Case Study Netflix
Strategy: Innovation, Entrepreneurship, and Platforms LD 11 HUGELY SUCCESSFUL, by 2019 Netflix found itself 14°UGH self facing several forces threatening to undermine its ability to sustain a competitive advantage going forward. First, corn-petition in the streaming media business had intensified sig-nificantly. Media content companies such as Disney, AT&T (owner of Time Warner, including HBO), and Comcast (owner of NBCUniversal) were forwardly integrating stream-ing, offering their own proprietary services. In the future, these media companies will be less inclined to continue li-censing their content to Netflix. Tech giants such as Apple and Amazon have increasingly pushed into the content business as well, offering their own fully integrated and proprietary solutions.
But developing original content is pricey. HBO, for instance, spent about $10 million per one-hour of content for its hit series Game of Thrones. Amazon spends more than $5 billion per year on acquiring content, while Apple TV has also spent billions to build up its library of content. All these companies compete for recurring revenues from tens of millions subscribers in the United States and potentially hundreds of millions over-seas. Yet, since each of these proprietary services costs some around $8 to $15 a month, the total number of services a subscriber will pay for is limited. Netflix, for example, now charges $13 per month for its basic streaming service, up from just $8 per month when it was introduced in 2007 (which equates to a more than 60 percent price increase).
Second, and perhaps even more challenging, Netflix’s growth in its domestic market has been declining. This implies that the U.S. market is maturing, and that Netflix’s future growth must come from overseas. To achieve growth in non-U.S. markets, Netflix needs to develop original content targeted for different languages and cultures, such as its original film Roma (2018), a Spanish-language drama set in Mexico City that follows the life of a live-in housekeeper working for a middle-class family. Its director, Alfonso CuarOn, won an Academy Award for best director.9°
Questions
1. How did Netflix use innovation in its business strategy to gain and sustain a competitive advantage? What role did strategy, technology, and business models play? Ex-plain in detail.
2. Why is competition in internet streaming services heat-ing up? Who is jumping into the fray, and why? How do these companies differ? What do you expect the result of this intensifying competition will be going forward?
3. International expansion appears to be a major growth opportunity for Netflix. Elaborate on the challenges Netflix faces going beyond the U.S. market.
a. Do you think it is a good idea to rapidly expand to almost 200 countries in one fell swoop, or should Netflix follow a more gradual international expansion?
b. What are some of the challenges Netflix is likely to encounter internationally? What can Netflix do to address these? Explain.
