing A. Average revenue per Average revenue per user
user
B. Revenue per Hour
Usage A. Free Subscriber Usage Paid Subscriber Usage
B. Paid Subscriber Usage
Renewal A. Subscribers renew the Subscribers renew the Service
Service
Leveraging A. Leverage Data Analysis Leverage Data Analysis
ecosystem B. Partnership Alliances Partnership Alliances
C. Deals Sponsorship
D. Related Products/
Services

RECOMMENDATIONS

1. Netflix should concentrate solidly on the online streaming business and eliminate the DVD
mailing choice from its item portfolio in the following 4-5 years. It ought to be noticed that
motion picture industry is rapidly moving on the web and the DVD business will undoubtedly
decay. This can be seen with the decrease in Netflix's local endorsers. While Netflix's
streaming business is booming, its DVD-rental administration keeps on draining clients,
losing almost 200,000 subscribers over the most recent three months and 4.8 million over
the most recent six years. The organization presently has 17 DVD distribution points around
the U.S., down from 50 in mid-2016.
2. Additionally, Netflix need to give more consideration on making its very own unique content.
This will diminish its reliance on content suppliers. Netflix is ensured achievement in content
creation since they have enough data about the content that people are watching. This can
be seen with its unique TV arrangement the "House of cards" etc. Netflix can decide
whether a specific TV arrangement or motion picture will be a hit dependent on customer
viewing propensities. This gives them an immense preferred standpoint in content creation.
In any case, this does not imply that Netflix should desert its suppliers as its survival is to a
great extent dependent upon the assortment of its content. Netflix still needs to depend on
its content suppliers to address the issues of its vast subscriber base specially showcasing
endeavours to target regional tastes of people with local film, theatre, and regular TV owing
to its geographical expansion.
3. Netflix needs to couple its Pricing methodology with innovation to compete while providing
distinctive offerings of VOD and streaming. New content can be priced at a higher flat rate
than the ordinary content) and older content can be utilized as extra add on or built onto the
monthly membership thereby taking care of both consumers who love new arrivals and who
are repeat viewers. Netflix ought to be savvier than at any other time by arranging better
deals for web based streaming, expanding the selection of shows and making it conceivable
to stream the most recent content.
4. The primary issues and difficulties that Netflix faces are the high bargaining power of content
providers and solid challenge from very much financed and innovative organizations, for
example HULU and Amazon. In any case, Netflix is better situated to concentrate solely on
internet streaming business and building up its very own unique content. This will give the
 organization the competitive edge that is sustainable thereby solidifying its position in the
business and enhancing client experience. The organization has already started making
advances in this regard as they have expressed that their attention is on-demand
commercial free content as opposed to live, advertisement bolstered shows. This should
help Netflix to emerge from its rivals and draw in more subscribers.

*RECEIVED APPROVAL FROM PROFESSOR SAURABH PANDYA FOR LENGHTY REPORT FOR OUR
PROJECT