Netflix: An Overview Of Its Environment And Improving Strategies

History of Netflix

Discuss about the Netflix Environmenta and Improving.

Netflix Was founded by Reed Hastings and Marc Randolph on august 29, 1997 (Eesley and Miller 2012). It is an American multinational entertainment company Netflix is the world’s leading internet television network in more than 190 countries (Fernández-Manzano et al. 2016). It provides streaming media and video on demand online and DVD by mail. Films and television programmes are also included in Netflix in the year 2013. The headquarters of the company are in Los Gatos, California. At first it grew as DVD by mail service and in the year 2007 it spread its business to streaming media (Hallinan and Striphas 2016). In 2013 it entered in the production business. Its first series was ‘Houses of cards’ (Jenner 2016). In 2016 it has released 126 original series or films, which are more than any other network and cable channel (Sharma 2016).

It was founded in Scotts Valley, California in 1997 by Reed Hastings and Marc Randolph, they both were employee of Pure Software (Lüsted 2012). Randolph was the co-founder of MicroWarehouse (Voigt et al. 2017). Hastings was a former math teacher who founded pure software, at present its selling price is $700 million. At starting Hastings invested $2.5 million in Netflix. At the initial stage Randolph had the idea of an online business but the object was not decided. After they had grown the idea of the business and ran it spontaneously. They launched Netflix on 14^th April, 1998 with 30 employees and 925 works (McCord 2014). In 1999 Netflix brought the monthly subscription concept. Initial Public Offering (IPO) was initiated by Netflix on May 29, 2002, they sold 5.5 million shares, and the price of per share was US$15.00. On June 14 Netflix also sold 825,000 shares of common stock at the same price. In 2002 The New York Time published that Netflix mailed 190,000 discs per day to the monthly subscribers. In 2011 it had over 23million subscribers in the United States and 26 million throughout the world.

At first the company was started as DVD service by mail and the business was running successfully. But due the changes of technology the business of the company was also changed and now the movies and the TV serials are available online in Netflix. In 2005 Netflix had a library of 35,000 films and that time over one million DVDs were being shifted per day. In 2007 over two billion DVDs were being delivers to the customers and the company moved their business from DVD by mail to streaming. First Netflix content had been made, ‘House of Cards’ and debuted on 2011. Apart from this Stranger Things, Sense8, Orange is the New Black these were critically and commercially loved. All the movies and TV shows are available on pc, laptops, tablets and mobiles. Through Netflix app on mobile people can enjoy their favour movies at any time anywhere at low subscription rate. People also can get Netflix services on many smart TVs, PlayStation 4 and X-box one (Jain and Shanbhag 2012). Only .5 megabits speed of internet is needed to use Netflix services and 3.0 MPS speed is required for HD quality streaming (Adhikari et al. 2012). People can enjoy Netflix services by using broadband connection or mobile internet spontaneously.

Netflix and Technological Changes

Netflix is the world’s leading online TV and Movies service network. Now a days all the people are busy with their fast growing life, so it is not possible to watch favourite TV shows on TV at the time of broadcast and also can’t watch movies at theatres.  Netflix provides these TV shows and movies online at a very low subscription cost per month. In 2013 DreamWorks animation and Netflix produced a television series ‘Turbo Fast’ which was based on the movie ‘Turbo’. Apart from this Netflix has broadcasted many other animated shows like All Hail King Julien, Sherman Show, Dawn of the Croods, Voltron: Legendary Defender, Kulipari: An Army of Frogs. On March 7, 2014 the ‘Star Wars’ series was released on Netflix. In April 2016 Marvel Cinematic Universe included more 13 episodes of ‘Punisher’ which were broadcasted through Netflix. So it is seen clearly that all the popular programmes are being broadcasted online through Netflix. The company has started to expand its original content.  Many science fiction and Supernatural programmes, dramas have been made in 2016. The music driven drama ‘The Get Down’ has been made in august, 2016. Netflix was decided to release 126 original series and films in the year 2016. Some comedy shows such as Love, Flaked, The Ranch, and Netflix Presents: The Characters and Lady Dynamite have been released in 2016.

Netflix announced that they separated their streaming video subscription service from the DVD by mail service. Streaming is the default for the new customers and the DVD by mail service is optional. So the price of subscription has increased for the DVD and streaming combined service. Through this increased price they are showing that they are not focusing on the DVD by mail service and they are trying to drive the customers away from the offering. Netflix entered in the market with a product ‘DVD by mail’ service and with a very innovative pricing strategy which was based on a flat subscription fees instead of a high pricing. But they named the company ‘Netflix’ not ‘Mailflix’ because they were always trying to build internet based online video service. At the time of starting the technology to build online streaming service was available in US such as, broadband, fast enough video codes, high bandwidth content delivery networks etc. Netflix uses smart pricing strategy to attract the customers spontaneously (Niu et al.  2012).  At first the streaming service was offered as an option and there was not any extra charges for that, when a customer had subscribed the DVD by mail service then the customer got streaming service at free of cost. That offer was very much attractive to the customers and later on they moved their business to streaming service. People were started to get Netflix video service on their big screen television and also on their computers. By increasing the price Netflix tries to segment the customers, due to this some of the customers are willing to leave the video service and subscribe only the streaming service but some of the customers are still willing to watch movies on DVD so they subscribe both the streaming and DVD by mail services. Netflix has got a spontaneous price based response.  Now a days the streaming video service is available on mobile and tablets and the customers are enjoying their favourite movies whenever they want. When the main business is shifted from DVD by main to streaming service Netflix occasionally offers some DVD by mail to the customers with online video subscription which is very much helpful to manage the objections.

Online Netflix

Netflix has split the DVD by mail business from the streaming business. The DVD business is now known as Qwikster and the streaming business is running under the brand Netflix. It is Clayton M. Christensen’s innovator’s dilemma embodied and Netflix is trying to solve it publicly. In the year 2011 Netflix had done a bold move, it increased the price up to 60%. According to Hastings “It is possible we are moving too fast — it is hard to say.”  The media content and distribution business is facing an onerous flus, the technology is changing day by day and it is difficult to predict the market. Now Netflix are giving more focus on increase the ‘talent density’ than the business complexity. They are caring about performance, so the customers can get best service and they can survive their business successfully with the changing environment. Netflix is following a simple note “Sometimes long-term simplicity is achieved only through bursts of complexity to rework current systems.” They are focusing only on the streaming service. Netflix is also focusing on “rapid recovery”, that means whenever the problem occurs that should be solved as fast as possible. It is a creative-inventive market not a safety-critical market, that’s why the company should prepare always to face the difficulties of the changing environment. After the year 2000 the business environment of the world has been changing very rapidly and Netflix has managed their business very spontaneously with the changing environment. But the splitting of DVD by mail service and the streaming service is a bold move. Due to this bold move Netflix probably makes upset some of the customers and it is possible that few customers will leave, but it is a long term endgame which has been played by Netflix.

PESTEL analysis

PESTEL analysis is the best way to review the factors which can influence the business positively or negatively (Yüksel 2012).

Political factors: A company’s business operation is depending on the rules and regulations of the governments and also depending on the mentality of an individual politician. Analysis the political factors will be helpful for Netflix to know clearly that how the increase of revenue will affect the tax liability. A review on political factors can help Netflix to take a successful entry in a new market (Ojer and Capapé 2013).

Economic factors: Consumer income, spending rates, interest rate and inflation all the factors are included with the economic factors. So a complete review on economic factors will help Netflix to satisfy the employees and the customers (Chen et al. 2012).

Social factors: The social aspects of the PESTEL analysis can relate the demographic and cultural changes with the economy (Carrer-Neto et al. 2012).

Technological factors: Advance technology has brought many changes in the world and it affects the business of Netflix directly. The streaming service of Netflix is now available on smart phones and tablets (Demski 2012).

Environmental factors: Each company should be aware about the surrounding environment and be careful to protect the environment (Shehabi et al. 2014).

Pricing Strategy

Legal factors: To operate a business it is necessary to know about the laws that are controlling the environment of business. If the management of a company has proper knowledge about business laws then the business can run without any difficulties.

Strengths: Netflix has grown its streaming subscription business domestically and as well as internationally. This service is available on all the advance devices like smart TV, smart phones, and tablets and the contents are increasing (Bauman et al. 2013).

Weakness: The domestic DVD by mail service had declined so in July 2011 Netflix separated the streaming business from the DVD by mail service. The subscribers of DVD service has decreased and now these two business are operating totally separate (Ekstrand and Riedl 2012).

Opportunities: Netflix started its international streaming business in Canada in 2010 and later on it spread its business in Latin American, Caribbean, and European markets. The company also spread its business in France, Australia, Germany, Belgium, Luxembourg and Switzerland. The growth of business is continuing and now the streaming business is spread all over the world (Davenport and Patil 2012).

Threats: There are present multiple entertainment providers in the world. In the international market Netflix has few competitors such as Amazon.com, several cable channels etc. Amazon prime are offering many physical items and also streaming service in several countries (Griffey 2012). In 2015 HBO announced that HBOGO was available without Television subscription (Murray et al. 2012). CBS network also announced to show streaming videos by subscription.

Netflix is not only a movie rental service, it is a place where people can find the right movie of their choices at any time anywhere. It has six main strategies behind its successful business. All the six strategies are described below.

Filling the gap: Hastings had a lot of videos overdue and that created problems for the business. So he came up with a solution that the customers could keep the videos as long as they liked to keep and they had to pay a flat fees per month for the videos. That was very much helpful for the business and the problem was solved.

Strategic partnership: Netflix made a partnership with Apple. The users can directly signup for Netflix through their Apple TV set-top box and they can pay the subscription fees through their iTunes account. Now Netflix can access the large customer base of Apple and Apple can provide the service to their customers in a convenient way. So this partnership is profitable for both the organizations.

Be prepared: Always be prepared for the changing situation of the environment. The business of the Netflix has been shifted from DVD by mailing to streaming. Depending upon the demand of the people and technological changes Netflix decided to change their business. They separated their streaming business from the DVD by mail business. Now they are operating the streaming business and the DVD by mail business separately.

Recurring income: Netflix is able to give customers the exact think what they want. So the customers are keep subscribing streaming service. As a result when the subscription price was increased $1 per month, it did not leave any bad impression on the customers and the company increased their income easily. Netflix provides a great product to the customers so the customers are willing to pay a little bit of extra money for the product.

Innovations

Learning from others: Sometimes learning from the mistakes of others become helpful to run a business successfully. Reed Hastings learned from the mistakes of ALO. ALO adopted slow with the development of broadband and as a result they had suffered and the business became slow. But the mistake was not repeated by Netflix and they adopted in the changing environment. Learning through experience is a great thing but sometimes observe the mistakes of others become a process of learning.

Value for the customers: Customers are the main importance for the success of any business. Netflix gives attention on customer needs. They always satisfy the customer needs and give customers what they really want. The recommendation engine of Netflix id very good to predict what type of movies the people like most. The movies which are added to the subscribers, among them 60% movies come from recommendation. That’s why the customers always get their favourite movies on Netflix.  This is the main point of success of the business.

After a four year absence Netflix again appeared on Fortune’s World’s most admired top 50 All-stars list in the year 2016 (Albarran 2016). The company got back its position again because of its innovations and stellar stock performance. In March 2016 the stock price of Netflix had increased 19% than February. It got 19^th rank among the world’s most admire companies in 2016. Though Amazon and Hulu have the similar services but they were owned by other business houses, so their value become muddy. Netflix has 45million subscribers so the business in US is very mature. In the year 2016 Netflix invested $5 billion to create 30 new series of the business. Mark Mahaney, an analyst of RBC capital said that though internationally it has 30million viewers it is still ‘deep in investment mode’. Before increasing the rate $1 per month they have to invest to serve a good quality service to the customers. According to mahaney in japan only 1% people had used the streaming service and 57% people are not willing to pay for streaming contentThe membership is also increased 30% than previous years. Domestic subscribers are reached to 60 to 90 million and based on these domestic users Netflix’s net income is $2 billion, DVD by mail is not included within it. In the year 2015 Netflix had 4.5 million subscribers and among them 1.8 million were in US and 2.25 million worldwide. In January 2016 the subscribers were increased to 74.8 million and on March it was increased more 6.1 million. Netflix has 50 million members in 40 countries. Amazon and Hulu Plus are the main competitors of Netflix but Netflix possesses 36% of market share and Amazon possesses only 13% and Hulu Plus possesses 6.5%. Hulu Plus is owned by 21^st Century Fox, the Walt Disney Co. and NBC universal. So the lack of clear direction can be observed in Hulu Plus. Apart from this Hulu Plus comes with various ads. Many people are not willing to watch ads, they become irritated. Programming cost is the main threat to the organization. Netflix spends $2 million for per episode of ‘The Blacklist’ and also spends $1.35 million for per episode of ‘The walking Dead’. To serve better quality of programmes to the customers Netflix spend a lot of money. Another concern is cash flow, which was negative $749 million in 2015. So the people are more attracted to the streaming service of Netflix. Now a days smart phones are grabbing the market, every persons are possessing smart phones. On android phones and as well as on iPhones the Netflix app is available, so the people become familiar to Netflix streaming service.

The table below is showing the annual growth of Netflix of past 3years:

Netflix	2013	2014	2015
Revenue	$4.4 billion	$5.5 billion	$6.8 billion
Income	$112 million	$267 million	$123 million

Whenever people think about Netflix, they think about online movie and TV shows like Stranger Things, Narcos etc. The streaming video service is evolving and the focus is also changing day by day. Technology is upgrading, internet speed is also developing and with the change of technology streaming video service is also changing. Netflix is planning to launch 20 unscripted, which is like reality TV show, in the year 2017. ‘Ultimate Beastmaster’ is one of this category which is created by famous actor Sylvester Stallone, executive producer of a reality show named ‘The Biggest Looser’. Many athletes and hosts from six different countries are going to feature in this show, the countries are South Korea, U.S., Brazil, Mexico, Germany, and Japan. According to Ted Sarandos, the chief content officer, Netflix is a company that wants to do business in foreign market. The streaming service is running worldwide and there is an opportunity that in future this business will grow more internationally. Netflix has spread the business more than 190 countries and it will grow spontaneously in future. Unscripted Television is a very interesting and entertaining thing. According to Variety Magazine for this show the maker and participants have to travel throughout the world. The hosts of this show have been taking from different countries. Now Amazon streaming service is being spread over 200 countries and the people are started to accept it so Netflix has to be careful about the future competition level with Amazon. Though the market share of Amazon is lower than Netflix but in this changing environment it is difficult for everyone to predict the future perfectly. One of the strategy of Netflix is to learn from the mistakes of others so Netflix has to keep eye on the activity of Amazon and try to learn more and more things to improve the business in future. Netflix is also planning to invest more on their original movies, that means more movies will come which will be made by Netflix studio because in the previous years the movies made by Netflix studio got big success.

Conclusion

Netflix made a deal with Disney, so Netflix got permission to broadcast Disney movies through streaming service. In 2017 Netflix is also planning to broadcast many internationally blockbuster movies like ‘Captain America: Civil War’. Many blockbuster movies are running on Netflix such as Atonement, A Single Man, A Teacher and Amelie, At the Devil’s Door etc. (Maahs and Pratt 2017). So it can be said easily that in future Netflix is going to be one of the best part of entertainment. It has seen that Netflix can compete with its competitors because of PESTEL analysis and a well-defined strategy. The success of Netflix in the rental market is offering a great path to other companies to get success in this field.

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