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Blockbuster and Netflix

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Executive Summary

This report aims to study the business model of Netflix and Blockbuster. We analyze why Blockbuster failed even though it has become a vast multinational business and the role Netflix played in the downfall of Blockbuster. Moreover, we also discuss the business model and strategy adopted by Netflix, which are responsible for the continued success it has earned over the years. Through our findings, we were able to conclude that the main reason for the decline of Blockbuster was it’s of lack innovation along with changes in culture and technology. Conversely, Netflix was successful because it has been innovative and disruptive from the start.

 Introduction

As technology progresses, business models that previously held value face complete downfall if they fail to upgrade their business strategy according to the demands of the consumers. Even future expectations need to be kept under close consideration while planning and executing the business strategy. Failure to do so has led some of the most prominent and well-established companies to the ground while others replaced them quite successfully. One such example is of Blockbuster, which was a CD/video rental service provider. During the 1980s and 1990s, it was all extremely in demand and hence, one of the top business models. But approaching, the mid-2000s, when Netflix was founded, Blockbuster got replaced effortlessly, and today it is no more than a historical entity in the world of business and movie lovers. Certain strategic failures led to the demise of Blockbuster and similarly, some strategic success which allowed Netflix to replace it and reach the top in the entertainment business. In this report, we will discuss the strategic model and paths taken by both Netflix and Blockbuster and analyse their differences which led to one’s success and the other’s fall.

Context

Historical and cultural analysis of Blockbuster and Netflix and their path dependencies

Video rentals became common in the early 1980s. Soon in 1985, David Cooks opened the first blockbuster store. At the time, there was a lot of potential in this business venture. It was expected to spread rapidly like fire across America. Which is why investor Wayne Huizenga, who precepted the business to be nothing short of a sort of McDonald’s, decided to invest in and became the CEO. Blockbuster’s lifespan was almost the same as the lifespan of the industry of video renting. Down the lane, the company had other financial and competitive issues as well apart from Netflix. By 1993, Blockbuster had 3,600 stores across America, and by 1994, Huizenga sold the company to Viacom. Blockbuster was facing serious competition by 1995 by Hollywood video which wanted to make an even larger physical footprint than Blockbuster. This may be seen as the first hit Blockbuster took as the next year in 1996, the company issued its positive net income which was to be the last in the coming decade. Soon in 1998, Netflix launched its subscription service, but it hadn’t yet become the company’s serious competition as opposed to Walmart, Target and Best Buy, which had high DVD sales in 2003. By 2005 Blockbuster fails to overcome Hollywood Video and sales decline even though the company launched the online business a year before. Still, there was also late fee which was despised by most customers. After some other failures and hits, Blockbuster finally files for Chapter 11 Bankruptcy with hopes to reorganize and continue. Dish Network buys the company out of bankruptcy in 2011 but is forced to close down all of the company-owned stores in 2013 (Green, 2015). Other franchised stores close down as well with a single Blockbuster store left open in Bend, Oregon in 2019.

Netflix started in 1999. Their pricing model was entirely different. Instead of charging rent per movie, Netflix was offering monthly subscriptions where customers could pay a monthly fee and then rent as many movies as they wanted. Another perk unlike Blockbuster was that there was no prescribed return date for the movies, and hence, there was no issue of late fee nor was it used to generate revenue. However, to rent more movies, one had to return the previously held ones. Blockbuster did not cut back on late fee immediately, which cost it a lot of loyal customers and market share which Netflix took over (Halal, 2015).

Theory

Strategic position analysis

Blockbuster realized its mistakes too late. It decided to launch its online business in 2004, but it was still a lot behind Netflix. Moreover, it also decided to finish late fee, but that again caused a huge dent in the revenue for the company. At the same time, Viacom took its leave from Blockbuster further weakening, and to properly establish the online business, the company needed around 200 million dollars. With all this and Netflix on the rise, Blockbuster lost 75 per cent of its market value from 2003 to 2005. Soon after, it went bankrupt with all the stores closing let alone one in Bend, Oregon(Olito, 2020).

Blockbuster also tried to make the following changes. Blockbuster adopted a by-mail service which allowed customers to get CDs delivered to their homes. The company’s website also allowed customers to download and watch movies on their computers. Moreover, Blockbuster partnered software developers to make apps that customers could download on their mobiles. They also got into a joint venture with IBM to develop a unique distribution channel which would replace inventory with digital files (ACM, 1993).Moreover, they implemented a short-range scheduling model which eased shipping operations and made them efficient, and also reduced labour and transportation costs (Chung, Dawande, et al, 2011).Despite of all this, the company wasn’t able to withstand competition. The chief restructurer officer at Blockbuster gave five main reasons for the revenue decline of the company. “Increased competition in the media entertainment industry; technological advances that changed the landscape of the industry; changing consumer preferences; the rapid growth of disruptive new competitors; and the general economic environment” (David, Higgins, 2013).

Blockbuster was also drowning in debt which further led to bankruptcy. The competitors were using channels that were more attractive to consumer demands, and hence, they earned greater market shares and market value as well as replacing Blockbuster. There was also economic recession during 2009-2010 which further worsened the situation for Blockbuster. Unemployment was on the rise; thus, consumer spending had considerably decreased, which faired negatively for the business. As a result, the company had to reduce a lot of its administrative expenses and shut down a lot of underperforming stores. It was fighting a lot of financial problems in the meanwhile, Netflix expanded and loomed all over the business(David, Higgins, 2013).

Strategic choices

Ever since the beginning of Netflix in 1999, it has taken the right business moves, which have helped Netflix reach the place it has today. Started with DVD leasing services, then it moved on to streaming and finally became a global TV network. Netflix was able to recognise that streaming services are the “new beasts” (Fagerjord, Kueng, 2019).The business model continued to skyrocket and be constructive. The company’s organizational structure was such that it did not become stagnant and continued to change through time and hence, was also effectively able to face competitors. As of 2017, Netflix amassed 11.7 billion dollars in revenue with 175 million subscribers. Today, Netflix produces its content as well, which is not only limited to Hollywood but amasses other countries’ cinemas as well. It has won awards for various contents (Teece, 2010).

The current business model of Netflix allows subscribers to a huge variety of things, including movies, tv shows, documentaries et cetera on various internet-connected gadgets. Customers have to buy membership subscription and pay monthly for it. They can subscribe to different packages according to their need and price preferences. The key partners for Netflix are content creating studios from whom Netflix buys content from to stream to its subscribers. The business also makes use of aggressive marketing strategies to increase the number of subscribers. Money earned from subscriptions is used primarily to purchase more content and also to produce its own, which comes under key activities for the business. Netflix also makes a profit through strategic product placement which is another smart business move. This implies that many products are highlighted in the shows as a way of advertisement. The Netflix business model makes effective use of its resources (Teece, 2010).

Even though Netflix also started as a DVD distribution service, it did not stop there like Blockbuster. The company rightly believed in the power of data analytics and used it to its advantage profusely. It was able to build a recommendation engine using the best possible data science algorithms. So, the system could now predict DVD requests more efficiently. This made them even better than Blockbuster and other video rentals. Netflix always believed in disruption via innovation as a business strategy, and it was successful in implementing that (Osur, 2016).

Strategy in action

Netflix also targets consumers very smartly. The main target audience includes young adults to middle-aged males and females. That is a huge segment of people. It also implies that instead of focusing on demographics, Netflix focuses on psychographics to lure people in. Hence, Netflix targets individuals who are too busy or broke to go and buy movies, and they want easy, cheap fix for entertainment. Thus, the value proposition is extremely important in the business model for Netflix. The company has been able to earn so many subscriptions because it is affordable for the majority. Secondly, the services can be availed on any range of internet-connected devices, making it convenient to use. Thirdly, there’s a huge variety of genres and shows that an individual can choose from. Every user gets personalized recommendations of shows and movies, which essentially makes most people hooked to Netflix for hours on a stretch. This is because of the algorithms they use. Binge-watching has become increasingly common on Netflix as entire seasons are released at a time instead of single episodes. Moreover, the absence of ads is a huge attraction for the majority as they can stream without any interruptions. Since Netflix is investing a lot of money in making original content, this allows them competitive advantage (Osur, 2016).

Any company’s financial conditions are the most important in predicting the future success of the company. Looking at Netflix’s financial conditions for three years between 2013 to 2015, it can be concluded that the business is doing well in terms of liquidity, profitability, and its assets. The company has up to a billion dollars in cash and equivalents, which can be immediately used for investments. An organizations ability to handle short term assets to pay off obligations is determined by liquidity and it has increased for Netflix in this time interval.However, it is dependent more on inventory rather than liquid assets. Debt to equity ratio shouldn’t be too high ideally, and Netflix has a small number of 1.07. Profitability ratios show the firms capacity to make a profit in terms of revenue and assets. Data shows that Netflix is very stable and balanced in this area. This can be attributed to the company’s international expansion and the creation of original content. Shareholders’ equity has also only increased in the case of Netflix since 2013. The company has been able to control costs effectively as well. “High working net operating profit implies that the organization has a great cost control and that sales are increasing faster than costs, which delineates a profitable solution for a company.” This is not in favour of Netflix, however. The company’s costs are expanding at a faster rate than its income. Revenue and net profit also decreased in 2015 in comparison to the previous two years as Netflix had a lot of expenses due to upgrades in content quality. Efficiency calculates the generation of sales revenue in a company using its assets. A high ratio shows that the company is effectively using its assets to generate revenue. In the case of Netflix, asset turnover has been decreasing even though there is an increase in total revenues from assets. This is because Netflix is spending a lot on expanding and on creating content, thus incurring huge costs (Mazzolini, Bozzolan, 2016).

However, overall, the company is doing very well and has been able to maintain continuous development and a good level of profit. The challenge for Netflix is to maintain an increase in rates of return. If profits grow smaller, it will become harder for Netflix to fight against competitors who have a more capital and financial backup. As of now, Netflix seems to be on the right track with its international expansion and newer content coming in. Netflix has to hold more content as well so that companies such as HBO and Amazon can’t outsource it for content. Failure to do this would lead to significant losses in subscriptions and ultimately, revenues which are why their original content apart from what is coming from their clients is a great help (Mazzolini, Bozzolan, 2016).

Analysis

Blockbuster was a huge hit in the limited, give or take, twenty-year period. Firstly, because at that time there was no other way to enjoy movies unless one bought the VHS tapes, so rental stores were naturally a huge hit. Then the investors that pooled in money into the business in its early years took Blockbuster to the top in a short period and the business had a total of 6000 stores worldwide in 1944. It was dealing with billions of dollars. But all this did not last long. The late fee had aggravated a lot of people. In fact, Blockbuster earned 16 per cent of its revenue which makes for 800 million dollars just by the late fee. Netflix founder Reed Hastings is reported to have said that he founded Netflix because he was frustrated by the late fees at Blockbuster. So, in its early days, Netflix would deliver DVDs right at homes for monthly subscriptions and no late fees. This was, of course, a much welcome change to entertainment consumers, so they replaced Blockbuster. Another faulty move by Blockbuster was that the company never acted on its decision of buying Netflix when it was new. They were to buy it for 50 million dollars but never did so. The company seriously underestimated its competition because it was doing well at the time with 9000 stores globally and 60,000 employees and earned 5.9 billion dollars in revenue in 2004 (Olito, 2020).

The Netflix founder, Reed Hastings, went to the CEO of Blockbuster, John Antioco, in 2000 to propose a partnership but he was laughed out. At the time, Netflix was new. Fast forward to the future, Blockbuster failed miserably, and Netflix became a 28 billion dollars company, many times more worthy than Blockbuster ever was. The biggest fault of the company, however, seems to be the late fee. It is what truly drove customers away. Penalizing its customers for profit, was a faulty move in the business model for Blockbuster. Netflix’s popularity grew by word of mouth. More and more people fell in love with the services it provided. It became trendy. This behaviour is called threshold model of collective behaviour. Plus, it helped Netflix in the coming years that online networking became easier and popular through sites such as Facebook and Twitter. Both of these were not available to Blockbuster or were ignored by the company. The organization had a very tight internal network only and this also adversely affected it (Satell, 2014).

Discussion (Strategy Choices)

Netflix has promising plans for the future as well. There are two main projects that the company is expected to pursue which catch the eye. Firstly, Netflix television and secondly, the High Dynamic Range (HDR). Netflix television would emerge via partnerships with cable TV companies such as RCN, Grand Communication and Atlantic Broadband. The advantage of this business project would be that a new market segment could be tapped. There are a lot of people who aren’t avid internet or gadget users so, they would be able to avail Netflix services via television. However, there are also complications related to contracts, licenses and permits. So, for this project to be applicable and successful, Netflix would have to acquire rights from various cable TV studios. On the other hand, Netflix is trying to develop the feature of HDR, which is a new standard for image quality. It has invested quite a lot of capital in making this feature. This essentially provides an even better watching experience than HD. If this were to be successful competitors would face a blow (Mazzolini, Bozzolan, 2016).

In order to be successful in the future as well there are some strategic choices that Netflix can make. First of all, they always need to be aware of the changing trends in consumer decision making. Hence, Netflix should look into consumer technology such as IoT systems so that they can compete with companies such as Amazon. Secondly, Netflix needs to create something that is unique to their brand and adds to consumer experience like Alexa or Siri. Many companies such as Disney are collaborating with others to create something entirely different. This is so that Netflix sticks in the life of the consumers. Hence, Netflix needs to build up a strong collaborative strategy.They can partner with these companies to set up boxes or gaming consoles (Winter, 2011).Netflix should continue keeping its subscription price low and streaming quality high so there are minimum barriers to entry and more and more people continue to join. This way they can fight off competition (Fagerjord, Kueng, 2019).The company also needs to acquire more content on the basis of what consumer demand. For example, a lot of famous movies and tv shows are still not on Netflix and other companies such as Disney and Warner Bros are coming up with their own streaming channels which could cause Netflix to lose viewership with increased competition (Snyman, Gilliard, 2019).

Conclusion

Netflix has a platform business model. It has four main components which are producers, consumers, providers and owners. Advantage of this model is that it is not heavily dependent on physical assets, unlike the Blockbuster business model. The focus is on digital assets instead. Digital assets comprise of data by users. Access to this data has allowed Netflix to “build a state-of-the-art customer-centric business” which is another perk in this business model. This also aids in the reduction of costs such as store maintenance and other related costs. Thus, the efficiency of the company increases. They were easily able to innovate too, unlike Blockbuster, which had zero “innovative disruption” and hence, was driven out of the market (Brunetta, Turner, Ciccone, 2017). A platform business model does not acquire other businesses or fixed assets but instead makes links with more and more user networks(Fagerjord, Kueng, 2019).Lack of innovation leads to Blockbuster’s failure (Grshon, 2013). All this and the analysis done above shows how Netflix will be able to dominate in the industry of content streaming thanks to its malleable business model.

References

Gershon, R.A., 2013. Innovation Failure: A Case Study Analysis of Eastman Kodak and Blockbuster Inc. Media management and economics research in a transmedia environment (pp. 62-84). Routledge.

Mazzolini, P., 2016. Netflix: financial position analysis and evolution in the market for online streaming services.

Ciccone, E., 2017. Platform ecosystem: an analysis of the business model evolution through Blockbuster and Netflix case studies.

Teece, DJ, 2010. Business models, business strategy and innovation. Long-range planning, 43(2-3), pp.172-194.

Osur, L., 2016. Netflix and the Development of the Internet Television Network.

Satell, G., 2014. A look back at why Blockbuster really failed and why it didn’t have to. Forbes.com.

Halal, WE, 2015. Business strategy for the technology revolution: competing at the edge of creative destruction. Journal of the Knowledge Economy, 6(1), pp.31-47.

Davis, T. and Higgins, J., 2013. A blockbuster failure: how an outdated business model destroyed a giant.

Green, J., 2015. Blockbuster History. Academia.edu.

Olito, F., 2020. The Rise And Fall Of Blockbuster. [online] Business Insider. Available at: <https://www.businessinsider.com/rise-and-fall-of-blockbuster> [Accessed 24 May 2020].

  1. Communication of the ACM. Association of Computing Machinery, 36(8).
  2. Netflix: is this hot stock going to pay off or flame out? ShareOwner Winter.

Fagerjord, A. and Kueng, L., 2019. Mapping the core actors and flows in streaming video services: what Netflix can tell us about these new media networks. Journal of Media Business Studies, 16(3), pp.166-181.

Chung, C., Dawande, M., Rajamani, D. and Sriskandarajah, C., 2011. A Short-Range Scheduling Model for Blockbuster’s Order-Processing Operation. Interfaces, 41(5), pp.466-484.

Snyman, J.H. and Gilliard, D.J., 2019. The Streaming Television Industry: Mature or Still Growing?. Journal of Marketing Development and Competitiveness, 13(4).

 

 

Strategic Analysis of Netflix

Pages:18

Instructions:

to analyze the strategic position of an organization
b)
Assess the strategic choices available to the organization to achieve substantial growth and make relevant recommendations(for the purpose of the plan, you will assume that a strong investor has been found who can fund the recommended strategies)
To this end, you need to select the organization on which your entire project will be based. It can be the organization whereyou are working or have worked in the past, an organization with which you are familiar, or if you are not employed, an organization you are able to research.
•
Part 1: Select the organization which will form the basis for your project. Provide a brief introduction of the selected
(10)organization (what it does, size etc.)
•
Part 2: Analyse the broad macro-environment of the organization in terms of political, economic, social, technological,
ecological and legal factors (PESTEL). Construct alternative scenariosas necessary.
(15)Use Porter’s five forces analysisin order to define the attractiveness of the industries and markets in which the
organization operates. Use the above analysis in order to recognise threatsandopportunitiesin the market place.
•
Part 3: Using suitable frameworks (e.g. benchmarking, value chain, value system) diagnose the strategic capabilities of the
(15) selected organization and classify them using the VRIO criteria. Prepare a suitable SWOT / TOWS matrix summarizing the
findings of the analysis of strategic capabilities and the analysis of the external environment (from Part 2).
•
Part 4: Express the strategic purpose of your selected organization through suitable statements of mission,vision,valuesand
(10)objectives. Take into consideration any influences from the type of ownership, the adopted social responsibility stance and
the expectations of the various stakeholders (perform a stakeholder analysis).
•
Part 5: Perform a cultural web analysis of your selected organization. Can you discern any inimitable capabilities embedded in
(10) the culture and which could enrich your answer to Part 3 of the project?
•
Part 6: Identify the strategic business units (SBUs) which exist in your selected organization. Using Porter’s framework and the
(10) strategy clock, identify the various generic strategies (e.g. cost-leadership, differentiation, focus and hybrid strategies)
currently followed by each distinct SBU. Given the desire of the organization for substantial growth, would you suggest a
change in any of the generic strategies followed by any of the SBUs? Please explain.
•
Part 7: Given the desire of the organization for substantial growth, generate a list of possible choices which could be pursued
(15) by the organization (e.g. market penetration, diversification, vertical integration, internationalization, innovation and
entrepreneurship) and the various methods for achieving them (e.g. organic development, M&A, strategic alliances).
•
Part 8: Evaluate the options (choices) compiled in Part 7 in terms of the SAFe criteria (suitability, acceptability, feasibility).
(15) Regarding the likely return (part of acceptability) there is no need to perform an in-depth financial analysis (you probably
do not have such data available anyway). Regarding financial feasibility, simply assume that the found investor can
provide the necessary funding for each of the identified options. Provide your recommended option(s) for the organization.
(3000 –5000 words)

Answer:

Introduction

Netflix. was founded Reed Hasting. In 1999, it was established as a movies rental service. The business model of Netflix, then and now, is the same – that is subscription model. The business was at first only a DVD-dispatch service, subscribers would pay for particular membership that would include the number of DVDs that could be rented at one time. DVDs were shipped to the customers, and then the customers would send it back (Hosch, 2020)

With thriving business for years, the company incorporated new segments, along with the DVDs rental service, into its model, including streaming services. The mission was to increase the number of subscribers and reduce cost – the cost associated with shipping and postage of DVDs. The streaming segment was initiated in 2007, with almost seven thousand titles available instant-watching; by 2010, the titles had grown up to twenty thousand. Customers had the option to avail the DVD subscription, the streaming option, or both. All three was available to them. In 2010, Netflix started its streaming services in Canada, and in 2011 it had initiated in 43 other countries. In the United States, member can still order DVDs to their homes. By 2016, Netflix was providing streaming services to more than 190 nations. Now, Netflix has three operational segments: International streaming, Domestic Streaming, and domestic DVD. Domestic Streaming and Domestic DVD are only available in the U.S (Reuters, 2020).

Although Netflix was founded a decade earlier, it was known mainly in 2010 as the most customary and famous subscription online streaming platform. Customers were consistently increasing, and Netflix was taking on the majority of the market subscribers. In 2011, the company announced that it would no longer provide a package subscription that includes both the DVDs-rental services and the streaming subscription. However, the company faced criticism from its customers, and the stock price fell drastically.

In 2014, Netflix announced that it had raised $400 million in new capital through equity investing. On April 22, 2020. Netflix proposed $1 billion worth of Senior Notes for its production, development, capital acquisition. On April 21, 2020. The company announced its Quarterly Earnings Per Share of $1.57; the Quarterly revenue was $5.77 billion (Reuters, 2020).

Netflix has a very aggressive business strategy; in 2012, it was initiated in new countries; Netflix provides free one-month access to the streaming service. The reason for the international expansion was to generate more profits, but not all foreign markets have such strong capabilities for streaming. For example, in Latin America, the company faced many issues due to the unavailability of internet-capable devices for the people. The company’s marketing strategies include customer guarantees, a user-friendly website, and witty advertising.

External Analysis

PESTEL Analysis

Worldwide economic condition is the primary factor of Netflix operations, therefore, understanding these things are crucial. Additionally, Netflix has majority international business which makes the PESTEL analysis even more salient (Favaro, 2018)(Fund, 2017).

Political

  • Political factor is increasing in relevance to tech companies worldwide. Netflix is a streaming service, but it is also a tech company so it is liable to the government scrutiny. Governments around the world has put a cap with regard to data collection and other practices. Particularly in EU, the government has taken strict measures against tech companies that overindulgean anticompetitive behavior by targeting users through data collection processes (Pratap, 2020)
  • Netflix has tailored its services accordingly, depending on a region’s regulation. Another factors that affect companies like Netflix is the new tax regime in the EU.
  • Copyright and Patent ordinance.
  • Piracy statute in services sector.

Economic

  • Exchange rate fluctuation is a fundamental issue especially in third world countries where a rise in exchange rate makes Netflix a luxury.
  • Market efficiency and capital requirement to sustain presence.
  • Economic growth affects the purchasing power. As income rises, people tend to spend more on entertainment and luxuries (Tapalaga, 2019)
  • The growth in global economy, in past years, has resulted in more spending, by people around the world, on services like Netflix (Tapalaga, 2019)
  • With the global pandemic of coronavirus and lockdowns, Netflix has witnessed a temporary rise in membership and viewers around the world (Pratap, 2020)
  • Unemployment has risen radically, and if the situation continue people are likely to cut on unnecessary expenditure and save for basic necessities only.

Social

  • Continually changing of customer preferences. Netflix is entertaining customers worldwide, it must adhere to the tastes and preferences from different cultures and societies.
  • Social class. The success of Netflix has been linked with the influence it has on social media networks and promotions, and the fact that it leans more toward the young generation (Tapalaga, 2019)
  • Consumer attitude towards health and environment, that may affect the viewership.
  • Continual adaptation of new segments and genres.

Technology

  • Communication with consumer is the most important marketing strategy. Netflix uses social media, which is linked with technology (Tapalaga, 2019)
  • Netflix uses numerous algorithms and machine learning that make relevant recommendation to consumer, while considering their preference and choice based on their previous search and watch (Pratap, 2020).
  • Requirement for internet connection.
  • Increase Video on Demand (VOD) demand.

Environmental

  • Laws of production affecting environment. In 2019, Netflix reduce its energy consumption by 50% and they are planning to lower it by 80% and shift completely to sustainable energy products like solar panels and wind turbines (Tapalaga, 2019)
  • Competitors using sustainable energy products.

Legal

  • Tariffs in service industry
  • Employment regulations
  • A stern censorship regime in large markets – like China.

Porter Five Forces Analysis

This analysis will help understand profit potential for Netflix and the implication that these forces have on Netflix.

        i.            New Entries Threat

  • Low barriers to entry – easy to emulate, broadly available technology
  • Easily accessible – no switching cost.
  • Lower pricing strategies
  • New value promotion and subscription to customers
  • Higher product differentiation

      ii.            Bargaining Power of Suppliers

  • Supplier has higher power as they produce content and decide which content provider they want to partner with.
  • Bidding negotiations
  • Strong relation with the suppliers is the key
  • Some most-watched shows will be removed, therefore increasing risk of power of suppliers (TFLIE, 2020)

    iii.            Bargaining Power of Buyers

  • Consumer power will rise as Netflix competition rise – such as the newlylaunched Disney+ and Amazon Prime. Switching costs are low
  • Higher customer expectation.
  • Minimum consequences for cancelling subscription
  • In contrast to traditional media platform, it is less expensive.

    iv.            Threats of Substitutes

  • Traditional medium of viewing trend is declining (TFLIE, 2020)
  • Reluctance to adopt new technologies.

      v.            Competitive Rivalry

  • Competitors like Amazon Prime, not only offers free one-month access, but also free and fast delivery, music, and books.
  • Long term fixed cost
  • New technology and video streaming platform are continuously increasing.
  • In 2018, Netflix had 8 of the top most-viewed shows in the world, in its streaming list.

Takeaway from Netflix’s P5 analysis

Switching to Netflix is carries a low cost. Netflix takes into consideration customers’ preference. Netflix must refine its brand. Build capacity and R&D. Association with potential and devoted suppliers whose business depend on Netflix. Expanding customers’ base. Innovate & produce new content rapidly. Build a sustainable point of differentiation. Collaborate with competition.

 

Internal Analysis

VRIO/VRION

Organizational Resources and Capabilities V R I O N
Competitive disadvantage
Highly dependent on third-part-production content
Competitive Parity or Equality
Innovation Potential P
Tech-savvy Assets P
Temporary Competitive Advantage
Licence from entertainment content creators P P
Undevoloped Competitive Advantage
Music segment P P P
Video Games P P P
Textual Content
VRIO Core Competencies
High Equity P P P P P
Large base of customers and producers P P P P P
Original Content Production Capacity P P P P P

 

Competitive Disadvantage. Netflix’s negative aspect is its dependence on third party production content. Although it has its own production series as well, the company mostly put content from other production sources to attract more customers by providing a variety of content. This factor endangers Netflix to competitive forces of producers. Platforms, like Disney and Disney+, offer only its original content. In the resource context, Netflix is a value chain source supports competitive advantage. Based on the VRION analysis, this platform is difficult to imitate. Competitors may produce more content, but Netflix’s customers base, funding of streaming business and its global reach are its solid points. Netflix value chain is big enough to produce original content. The value chain does include not only the supply of content and products but also the supply of information for the ease of subscribers/customers: the algorithms and content management. The VRIO analysis makes the original content production a fundamental beneficiary to the company’s sustained competitive advantage.  The high equity build up the company’s supply chain and its value chain by expanding its customers’ base (Knott, 2015) (Talaja, 2012)(Riveria, 2019)

SWOT Analysis

Strengths

  • First mover advantage
  • Small operating cost
  • Netflix has made agreements with manufacturers for integrated Netflix app in their devices.
  • Tons of consumer data/expertise
  • High quality ratings for in-house production content

Weaknesses

  • Heavy dependence on suppliers.
  • Large fixed cost
  • Small resources, as compared to competitors like Amazon
  • Netflix originals require high cost
  • Subject to technological changes.

Opportunities

  • Potential growth for subscription
  • Expansion of movie download option
  • Technological advancement – such as 4K, Virtual Reality (VR)
  • Video streaming in china
  • Leverage niche markets

Threats

  • Few barriers
  • Content Piracy
  • Fiercely competitive market
  • Amazon aiming to acquire live sports broadcasting platform.
  • Increasing cost could lead to higher subscription rate which lead to consumer switching to competitors.

Cultural Web Analysis

Introduction

  • 130 million users worldwide
  • Turnover of more than 10 billion dollars
  • 114 million people

Culture

  • Freedom and responsibility
  • World leader in online entertainment

Stories

  • Founded in 1997 by Reed Hasting
  • The company’s fundamental business is movie streaming- subscription-based

Rituals and Routines

  • Encourage independent decision making by members and employees
  • Freedom and responsibility
  • Corporate team-work
  • Work is not too demanding

Symbols

  • Smartphones and Laptops
  • Free vending machine
  • Pop-corn machine
  • Transport and vehicles provided by the company
  • Own corporate language
  • Free breakfast and dinner

Power Structures

  • Regional functions
  • Worldwide company

Paradigm

  • Multinational presence
  • World leader in online entertainment
  • Growth potential company
  • Freedom company (Capucine, 2020)

Possible Strategies for Growth

  1. Partnership with Multinational Television Provider

Netflix could further expand its global reach by partnering with television providers and TV channels. Netflix will likely reach areas where internet access is not very simple by partnering with local and famous TV channels. Such as the HBO, Sahara, Showtime. It will broaden and strengthen Netflix; it will provide an additional communication mean to consumers. It would also benefit from it in term of association with big names like the HBO.

  1. Acquire HBO

HBO content and seasons are by far the most popular and watched content around the world. Netflix should acquire HBO powerhouse. Production costs are rising, and they are likely to expand at a higher rate in future. So, instead of making its Netflix original, HBO will make its production. They are widely accessible and most-watched than the Netflix originals. Such as the Game of Thrones, West world, Succession.

  1. Continue International Expansion

Netflix is the leader in multinational reach and online entertainment, because of its aggressive expansion plans. But, there are still countries where Netflix do not operate fully, such as China and the middle east. Netflix is likely to double its size with these markets, reach economies of scale, and early movers benefit into these integrated markets. Netflix must deliberately control its cost and capital management in its growth plans.

  1. Initiate a sport broadcasting segment

Netflix is likely to further expand its customer, and not just millennials and generation Z, but people of every age and demographic by incorporating sports broadcasting into its services. Sports fans are more likely to purchase subscription, even at a higher price, than people who only binge-watch movies and seasons.

  1. Leverage Latest Technology

4k and Virtual Reality are becoming is popular worldwide. Initiating these segments into services are likely to increase brand image and quality content. Netflix should incorporate these (Diagle, 2019)

  1. Strategic Recommendations
  • It is recommended that Netflix initiate a strategy like YouTube – where third party content providers can sell their content directly so subscribers, but prices must be controlled by Netflix.
  • Providing a platform for third party content provider will make Netflix a more integrated and comprehensive platform for online entertainment
  1. Continue Focus on Original Contents Production, allocating capital towards content licensing, with time.

It is thought of that Netflix should emphasize its original content production. The company takes great measures in analyzing and contemplating customer’s preferences from all around the world and produces content that are acceptable, highly-rate, and appealing to customers.

Strategic Analysis of Netflix Vision and Mission Statement

Netflix vision and mission statements, both revolves around entertainment industry. The company’s vision statement directs the corporate decision making and the mission statement aim towards higher achievement. Netflix operational management involve handling multinational business growth. The company has the biggest market shares in international market.

Netflix Mission Statement

Netflix mission statement is to accustom the world with entertainments. It depends on the idea Netflix providing on-demand entertainment content. Like the vision statement, the mission statement put emphasis on the industry, as the company flourishes in fulfilling purchasers’ desires about the media they get to. The two main points of Netflix corporate mission are

  1. World Wide reachability and measures
  2. Entertainment

The primary purpose of Netflix mission statement is to show the company’s nature and role in the entertainment industry. Be that as it may, this business class extensively incorporates motion pictures, arrangement, performance art, stage plays, and others. Subsequently, this purpose of the statement might be excessively expansive in determining Netflix’s activities, even though it demonstrates conceivable vital plans of differentiating the business. A factor to consider is that the organization’s center procedure is to develop the streaming membership business.

This strategy framework suggests Netflix’s regular philosophy for high ground and genuine advancement methods and intentionally derives the corporate mission statement. For example, to reasonably entertain the world, the streaming business must build up its cooperation and membership to a grander overall scale. It is the spot where the second reason for Netflix’s corporate mission comes in, as the organization expects to contact gathers all around and reach the global audience. This overall size of assignments also includes that Netflix’s legitimate structure is fit to offering on the online services of help to diverse groups and markets. The on-demand media spouting association’s corporate vision clarification similarly addresses such an essential goal of the overall working

scale (Riveria, 2029)

Netflix Vision Statement

The vision is to be the leader in online entertainment streaming service. The vision is aligned with the corporate statement of purpose, and this vision has helped Netflix with its fundamental goal of being the leader in the competition, against huge players like Amazon and Disney.Netflix states that it points “To continue leading by offering an astounding entertainment experience.” The vision statement is composed of three main things:

  1. Leadership
  2. Entertainment
  3. Internet

Netflix’s strategic underpins the objective of leading with authority, demonstrating that the organization has accomplished its past corporate vision explanation of worldwide industry leadership. The business expects to keep up its authority and operational viability, while developing its enrollment to fulfill the corporate vision’s targets. The business qualities listed in the SWOT analysis of the above add to this industry initiative. The ‘internet’ some portion of the corporate vision explanation speaks to online media as an essential factor in business operations. Additionally, Netflix’s tendency as an entertainment business is incorporated as a point in the corporate vision, like how the corporate statement of purpose portrays the company as an entertainment organization. Prominent is Netflix’s Cultural Web, which spurs and motivates employees to help the business ceaselessly advance to fulfil the vision explanation by guaranteeing consumer loyalty and industry

initiative (Riveria, 2029)

Generic Strategies of Netflix

The company’s generic strategies line up with the company’s growth strategies – the Porter Five Forced model – and the in-depth growth strategies. Generic strategies play a significant role in Netflix’s on-demand content segment. Netflix focuses only on series, movies, and its own production content. Besides, Netflix’s development procedures and growth strategies for competitive advantage require the management activities that degree beyond online streaming entertainment.

Netflix Business Model

Netflix operations has these models:(Moore, 2019):

  1. Platform Model: Digital media marketplace. Through this the company’s content reach the customers. It is in the stage plan of action that the generic strategy is generally huge, considering the competitive advantage dependent on cost efficiencies conceivable through data advances for worldwide computerized content circulation
  2. Pipeline: Entertainment content production. Netflix utilizes the conventional pipeline approach to deal with and create moviesand series. This approach action empowers the organization to control content creation and bring sustainable growth, while the business development potential by means of business platform model cushions Netflix’s development and nonexclusive system for competitive advantage.
  • No Middle-Man Model. The company removes the middleman and distribute its original content via its own streaming service. For example, the new movie The Irishman was shown in a very limited number of cinemas, after Netflix’s approval.
  1. Unlimited Subscription model. The business model is designed in such a way to accommodate unlimited subscription.

Netflix Generic Competitive Strategy

Cost Leadership

Netflix has low charges. Netflix’s customers’ base is the largest as compared to its competitors. The approach relies on the company’s business model and value chain, which satisfy customers partly through personalized customizations, such as in mobile app settings. Through intensive growth strategies, the cost leadership generic strategy for competitive advantage gains the most significant market share, relating to Netflix Inc.’s corporate mission and vision statements which point to the strategic plan and goal of attaining and maintaining leadership in the international online entertainment.  industry(Moore, 2019)

Differentiation

Despite the fact that Netflix essentially applies cost administration as its generic strategy for competitive advantage, the business additionally utilizes separation in its tasks. As a nonexclusive technique, separation includes building up the online business and its items in manners that make them unique in relation to the opposition (Moore, 2019)

Netflix Growth Strategy

Market Penetration

It is the fundamental intensive strategy. This development system’s target of developing incomes and market share relies upon how Netflix’s generic strategy keeps up upper hands to pick up and hold more customers in current markets (Moore, 2019)

Market and Product Development

This strategy backs the company’s organizational development.Market improvement works by selling the organization’s present online streaming services and unique content to new markets. The Product development strategy goal is to create and sell new content in the organization’s current markets(Moore, 2019)

Suitability, Acceptability, and Feasibility (SAF)

Suitability Criteria

 

Criteria Hybrid Differentiation
Partnership Not in the long term. It requires capital and current prices are unlikely to generate profits in the long run Yes. Higher profit could lead to more investments.
Expansion Not in the long term. Due to international expansion and limitations in some countries Yes. Collaboration with other entertainment providers
Sports Broadcast Long run feasibility is unlikelyAs the sports industry is dominated by players like ESPN Yes. Collaboration with the big players in market.

 

Acceptability Criteria

Criteria Hybrid Differentiation
Risk of Loss High. Expansion to other regions and countries will double the short term cost. High capital is required because content productions are costly and too much of it will bring uncertainty and risk.
Investment Returns Low. Prices are not high enough to generate enough profit High. Collaboration would result in safer profits and high barriers to copying content.
Customers’ Reaction When customers are not loyal, they are more likely to switch to other online streaming platforms if Netflix prices are high and competitors prices are low or they provide better content. Customers will be loyal and will not switch to any other platform, because the content is differentiated and better.
Suppliers’ Reaction Subscription video on demand considered second tier as they do not generate enough profits. When suppliers have no power over content, price are likely to fall as a result. Thus reducing the cost.
Investors’ sentiment Short on shares. Netflix’s stock price has shown variation because of the sudden rise during the global coronavirus pandemic (Epstein, 2020) High profits will bring in more customers, as profits generated by the company rises.

 

For investors, decline is profit is unbearable. Therefore, they will not adhere to the hybrid strategy as it will result in profit decline. Prices might get down too, with hybrid adaptation.

Feasibility

Criteria Hybrid Differentiation
Do the current technology assets support the company’s strategy ? Yes. Company’s data levels have reached high levels.
Are the current financial resources enough to implement strategies effectively? Yes. However, not in the long term. Companies cash is expected to fall when the global lockdown is over and everything is back to normal(Poletti, 2020) Cash is abundant with Netflix, but need to quit the international expansion to stop the loss.
Is available data/information enough to implement strategies? Yes. Netflix is continuously investing to implement algorithms and machine learning into its management systems. Yes. Netflix was aware why its original content is going to be a hot because of the years of data collected. This was (still is) a great advantage in the ‘Netflix Original’ creation.

 

Netflix capabilities can sustain both hybrid and differentiation strategy.

 

 

References

Capucine, J. &., 2020. Strategic & change management. [Online]
[Accessed 14 May 2020].

Diagle, B. &., 2019. Netflix , s.l.: s.n.

Epstein, A., 2020. With the world staying home, Netflix had its best quarter ever. [Online]
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Favaro, K., 2018. Lessons from the Strategy Crisis at Netflix. [Online]
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Hosch, W. L., 2020. Netflix. [Online]
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Knott, P. J., 2015. Does VRIO help managers evaluate a firm’s, s.l.: s.n.

Moore, A., 2019. Netflix’s Generic Strategy, Business Model & Intensive Growth Strategies. [Online]
[Accessed 14 May 2020].

Netflix, 2020. Company Profile. [Online]
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Poletti, T., 2020. Netflix doesn’t know what comes next after coronavirus-sparked boom in subscriptions. [Online]
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Pratap, A., 2020. PESTEL ANALYSIS OF NETFLIX. [Online]
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Reuters, 2020. Netfix Inc: Key Developments. [Online]
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Riveria, A., 2019. Netflix VRIO/VRIN Analysis & Value Chain Analysis. [Online]
[Accessed 14 May 2020].

Riveria, A., 2029. Netflix’s Mission Statement & Vision Statement. [Online]
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Talaja, A., 2012. Testing VRIN framework: resource value and rareness as sources of competitive advantage and above average performance., s.l.: s.n.

Tapalaga, A., 2019. A PESTEL Analysis of Netflix to Show You Its Value in Marketing Research. [Online]
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TFLIE, 2020. Porter’s Five Forces Analysis of Netflix, Inc.. [Online]
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Qualitative Research Proposal

Pages:

Introduction

Mobile devices are rapidly proliferating as more than 2 billion smartphones were reportedly used back in 2014, and it is anticipated that more will be deployed for use. These penetration rates introduce the use of different applications within mobile devices (Kortum, 2015). Until 2007, smartphones were not mass-marketed and were not commercially available. However, after the launch of the first iPhone back in 2007, and android launch in 2009, the smartphones became commercially available, before 2007, a large number of selectable consumer applications within mobile phones were not available (Kortum, 2015). Users can now easily customize the applications within their mobile platforms which suit their needs. The amount of downloadable user applications for the mobile devices is large and continues to grow, with more than 1.2 million applications available in i0s platforms and more than 1.3 million available via GooglePlay in Android OS (Kortum, 2015).

Pine (1998) defines user experience as a unique set of offerings that emerge s when an organization intentionally uses its product or service offerings to engage the users in such a way that it creates customer delight. User experience encompasses the whole aspect of a service acceptance by a user. It touches all the elements inclusive; hedonic and pragmatic of a product. The instrumental or pragmatic elements of a service or product referred to the beneficial aspects such as the ease of use of an application or usefulness of the service. The non-instrumental or hedonic elements refer to the experiential and emotional aspects of service use. Learnability, security, user satisfaction and user interface are some of the factors that contribute towards user experience for a mobile application.

Mobile applications like Netflix use online personalization to enhance user experience. Online personalization via adaptive user interface means that the user interface automatically adjusts context, demands, detected changes, adjusts content, visual presentation or layout (Yang, 2016). User experience design is immensely important in developing a good mobile application since it has a huge impact on the success or failure of the application (Yazid, 2017).

Purpose of the study

The purpose of this research is to enable practitioners to use the information concluded within the research to make informed decisions regarding the mobile application and benchmark their progress for Netflix against other applications for mobile platforms.

Research Problem

Netflix application allows individuals to obtain content anytime, anywhere and through a mobile platform. Because of this specialty, individuals show immense interest in the application all over the world (Cebeci, 2019). This is why it is imperative to investigate what makes a good user experience for Netflix application and how the application is perceived by the users.

Research Objective

Previous researchers have focused mainly on Netflix as an emerging media platform or on its content. It has been observed that there is little research regarding the factors that affect the user experience for Netflix mobile application. Since it is still a gap in the literature, the research aims to investigate the determinants of user experience for Netflix application. The current research will focus on the studies dedicated to the user experience of using Netflix.

 

Research Questions

  • Is the Netflix application easy to navigate for the users?
  • Is the Netflix application interactive?
  • Is the user interface (UI) plain and easy to follow?
  • What elements of user experience i.e. ease of use, learnability, security, user satisfaction, user interface design etc. does the application follow?
  • How satisfied are the users with the user experience?
  • How likely are the users to reuse the Netflix application?
  • Can the Netflix application serve the users to achieve the end goal, i.e. stream videos, watch TV shows, movies, etc.?
  • Does the Netflix application meet its functionality?

Interview Questions

  • In your opinion, is it easy to use Netflix mobile application? Explain your answer.
  • Is the setting of your device sufficient for the use of the application?
  • Do you think that all the functionalities of the Netflix application are designed in such a way that they aid the user in performing the task?
  • Netflix interface design has elements that invite the attention of the users and provide the ease of use such as auto-play which induces binge-watching in users. What are the features that make the user interface easy for you?
  • Do you think that the recommendation algorithm in Netflix application reduces the navigation time and enhances the user experience?
  • Do you think that the Netflix interface uses a narrative to make the user believes to be in control and has the agency of controlling his or her Netflix experience through their choices?

Literature Review

Research related to user experience while using mobile applications has gained momentum as well as considerable interest from both practitioners as well as scholars. The literature within the field of user experience happens to include all factors which affect the interaction of a user as well as their experience of the product or system (Yazid, 2017). Yazid (2017) uses User Experience Questionnaire adapted from Chen’s User Experience (UX) assessment model for mobile applications which offers insight into the factors that affect the user experience. Ease of use, learnability, user Interface, security, user satisfaction etc. are some of the elements that contribute towards a fulfilled user experience. Ease of use factor covers three elements of user experience: data accessibility, usability and navigation. Yazid (2017) defines usability by how functional an application is for the end-user. This means that all the functionalities of an application must be designed in such a way that they aid the user in performing the task most efficiently compared to what they have been using or are used to before.

According to Yazid (2017) , it is imperative that the navigation pattern within an app is simple to aid the users that are new in figuring out how to move across the mobile application with ease in the fewer number of clicks. Data accessibility aspect for an application means that the data must be available readily at any location for consumption by the user to make the application reliable. Validation aspect contributes towards the ease of use elements in the context of making the users aware of the mistake that they might have made. This enables the users to check the error before they click the submit button.

Learnability happens to be the degree of ease as well as the speed with which a user gets familiar with using a specific application. High learnability refers to how users intuitively learn how an application in a mobile phone is used without checking user guide or FAQs. The user interface, according to Yazid (2017), is a touch-sensitive display present on a cellular device and is highly important for engaging the customer’s attention as it is the first thing the user observes. Selection of size, colours and icon give a meaningful impact on user perception. Another factor that impacts user experience, according to Yazid (2017), is behavioural intent which is a subjective norm.

An application with a good user experience design deploys the user with the right information and fulfil their anticipation so that the user can bookmark the relevant material and use the application again in future. Reduction of user errors influences the user’s intention to reuse the application (Yazid, 2017). Thus having suggestion tools such as listing recommendations based on previous click or views can be used as a method to improve user experience.

Yang (2016) states that machine learning and the adaptive user interface has become an effective tool for enhancing mobile user experience (UX). Popular mobile applications such as Netflix, Facebook, Google Search, Instagram, Kindle, Mail, Pandora, YouTube, Safari, Twitter etc. regularly mine user behaviour and context data to enhance personalized recommendations, predict log behaviours like sleeping or walking and filter out spam. Moreover, users now expect mobile applications to have smart systems that have intelligent interfaces (Yang, 2016). Mobile interface (UI) benefits from adaptations which specifically reduce navigation because mobile contexts and tasks vary greatly small mobile screens limit interaction as well as content space. For example, the Starbucks application learns how a user pays through their phone learn about the user payment method when the application is launched inside the store.

Furthermore, Yang (2016) states that mobile applications like Netflix use online personalization to enhance user experience. Online personalization via adaptive user interface means that the UI automatically adjusts context, demands, detected changes, adjusts content, visual presentation or layout. Movie recommendations in Netflix mobile application reduce the effort needed by the user to find the right movie or TV show. The Netflix application employs adaptive UI that uses the user profile and the set of user models to personalize the user experience as well as to address the needs of heterogeneous users. This is because online personalization benefits the service providers like Netflix and users. The term “algorithm identity” is used by (Markham, 2018) to denote how user interface adjusts content for the users and is a crucial element of the user experience catered by Netflix.

Algorithm identity is the “self” of the user that is constantly reproduced based on user interaction with the platform through clicks. This claim is authorized by a growing body of research that acknowledges the role of algorithms for generating different versions of a user’s identity online. Cheney-Lippold (2011), for example, a claim that application algorithms categorize the identity of the individuals which are inferred based on their application usage. Similarly, Markham (2018) argues that algorithms personalize and construct relational meaning and construct identity in contemporary use of the application.

Markham (2018) also focuses on what does the algorithm do and how it shapes the behaviour as well as the experience of the users. When it comes to the interface in Netflix application, over time and with routine use, it can be seen that the algorithmic identity develops. At the start, there is no typical profile page which users can refer to; instead, users can set up a small profile to inform the application regarding “who’s watching?” by choosing several avatars (Markham, 2018). The application also provides choices such as ‘maturity level’ and language topic from which caters to the need to the user.

Netflix via its mobile application successfully uses personalization in such a way that it anticipates the users’ behavioural intent and reduces the navigation time also known as the number of screens and reduces selection efforts which are the number of inputs or taps (Yang, 2016). The adaptive user interface is also beneficial for the service provider such as Netflix as it provides enhanced customer satisfaction and loyalty. The research and service design community recognize personalization as an essential element in maintaining and building long-term customer relationships while enhancing customer lifetime value. Yang (2016) states that adaptive user interfaces might confuse users who have the perception that the changes within the system’s behaviour happen to be negatively inconsistent instead of taking it as personalized user experience. This is because adaptive user interfaces might decrease the sense of control for users.

Cebeci (2019) uses the Technology Acceptance Model (TAM) to examine the factors that influence the intention of users to use Netflix and the user’s experience of the application. The Technology Acceptance Model (TAM) has been derived by Theory of Reasoned Action, which has four main constructs: attitude, intention to use, perceived ease of use and perceived usefulness. Cebeci (2019) states that perceived ease of use is the degree to which a user believes that using an application would be free of any effort and the perceived usefulness is the degree to which a user believes that an application would be beneficial to them. Users are having a high level of knowledge regarding application usage regard it as easy to use. Similarly, if a user has knowledge regarding Netflix application, he or she will believe it to be easy which means that Netflix is positively related to user’s perceived ease of use (Cebeci, 2019).

Similarly, Kortum (2015) uses the Technology Acceptance Model as a theoretical framework to denote the rapid adoption of mobile applications as the model suggests that technology and applications are widely adopted because of perceived usefulness. This perceived usefulness is related to the ease of use of the application such as the elements of availability, portability, low cost, ubiquity etc. contribute towards user experience (Kortum, 2015).

Markham (2018) uses a series of user journeys through the interface and critically analyzes each moment of the selected user’s Netflix experience (Markham, 2018). Over the course of the analysis, Markham (2018) ended up foregrounding different aspects of the influential, relational and infrastructural elements of the socio-technical experience of using Netflix. The researcher focused on three complexities, first being the user experience of the Netflix interface in which a complete narrative is implanted in such a way that the user believes to be in control and has the agency of controlling his or her Netflix experience through their choices. This happens to be apparent in the image of the company itself and is reinforced through the Netflix application.

Secondly, the Netflix application functions both indirectly as well as directly to condition the attitude as well as behaviours of the users. Directly, Netflix pushes to promote the original content as well as region-specific content. Indirectly, the Netflix interface design has elements that invite the attention of the users and provide the ease of use such as auto-play which induces binge-watching in users and promotes perceived ease of use.

The perceived ease of use is the degree to which a user believes that using an application would be free of any effort (Markham, 2018). Thirdly the recommendation algorithm creates an unsteady state of being in the users due to its incomprehensibility because of which users are never quite sure what the recommendation will be which enhances user attentiveness while using the application and engages them. Varela (2019) uses the user-focused approach for her study of the algorithmic culture that influences user experience. The researcher used Netflix’s recommendation algorithm to study the questions of black boxing, biases in the algorithm in terms of visibility as well as socio-technological elements of algorithms. The researcher conducted an in-depth interview methodology with users who are loyal users of Netflix in Singapore. Varela (2019) concludes that users also happen to be co-producers of the content as they contribute towards their experience as well through their usage of the application and consequently to the success of the application.

Pine (1998) defines user experience as a unique set of offerings that emerge s when an organization intentionally uses its product or service offerings to engage the users in such a way that it creates customer delight (Pine, 1998). Mobile user experience has been expanded upon using three dimensions such as device-related issues, application-related issues and communication-related issues. The device-related issues happen to be associated with hardware features that contribute towards ease of use of the accessories or the device such as a mobile phone. Communication-related issues tend to be focused on interpersonal communication, while application-related issues are linked towards the interaction of the user with the specific mobile application. The application related issues have been identified as the crucial layer which contributes towards user experience by Subramanya and Byung. Their research suggests that the application-related issues compensate for user constraints and underlying device constrains (Subramanya, 2009).

Research Methodology

The research methodology that is going to be used for this research is qualitative data collection and analysis (Hammarberg, 2016). Qualitative research is the most suitable method since the nature of this particular study is investigative. The research focuses on user experience while using Netflix application, and according to Hammarberg (2016), qualitative methods are used to explain research queries regarding perspective, experience and meaning from the standpoint of the participants. The research will employ qualitative research technique of small group discussions for investigating the concepts, beliefs as well as attitudes of normative behaviour. The quantitative technique has not been used because closed-ended questions that are asked for data collection do not provide good insight into the mind of the respondent.

 

Data Collection Technique

Focus group technique is going to be used as the data collection technique for this research because this technique provides insight into what individuals’ experience and feel. Focus groups are good for gaining a better understanding of the phenomenon being studied within the research. Data Analysis Technique used will be interviewed in which group interviews will be used that will allow the researcher the ability to capture in-depth information in a cost-effective way in comparison to individual interviews. The main benefit of this technique is that group interaction during the interviews will allow the researcher to grasp different views and will encourage the participants to make connections to various concepts of user experience while using Netflix.

Data Analysis

For each question asked during the focus group session, the researcher will summarize the main themes or the ideas that were discussed. Observations such as tone and opinion difference will also be taken into account. This procedure will facilitate a deeper understanding of the topic of the study. The discussion points that will not be coherent with the questions will also be noted and studied for a greater understanding of the topic. Data reduction will be done by summarizing the one to two-hour discussion with the focus group into manageable concepts for the development of the report. Concept map method will be used to aid in concept building during analysis (Barry Nagle, 2013).

 

References

Barry Nagle, N. W. (2013). Methodology brief: Introduction to focus groups. Center for Assessment, Planning and Accountability, 3.

Breen, R. L. (2006). A Practical Guide to Focus-Group Research. Journal of Geography in Higher Education, 463–475.

Bucher, T. &. (2018). The Affordances of Social Media Platforms. In J. Burgess, The SAGE Handbook of Social Media. Sage Publications.

Cebeci, U. (2019). Understanding the Intention to Use Netflix: An Extended TechnologyUfuk Cebeci. International Review of Management and Marketing, 152-157.

Cheney-Lippold. (2011). New Algorithmic Identity: Soft Biopolitics and the Modulation of Control Theory . Culture & Society, 164-181.

Hammarberg, K. (2016). Qualitative research methods: when to use them and how to judge them. Human Reproduction, 498–501.

Kortum, P. (2015). Measuring the Usability of Mobile Applications for Phones and Tablets. International Journal of Human-Computer Interaction, 518–529.

Markham, A. (2018). Netflix, imagined affordances, and the illusion of control. In T. Plothe, Netflix at the Nexus. Peter Lang.

Pine, J. B. (1998). Welcome to the Experience Economy. Harvard Business Review,, 20.

Subramanya, S. R. (2009). Enhancing the User Experience in Mobile Phones. IEEE 5th International Conference on Advanced Video and Sinal Based Surveillance, 200.

Varela, D. K. (2019). The Netflix Experience: A User-Focused Approach to the Netflix Recommendation Algorithm. In Netflix at the Nexus: Content, Practice, and Production in the Age of Streaming Television (pp. 197-211). Lang Publishing Group .

Yang, Q. (2016). Planning Adaptive Mobile Experiences When Wireframing. Proceedings of the 2016 ACM Conference on Designing Interactive Systems, 565-570.

Yazid, M. A. (2017). User Experience Design (UXD) of Mobile Application: An Implementation of a. Journal of Telecommunication, Electronic and Computer Engineering, 197-290.

 

 

 

 

 

 

 

 

 

 

 

 

 

Case Analysis of Disney Plus & Netflix

Pages:7

History of Disney Plus

The American subscription video-on-demand service for streaming is being operated at the international level by Walt Disney Company. This streaming service is provided by Disney plus. The direct to consumer and international performance division comprises of TV series and film. Disney plus is working on many original TV series and film series. The company is providing family-oriented entertainment, but no TV-MA programming and R-Rated. Disney has built this service from main entertainment studios of Disney comprises of Pixar, Walt Disney Pictures, National Geographic, and Marvel Studios. Disney has gained a controlling stake about its services operating along Hulu, i.e. generating common entertainment. The Hulu is an add-on service by Disney Plus.

Figure 1 Walt Disney Revenue

(Source: Eng& Hernandez, 2006)

Disney Plus is an online streaming place and came out in November, 12th 2019. It is offering a big collection of libraries, movies, and shows. In December 2019, Disney Plus presented a children game show Star War’s based (Temple Challenge). It is working on a documentary to produce conversation themes content related to documentaries. It is working on web browsers streaming, Apple TV, iOS devices, Amazon ad Android TV. Apple TV app is a listed item for content on Disney Plus. It is also working on seven user profiles for an individual account and offer streaming on four devices as well as offline viewing. Disney Plus was first launched in the US, Netherlands, and Canada, then in New Zealand, Australia, and Puerto Rico. In December 2019, it started Canal + in France (Eng& Hernandez, 2006).

Disney Plus Streaming

Disney has entered in streaming market world of entertainment due to its highly anticipated Disney plus streaming. The streaming plan by Disney was implemented due to the high demand for its shows and films. Disney is the best performer at the industry average and extended its year-to-date gain to 35% with the ease of ringing it a versatile stock for the company. The start of Disney Plus added 10 million subscribers on the first day of launch. Verizon is providing free of charge Disney plus to its subscribers as a part of smart marketing. A positive catalyst for the stock of Disney will be the free trial for Verizon customers. On March 31, 2020, it will be launched in Western Europe. It is also being expected that in the first quarter of 2020, this will increase the subscribers from 15 to 25 million. Streaming is at peak growth these days, so it has attracted many glitzy growth companies.

Disney Plus is also entered into the competitive industry due to high demand and gaining positive growth (Zeitchik, 2019). The year to date stock of Disney is 25% before its debut of streaming service due to its anticipation. This was due to the investors’ appreciation of different elements of the company regarding the business model. The streaming service by Disney was also mainly inspired due to its theme parks. The resorts and parks are the main shining components of Disney plus and allowed a sustainable growth rate. Disney always aims to provide original content for TV and its series have ties to the significant and unique properties of shows (Lam & Rossiter, 2013). The Disney studio, its themed competition such as Cinema Relic and Be Our Chief are inspiring stories for kids. It has also launched a documentary studio super club based on conservation nature-themed documentary.

The key Disney’s differentiators allow them to create and sustain a competitive advantage. It will include action shows under the theme of the Marvel Cinematic Universe. The big-screen stars such as Tom Hiddleston and Elizabeth Olsen are some motivating key features of Disney. The marvel series films will roll out in 2020-2022, and Falcon & Winter Soldier will launch in August 2020. The Jim Henson Company will produce parody and Muppet that will release in the current year (Zeitchik, 2019).

Traditional Streaming Business Model for Netflix

The most successful streaming business model provided by Netflix was started in 1998, by offering services to consumers by mailing copies of shows, movies, videos, and media forms. Netflix offered different technical changes by converted its business model (Sherman, 2020). It has provided streaming technologies for its business revenue and structure. The key partners of Netflix are alliance with the game industry, Smart TV companies, and TV companies such as Amazon and Google. The value propositions of the Netflix business model are streaming of 24/7 minus ads, high definition movies, unlimited access to movies and TV shows, algorithm recommendations and 30 days free trial after new sign up.

Figure 2 Netflix Business Model

(Source: Lam & Rossiter, 2013)

The customer relationships are built by offering exceptional services, online chat services, self-setup ease and gift cards by Netflix. The customer segments in Netflix are mainly interested in watching shows, TV documentaries and movies. The key resources are software developers and algorithms. Its cost structures are aligned on purchasing the right establishment, producing movies cost, R & D services, cost of artificial intelligence, subscription cost and mail-related shipping costs of DVDs (Sherman, 2020).

The Netflix revenue streams are mainly three kinds of subscription plans, standard, basic and premium. The channels offered by Netflix are online streaming, TV apps streaming, gaming consoles, and DVDs delivery. This traditional business model by Netflix is aligned with technology and maintaining technical staff. It has also developed its pricing strategy model to ensure affordability.

Figure 3 Netflix Performance

(Source: Lam & Rossiter, 2019)

Disney’s Plus Business Model

Disney experienced high initial sustainable growth. The main entertainment studios of Disney are Pixar, Disney Animation, Marvel Studios, and Lucas film. The growth is sustainable due to the high customer base and loyalty framework. According to Bob Iger, Disney plus will focus on family-oriented entertainment and Hulu will also focus on the general kind of entertainment. Disney plus is expected to produce 500 films and 7,000 TV episodes and the main content will be taken from Marvel, Pixar, Disney, and 20th-century studios. The services provided by Disney plus will hold pay cable rights. It will include acquired programming from different production companies that are not its subsidiaries.

Figure 4 Market share and forecast of Disney

(Source: Pilipets, 2019)

New 20th century Fox is not available on Hulu and Disney plus due to its pre-existing deals (Pilipets, 2019). Iger stated that Disney plus has key features of growth and can sustain its performance by adding technology.

The features of Disney plus are significant that can help the company continue its growth rate. For instance, Disney plus is easy to go with PCs, Apple TV, iOS devices and Amazon devices. The Smart TVs, Chromecasts, Fire HD and Roku devices are easily aligned with Disney plus. It is also providing easy accessibility features such as audio description, closed captioning, video services and assistance in navigation. It has based its business model on free subscription-driven service (Lam & Rossiter, 2013). It is expected that it will increase the prices with time but sustaining lower prices for some content can increase engagement for studio entertainment. Its business model has focused on internally licensed content, i.e. content studio entertainment and license-free media networks. It is estimated that licensed content expense for the fiscal year 2020 will be less than $1.5B and for the fiscal year 2024 it will be $2B.

The original content will be amortized over many years so that will represent long term usefulness of streaming. The business model also focused on male and female affinity ratio. Disney will bundle Hulu and Disney plus or ESPN to get a large customer base. ESPN can bring sports fans while Hulu will provide adult content to its subsidiaries such as Fox Searchlight, Freeform. ABC Studios, and Touchstone Pictures. Disney plus has an advantage over Netflix in ems of offering a significant catalog of original content, though the business model of both is not very different.

Key Competitors of Disney

A number of competitors are playing a role in the path of Disney across the market such as Time Warner, Sony, 21st Century Fox, CBS, and Viacom. The high competition with Disney is due to its main products of media markets, cable, and TV. Multichannel video programming is increasing competition for Disney in the industry.

Figure 5 Competitors of Disney Plus

(Source: Eng& Hernandez, 2006)

Disney is positioning it within the highly competitive market by mainly focusing on the competitive sports market, for instance, it has a strong collaboration with ESPN that makes 24% of its revenue (Eng& Hernandez, 2006). The popularity of sports channels is a key package for program building. In the theme park market, many rivals of Disney are at the front, such as Universal Studios, Cedar Fair, Six Flags and Comcast. The high competition is maintained by renegotiating its contracts, managing innovations and offering wide consumer products by involving publishing, licensing and retails. It is competing with other companies in terms of original content and technology. Thecompetitive position at market place is accompanied by innovation and technical implementation in streaming, video on demand and subscription processes. This improved performance is attributable to customer loyalty and strong base of general entertainment.

 

 

References

Eng, S., & Hernandez, F. (2006). Managing streaming video: A new role for technical services. Library Collections, Acquisitions, And Technical Services, 30(3-4), 214-223. https://doi.org/10.1016/j.lcats.2006.10.001

Lam, G., & Rossiter, D. (2013). A Web Service Framework Supporting Multimedia Streaming. IEEE Transactions On Services Computing, 6(3), 400-413. https://doi.org/10.1109/tsc.2012.11

Pilipets, E. (2019). From Netflix Streaming to Netflix and Chill: The (Dis)Connected Body of Serial Binge-Viewer. Social Media + Society, 5(4), 205630511988342. https://doi.org/10.1177/2056305119883426

Sherman, A. (2020). Disney+ already has 10 million subscribers — here’s how that compares with rivals. CNBC. Retrieved 28 February 2020, from https://www.cnbc.com/2019/11/13/disney-10-million-subscribers-vs-competition.html.

Zeitchik, S. (2019). The Disney Plus launch ratchets up talk of streaming competition. But the same creators work for all of them. Washington Post. Retrieved 28 February 2020, from https://www.washingtonpost.com/business/2019/11/12/streaming-services-are-multiplying-same-producers-directors-actors-work-all-them/.

 

 

 

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