Essay Renting and Netflix

Netflix is an entertainment company that specializes in streaming media and online video-on-demand. Over the years, it has grown to include film and television production and other distribution services. Its business model has changed, and so has its overall production cost grown to keep up with the increased market share. As a result, its current position in the market has made it more exposed to competition from other firms, which is why it needs to develop new strategies to remain profitable. Netflix has grown over the past years despite competition and its unprofitability (Helft, 2007). Therefore, to understand its success, it is important provide a microeconomic analysis of Netflix, its history, its products, and the market.

Blockbuster Entertainment, Inc. was once a highly successful and profitable brick and mortar home movie and video game rental store. At its peak in 2004, Blockbuster had up to 60,000 employees and more than 9,000 stores. The idea behind Netflix came from an unsatisfied, embarrassed customer of Blockbuster, Mr. Reed Hastings, now CEO of Netflix, paid a $40 late fee because he returned the movie Apollo 13 six weeks later (Zarafshar, 2013). He began to contemplate ingeniously about a notion to change the movie-leasing pattern into a more pioneering industry. In 1997 Netflix was started as a DVD rental-by-mail business without subscriptions. In 1999, taking a stride additional in the direction of evolving the industry, Hastings began the subscription-based business mode based on renting DVDs by mail with plans reliant on the quantity of titles taken at a time. Netflix put forward 120,000 titles for limitless monthly DVD rental with free shipping no late and per title fees. Since that time Netflix has become one of the most popular subscription services in the world, and is now valued at over $28 billion and steadily increasing. What factors contributed to the success and failure of these two companies?

The following is a case study of Netflix, Inc. an American-based company that provides the streaming of online media to consumers in North America, South America, and parts of Europe. This case study will provide a brief overview of the company’s history along with four present-day challenges that the company will face as it tries to stay ahead of the competition. In its discussion of the present-day challenges that Netflix, Inc. faces the discussion will also relate the proposed challenges to the managerial challenges of globalization, diversity, and ethics. After each of the four anticipated challenges have been addressed then this paper will provide an analysis of the steps that Netflix, Inc. has already taken to keep the

Netflix finds its competition and strategic challenges against big names in the market –Google, Apple and Amazon to name a few (Roberts & Zahay, 2012). The challenge for Netflix lies in maintaining the innovative streak, which will add creativity and youth to its brand image and the brand itself. This innovative streak has to be continual and has to match the demands and preferences of the customers in their taste and liking. The brand and the company cannot afford to remain stagnant and rigid in the ever changing and demanding market place. The core competency that Netflix will have to focus on to meet this challenge is to develop and train its human resource. Effective and efficient human resource management will allow the company to tap into present and potential customers, as well as, allow the company to serve them appropriately.

Netflix’s completed changed the movie renting industry. Netflix’s completely changed the movie renting industry. Netflix targeted Blockbuster customers who were inconvenienced by making two trips to blockbuster in a 24 hour period and also spent time to scan the stacks to find their movies of interest. Netflix online and mail distribution system was a way to scale Blockbuster’s barriers to entry, which is their network of stores. This is a great example of disruptive innovation as they targeted a market niche, one which has been neglected by the incumbent. Blockbuster was caught off guard by the innovation by Netflix

The video rental industry began with brick and mortar store that rented VSH tape. Enhanced internet commerce and the advent of the DVD provided a opportunity for a new avenue for securing movie rentals. In 1998 Netflix headquartered in Los Gatos California began operations as a regional online movie rental company. While the firm demonstrated that a market for online rentals existed, it was not financially successfully. Netflix lost over $11 million in 1998 and as a result significantly changed the business model in 2000. The new strategy included focusing on becoming a nationally based subscription model and focusing on enhancing the subscribers experience on their website. The change in

Entering and transforming the video rental industry was a large undertaking for the start-up company. The first marketing objective the company undertook was the process of building a brand. Netflix’s identity was crucial to future growth and success. Without a strong brand, competitors with deep pockets could have easily duplicated the company’s business model. Secondly, leveraging technology was critical to establishing the business and infrastructure growth. The consumer base was the final objective Netflix sought to achieve. Retaining and growing subscribers were fundamental to revenue and marketing goals.

It is imperative from the prospect of Netflix that they should assess external environment of the business or related industry for the reason that it would help them

Netflix, the online subscription-based DVD rental service aimed to better satisfy customer in a way competitors didn’t, customized and personalized service with unlimited monthly rentals from a great variety of film offerings. Now they want to leverage their strengths to enter into the Video on Demand market

One the one hand, the fertility of the industry opened the doors to corporations that sighted substantial growth potential. New entrants with big pockets such as Walmart could pose a certain threat to Netflix, by exploiting a playing card based on cost reduction. On the other hand, barriers to entry became relatively significant as established video rental retailers such as Netflix have the experience and the knowhow to market movies to people. In this industry, firms that do not have a technological advantage can’t compete. The best example is Netflix’s CineMatch program that offered personalized film recommendations based on customer’s rental patterns. This way, Netflix was able to better serve its subscribers. From a cost perspective, the movie rental industry requires high capital expenditures, and the major expenses are highly related to acquisitions of DVD library and investments in technology (exhibit 2 continued). Thus, we may say that entry is difficult in this industry as the competing firms have reputation, experience and recognizable brand names.

Netflix exhibits dominant economic characteristics in the online movie rental business. They enjoy strong market size and growth rate when compared to rivalry competition. The number of rivalries are increasing, and the market remains dominated by only a few sizeable rivalries like Blockbuster Video, Wal-Mart, Walt Disney Movies and Movielink’s Downloadable Movies. Netflix is determined to offer new and innovative technology to sustain their competitive advantage.

Netflix was founded in 1997 by Reed Hastings who is the current CEO of the company. He noticed that there was a demand for the

I. Wall Street Journal Article and Executive Summary ..4 I A. Wall Street Journal Article 4 I B. Executive Summary ..5 II. External Analysis ..7 II A. Industry Definition ..7 II B. Six Industry Force Analysis ..8 II C. Macro Environmental Forces Analysis, Economic Trends, and Ethical Concerns ..15 II D. Competitor Analysis ..17 II D. 1 Netflix’s Competitors ..17 II D. 2 Netflix’s Primary Competitors ..17 II D. 3 Primary Competitors’ Business Level and Corporate Level Strategy ..18 II D. 4 How Competitors Achieve Their Strategic Position ..18 II D. 5 Willingness to Pay ..21 II D. 6 Comparative Financial Analysis ..22 II D. 7 Implications of Competitor Analysis ..23 II E. Intra-Industry

This report first seeks to highlight the innovative thinking behind Netflix’s success followed by the major issues surrounding Netflix’s operations in 2007, leading onto an analysis of the technological advancements within the DVD rental industry at the time, paying particular attention to the growth and development of the VOD market. The report also seeks to explore the various strategic options Netflix has available to tackle this new and potentially lucrative market whilst considering their potential impact on the long term strategy of its core business in order to provide recommendations as too how Netflix should best deal with the situation at hand in order to enjoy continual growth and prosperity for the future.

Marc Randolph and Reed Hastings founded Netflix in 1997 as an online movie rental company to fill a niche market. In 1999, Netflix established a subscription based digital distribution service that offered unlimited rentals without due dates for just a flat fee every month. By the year 2002, Netflix made its initial public offering (IPO) priced at $15 per share after Blockbuster declined a $50 million dollar acquisition offer (O’Neill). With the increased availability of high-speed internet to the mass market, Netflix introduced its streaming service in 2007 to test alternatives means of content distribution. From 2010 to Present, Netflix has aggressively expanded worldwide to capture market shares. As of April 2016, Netflix reported to having over 81 million subscribers worldwide (KFDA).