So, in many parts of the world, people and businesses found it easy to bear the pandemic’s negative impact. Its premium content can be accessed by paying around $1.5 extra. One of the solutions is to determine relative profitability of a firm by subdividing industry into strategic groups. A PESTEL analysis helps understand the impact of these factors on a business and how it challenges or supports the particular business under discussion. It offers movies in several genres that suit the preferences of various segments of users. The pricing of Voot’s services is comparable with Amazon Prime’s. Downloads. Its business model is different from Netflix. New York Free Press. This is the case of Sling TV, a successful blend of cable TV (with “lean” packages) and a streaming network. The legal framework related to technology businesses and data collection related practices is still evolving in most corners of the world. However, by 2023, it could reduce to 86.7%. Its advanced algorithms help optimize the user experience for nearly all types of viewers. Netflix can also try more diversification strategies like a few it has already tried including games development based on some of its best performing originals. In any case, the knowledge of Porter’s strategies – as well as the criticisms and adjustments to his works is essential for managers to be able to improve their performance. Netflix enjoys a strong competitive moat in the industry, and that is clear from its market share. Apart from its services’ competitive pricing, Amazon has also added a large number of original videos to its collection that makes it stand out, including several shows in local languages targeted at its ever-growing audience in the emerging markets. Its market share is at 87% as of 2019, down from 90% in 2014. Retrieved from: https://www.vox.com/culture/2019/3/15/18225269/streaming-future-cable-netflix-hulu-disney, https://www.theguardian.com/tv-and-radio/2019/jun/27/streaming-tv-is-about-to-get-very-expensive-heres-why, https://www.businessinsider.com/media-companies-are-launching-streaming-services-to-combat-cord-cutting-2018-5, https://www.vox.com/culture/2019/3/15/18225269/streaming-future-cable-netflix-hulu-disney. Like a company having signed leases, Netflix is still responsible for those payments. Sony Crackle The Sony-owned Crackle is not only one of the best free streaming services but can also compete for Netflix’s market share. They represent the four properties that core competencies must have to give rise to sustainable competitive advantage. Companies remain competitive through the use of well-planned strategies. Netflix competitors analysis is as follows: Amazon Prime Video. Original content draws subscribers in larger numbers and increases profitability. The company has successfully generated strong brand recognition through its focus on marketing. In just the past three years, the research and development expenses of the firm have close to doubled showing how technological innovation is driving continuous change at Netflix. Strong brand recognition already drives strong brand recall and word of mouth, and through the use of technology and data and analytics, it can retain more users. Amazon Prime membership includes several benefits. Apart from the high cost of revenues, which mainly includes the amortization of streaming content assets and costs associated with the acquisition, licensing, and production of content, the company also incurs heavy marketing and R&D expenses. However, its subscriber base has grown to 100 million users in 2020. bennymarty - stock.adobe.comNetflix HQ in Los Gatos, California Given its current status as an established unicorn, the origins of Netflix now seem somewhat quaint. Competition from rival players has continued to grow. Apart from that, there are TV shows and documentaries. In contrast, the others are channel-specific laws governing data collection via various channels. Such plans will grow the company’s subscriber base among the lower middle class in the emerging markets. The pandemic has also brought some changes to consumer behavior, which indicates a larger number of people will depend on their smartphones and the internet for entertainment. It has hurt performance across several industries. Netflix Inc. focuses on movies and series, and the production of original content. It is a good idea since by creating original content, the company might save a lot on its licensing costs in the longer term. Apart from that, its focus is also on maximizing employee satisfaction through training, performance management, and a better work life balance. Bloomberg 16 January 2019. By 2020, user penetration must reach 11.9% and hit 17.2% by 2025. Share. With an audience size of close to 200 million, its profitability is poised to improve significantly in 2020. The company’s net income rose to $1.9 billion in 2019 from $1.2 billion in 2018. While with changing trends, the demand for certain products can rise, others can experience falling demand. People like to buy from sustainable businesses. The leading competitors of Netflix are Amazon Prime, Hulu, YouTube, and Disney Hotstar. It ensures a seamless user experience and higher user satisfaction. As of the fourth quarter of 2019, Amazon Prime Video had about 150 million subscribers—a number that's … Retrieved from: https://www.businessinsider.com/media-companies-are-launching-streaming-services-to-combat-cord-cutting-2018-5. Without a vision of how the whole media ecosystem evolves, the tactical actions and … The company has continued to improve its platform through higher focus and investment in research and development. Nearly all that a business owns can be classified as a resource or capability. Netflix’s Generic Competitive Strategy. The result was a subscription-based business model, with the uniq… Netflix also enjoys the highest penetration among the Over The Top video providers. Some local players in markets like India are also providing their services. Moreover, while the regulatory environment is currently evolving in most regions around the world, tax systems also vary from country to country. However, Netflix is investing in strengthening its competitive moat and investing where it matters the most. Share on Facebook Share on Twitter Share on LinkedIn Share on Whatsapp Share on Mail Copy Link. Content costs are fixed costs, and an enormous audience size guarantees enormous returns. According to Netflix, “Since 2013, DreamWorks Animation Television and Netflix have released 12 original series including DreamWorks Trollhunters, Dragons: Race to the Edge, DreamWorks Voltron Legendary Defender, All Hail King Julien, DreamWorks Spirit: Riding Free, Dinotrux and more, winning 17 Daytime Creative Arts Emmys and six Annie Awards.”. Netflix has accumulated heavy long term debt, which can be a cause of worry for the investors. Going forward, content excellence cannot be the only competitive strategy for Netflix or other players. There are several laws addressing data privacy, and some of them are sector-specific, addressing data collection practices in various sectors of the industry. While Netflix has already accumulated a vast library of great quality content, it has also continued to improve the user experienced through the use of algorithms. Overall, the company has been able to gain higher loyalty from its employees while also ensuring that they find faster career growth and success. Vox. The first is a cable TV, with its “fat” packages. The users can watch Netflix shows and movies on various internet enabled screens. Netflix Inc.’s business model aligns with the company’s generic strategy for competitive advantage and intensive growth strategies. Develop a roadmap to enter into the new market. These channels increase their competitive edge over Netflix but they also dropped TNT and TBS, which offer NBA and MLB. Netflix has a lot to gain by becoming a multisided platform. Most of the competition comes from the largest players like Amazon Prime, YouTube, and Disney Hotstar. Porter, M. E. (1985). Technology has become the main driving force behind the transformation going on worldwide. To undertake an industry analysis, a company must list all firms in the industry in “strategic groups,” and then assess each group according to the five competitive forces. Netflix's Business Model and Strategy in Renting Movies and TV Episodes Netflix has a simple strategy, but it works. The global expansion of the brand has also helped it overcome the competitive pressure from the rival brands. In a media communication sector, a monopoly would also bring the additional risk of losing the desirable diversity of ideas and points of view. The human capital of a tech organization is also a fundamental driver of competitive advantage for the company. Showing pages 1 to 3 of 8 pages. For a new player to enter the market, it will need access to good quality content, it will also need to invest a large sum to buy content or create its own and then the technical knowhow and other costs also make entry difficult for a new entrant. The critical role of legal factors for international businesses is clear from the hefty fines that the large technology companies like Apple, Google, and Facebook have paid over the years to governments in Europe and the US. The share of Netflix stood at 90% according to the brand in 2014. Large international businesses are affected heavily by economic fluctuations in the international economic environment. While Michael Porter’s vision used to help managers understand their competitive landscape in the 1980s and 1990s, nowadays companies can build their strategies in a much more complex way. Netflix has invested most of its revenues and profits in creating original content. Moreover, Netflix also produces its own shows and these shows are only exclusively available on Netflix. This is what Sling TV has been doing: the company was launched in the US in 2015 and gives access to a small number of cable TV channels and a large streaming network (Jason, 2018). Frustrated by Blockbuster's $40 late fee (when returning a VHS copy of Apollo 13, no less), current CEO and company co-founder Reed Hastings resolved to overhaul the then-established order of video rental. Overall, the competitive advantage it has gained by focusing on producing original content has helped it take a substantial lead over the rivals. Of all these players, Netflix enjoys the largest market share. It is important to note that Porter’s thinking has evolved since the publishing of the Competitive Strategy. Netflix has become a global brand and offers its services to around 193 million subscribers worldwide. Moreover, people have grown used to digital lifestyles and using digital channels to obtain products and services. While YouTube has a vast user base, most of it spends its time watching the user generated content on the platform. Netflix has managed to maintain a clear image and has faced fewer legal battles compared to the larger players in the digital industry like Facebook or Google. At the same time, it brings challenges, especially for those companies that are having hard time adapting to new technologies. Intensifying Industry Rivalry: competition tends to increase as new firms might appear or the industry in which existing companies operate is relatively limited. Amazon Prime and other competitors of Netflix have also been adding their original movies and shows to their collections to reduce the market influence of Netflix. Overall, Netflix is in a financially strong position. One of the core sources of competitive advantage for Netflix is the high-quality original content it offers. According to the five-force analysis of the movie rental marketplace, the competitive forces are not strong. Netflix is a highly innovative brand and invests a large sum in research and innovation which is critical to maintaining growth momentum and to provide a superior customer experience. User experience is also a major source of competitive advantage for the digital entertainment brands. In addition, as multiple companies seek cost leadership (or a low-cost approach), the market gradually becomes more homogeneous. Running head: COMPETITIVE POLICY 0 Competitive Strategy. Many movie producers refuse to renew their contracts with other companies to allow them to show their popular series, but even if they do, they charge high prices for that. The industries most severely affected by the pandemic’s economic impact included retail, manufacturing, and travel as well as several more. Launched in November 2019, Disney+ has experienced rapid growth in its subscriber base. However, increased regulations related to user data and privacy affect Netflix just like the leading players in the internet industry. In 2019, the cost of revenues of Netflix was around $12.4 billion, or 62% of the net revenue of the company for the year. Netflix is a streaming service that offers a wide variety of award-winning TV shows, movies, anime, documentaries, and more on thousands of internet-connected devices. Taking this scenario into account, it does not seem easy, according to Porter (1980), to “predict a competitor’s future moves”. Marketing is also a driver of solid competitive advantage and popularity for the online streaming brand, strengthening its presence in the global market. Netflix attracts new subscribers in larger numbers compared to the other providers of online streaming content. So, when operating overseas, companies like Netflix have to keep in mind the local political environment to avoid facing action from government and the local government agencies. Views. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. Matching its large user base will remain difficult for the competing players and the subscriber base of some rivals is a lot smaller compared to Netflix. A firm creates a unique product or a service within the industry changing design, brand image or incrementing new technologies, which reinforces the sense of exclusivity and brand loyalty and, consequently, generates higher profits. The platform provides films and television programs for both purchasing and rent along with venturing into other content deals to maintain its competitive edge. It has positioned itself as a modern brand that aims to fulfill the entertainment needs of millennial users. The company takes its environmental impact seriously and has adopted practices that help it become more sustainable. The company also makes good use of data and analytics to save big on user retention and beat the competitive pressure. It could generate an extra $1.3 billion from the US market alone if it introduced a lower priced and ad supported tier in 2021. According to Statista, by 2020, the Video Streaming segment’s revenue is estimated to reach $51.62 billion. Its recommendation system is the best of all the streaming content providers and has helped the company grow its user retention. Produce, acquire and license Netflix’s original content to expand its video library. Among streaming services, Netflix, which in 2018 became the world’s most market valued entertainment company estimated at $ 153 billion, has several competitive advantages listed by Porter. Being a competitor in the corporate world requires constant monitoring of your situation and the events that are taking place around you. It expects that subscriptions and advertising will together contribute equally to its revenue in the next three years. However, the company has selected to reinvest most of its revenues and profits back into creating more original content and building a competitive advantage that does not erode easily with time. 11. In 1997, Netflix was created in the USA (Van Der Werff, 2019). However, its business is not very diversified and also has few options for diversification. Its leading suppliers of content and services hold some strong bargaining power. HI6006. Netflix is the current leading player in the space with Amazon as challenger. Innovation also affects user engagement and continuous innovation is essential so users do not grow disengaged. The company’s profit margins have kept expanding mainly because content production or acquisition costs are fixed. It is becoming an entrainment industry with its own demands and cost . While Chinese law favours the local businesses mainly, international and particularly the businesses based in the US find it difficult to operate in China without facing censorship from the government. During the pandemic, the number of subscribers of Netflix grew sharply. However, the user experience offered by a platform marks the main difference. For example, the rise of digital technology has brought sweeping changes worldwide. All of this exerts pressure on the company’s balance sheet because it comes at the cost of rising debts. Netflix has created a strong brand image, and it has established itself as a distinct brand in the industry. The company also invests in renewable energy projects in several of the US states. Netflix has clearly demonstrated that it has the capability to change the industry and become a leader in the space. Netflix enjoys stronger publicity and word of mouth driven by stronger brand equity. 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