Reinhardt University Nettflix Strategy Analysis

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Reinhardt University

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Report 3 Netflix Case Analysis Instructions MGMT 3000 – Hopkins (Version 10-14-2019) Course Topic Alignment: Global Strategy Development Purpose: The purpose of this assignment is to understand how companies must adapt to new market conditions and sometimes dramatically change their strategies and re-invent themselves to survive and thrive. Netflix is a great example of this transformation. This assignment combines a Harvard case as well as more current outside sources to expand your situational awareness of the world NetFlix competes. Resources: Use the Netflix, Inc. HBR case and outside resources to complete this assignment (several outside Netflix related WSJ article resources are included in eLC to get you started). List your outside resources on the last page of your report (you do not need to cite them inside the report) Situation: You were just hired by Reed Hastings, Netflix’s CEO, as a strategy analyst reporting directly to him. Mr. Hastings wants you to take a fresh high level view of the company’s strategy and its competitive environment and position, along with your strategy recommendations using its history of strategic change as a backdrop. ----------------------------------------------------------------------------------------------------------------------------------Mr. Hastings wants you to write him a memo report (usually 4-6 single spaced pages) formatted into the following sections and sub-section and addressed as follows: To: Reed Hastings, CEO From: (last 4 digits of your UGA ID) RE: Netflix Strategic Analysis (Include an introductory paragraph: Briefly explain the purpose of your memo so the reader knows what to expect.) 1. Strategic Change: a) Business Level Strategy: Describe Netflix’s current business level strategies. Give examples. b) Corporate Level Strategy: Describe Netflix’s current corporate level strategies. Give examples. c) Strategy shifts: Describe Netflix’s strategy shifts and changes over the last 20 years. o What external conditions caused the need for change at Netflix? o What was the role of leadership in managing change at Netflix? Netflix Case 1 2. Strategic Analysis: Netflix is in a mode of continually transforming itself as described in the HBR case. Apply what you have learned in the course to provide Mr. Hastings a strategic analysis of Netflix including the following: a) SWOT analysis: What are Netflix’s current perceived strengths and weaknesses as well as opportunities and threats? Prepare a high level SWOT analysis on Netflix using the case information as well as current outside sources to illustrate your findings. What conclusions about Netflix do you have based your analysis in each of the SWOT areas? b) Porters 5 Forces analysis: Analyze Netflix’s industry attractiveness covering each component of Porter’s 5 forces model. What is your assessment? c) VRIO analysis: Analyze Netflix’s resources and capabilities using each of the four components of the VRIO framework. d) Competitive Advantage Assessment: Based on your SWOT, Porters 5 Forces, and VRIO analysis, what is your assessment of Netflix’s real competitive advantage and how sustainable is it? e) Results: What has been the trend in Netflix’s financial performance over the last several years? How are they doing now? What is making the difference? 3. Strategy Recommendations: Based on your discovery and analysis of items 1-2 above, apply your course knowledge and advise your strategy recommendations to Mr. Hastings. a. Business Level Strategy: What should Netflix’s business level strategy be going forward? Support your recommendation with your strategic analysis findings. b. Corporate Level Strategy: What should Netflix’s corporate level strategy be going forward? Support your recommendation with your strategic analysis findings. c. Results impact: What could be the impact on business results of your recommendations? (i.e. why should Netflix adopt your strategy recommendations?) Mr. Hastings wants to know what you think! ------------------------------------------------------------------------------------------------------------------------------------ Netflix Case 2 Rampant submission directions: Use the Rampant Strategy application to submit your report. Do NOT put your name on your report (only the last 4 digits of your UGA ID) as the peer review process is anonymous. Upload your report as a pdf document to Rampant. You can name your pdf file anything as Rampant will change the file name upon uploading to assure your anonymity for peer reviews Report Evaluation Rubric: Your report will be evaluated by your peers using the following rubric. 5 Excellent 4 Good 3 Fair 2 Poor 1 Very Poor 1. Strategic Change: How insightful, both breadth and depth, is the analysis and conclusions? Provides exceptional insight, breadth, and depth Provides Provides at least resonalble some insight, and Provides little insight, breadth, some breadth, insight, breadth, and depth and depth and depth Provides essentially no insight, breadth, or depth 2. Strategic Analysis: How insightful, both breadth and depth, is the analysis and conclusions? Provides exceptional insight, breadth, and depth Provides Provides at least resonalble some insight, and Provides little insight, breadth, some breadth, insight, breadth, and depth and depth and depth Provides essentially no insight, breadth, or depth 3. Strategy Recommendations: How insightful, both breadth and depth, is the analysis and conclusions? Provides exceptional insight, breadth, and depth Provides Provides at least resonalble some insight, and Provides little insight, breadth, some breadth, insight, breadth, and depth and depth and depth Provides essentially no insight, breadth, or depth The report is of exceptionally 4. Overall Quality: How well quality, very written and professional is the clear, organized, report? and well written. The report is of reasonably quality, clear, organized, and written. The report is The report is of The report is of essentially of no fair quality, poor quality, value, due to it's somewhat clear, clearity, lack of clarity, organized, and organization, and organization, and written. poorly written. writing. Peer Reviewer Responsibility and Performance: Performing a Peer Reviewer Evaluation is an important skill building activity because evaluating an individual’s performance is a key component of management. Reviewing another person’s work also provides the opportunity to see another perspective of how a situation is analyzed, and to learn from it. Each student will review 4 submissions from other students. Your peer review of the other student’s submissions should provide 1) thoughtful critique, 2) be complete, and 3) be on-time. Netflix Case 3 For the exclusive use of M. Oliver, 2019. MH0043 1 2 59927628 R EV: FEBRUA RY , 2017 FRANK T. ROT H A E RME L AUST IN GU E N T H E R Netflix, Inc. It’s not Netflix that’s making the changes. It’s the Internet. - Reed Hastings, Netflix CEO1 At the 2017 Golden Globe awards, Netflix CEO Reed Hastings applauded from his front row seat as he watched screenwriter Peter Morgan approach the podium. Netflix content executives Ted Sarandos and Cindy Holland were seated beside Hastings. Peter Morgan’s Netflix-produced original series “The Crown” had just won the award for best television drama. The biographical series about Queen Elizabeth II prevailed over formidable competitors including HBO’s “Westworld” and “Game of Thrones.” With a budget of 100 million British pounds, “The Crown” was also one of the most expensive dramas ever made.2 This fact was not lost on Hastings. Standing behind the microphone, Morgan looked out into the audience for the Netflix executives. “Ted, Reed, Cindy–Thank you,” he began the acceptance speech.3 After returning to his hotel that evening, Hastings reflected on the career that had taken him, a former vacuum cleaner salesman, onto the red carpet. His thoughts quickly wandered back to Netflix’s business matters. The annual report would be released in two weeks. With Netflix’s stock trading at record highs, investors were looking for numbers to justify Netflix’s $55 billion market capitalization. Winning Golden Globes is noteworthy, but Netflix lived as much on Wall Street as it did in Hollywood and Silicon Valley. Netflix had a negative free cash flow of $1.7 billion in 2016.4 How could Netflix ensure that it was spending money on the right content? Netflix was now operating its streaming service in 190 countries worldwide and needed to cater its licensed and original content to a much more diverse audience than ever before. Also on Hastings’ mind was Netflix’s sometimes contentious relationship with internet service providers (ISPs). Netflix relied on ISPs to deliver its high-bandwidth content to subscribers. How could Netflix ensure that the ISPs would provide the high-speed connections required to deliver streaming content to its subscribers? Finally, Netflix was facing tougher competitors. Amazon, HBO, and Hulu were investing heavily in streaming content too. As Netflix approached its twentieth year, how could Netflix keep subscribers loyal and acquire new ones? Professor Frank T. Rothaermel and Research Associate Austin Guenther prepared this case from public sources. Research assistance by Hassan El-Majidi is gratefully acknowledged. This case is developed for the purpose of class discussion. This case is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the author’s. © by Rothaermel and Guenther, 2017. This document is authorized for use only by Maria Oliver in MGMT 3000 Principles of Management - Fall 2019 taught by James Hopkins, University of Georgia from Aug 2019 to Feb 2020. For the exclusive use of M. Oliver, 2019. Netflix, Inc. A Brief History of Netflix I got the idea for Netflix after my company was acquired. I had a big late fee for “Apollo 13.” It was six weeks late and I owed the video store $40. I had misplaced the cassette. It was all my fault. I didn’t want to tell my wife about it. And I said to myself, “I’m going to compromise the integrity of my marriage over a late fee?” – Reed Hastings, Netflix CEO5 Reed Hastings late fee story may include a bit of corporate legend and marketing exaggeration. In an interview, Netflix’s other founder and former CEO, Marc Randolph stated that Hastings’ late fee story “never happened.”6 Instead, Netflix’s DVD rental-by-mail business was a carefully planned enterprise made possible by advances in video-on-demand and home internet technologies. VIDEO-ON-DEMAND Through the 1980s most television shows were commissioned and carried by major networks such as ABC, CBS, and NBC. The networks had started in radio and followed the same business model with the arrival of television. Using licenses granted by the Federal Communications Commission (FCC), networks broadcast to viewers free of charge and earned money by selling advertising spots.7 With the advent of cable television, themed channels like Nickelodeon, CNN, ESPN, and HBO emerged. Cable companies and channels made money by charging viewers monthly subscription fees and selling advertising. The broadcasters’ advertising revenues declined, but they were able to compensate by charging cable companies for carrying their content.8 With the introduction of the video cassette recorder (VCR) in the 1980’s, viewers gained the ability to watch video content on their own schedule. They could either purchase prerecorded cassettes or make their own tapes from television broadcasts. Instead of being locked into the broadcasters’ schedules, viewers could now consume content at their convenience and skip commercials.9 Prerecorded cassettes initially retailed for around $50, spurring mom-and-pop retailers to form local video rental clubs. The retailers purchased the tapes and rented them to customers to recover purchase costs and earn a profit.10 By 1988, video rental revenue was $5.15 billion, surpassing movie box office receipts.11 In the mid-1990s, the DVD (digital versatile disc) was co-developed by several electronics companies. DVD discs delivered better video quality than VHS tapes and did not require rewinding after viewing. HOME INTERNET On December 1, 1996, internet service provider America Online abandoned its pay-by-the-hour billing system. Instead, its seven million customers were offered unlimited internet access for a flat $19.95 monthly fee. Other internet service providers quickly followed suit. The “all you can eat” pricing freed customers from hourly usage fees, but quickly clogged telephone lines with dial-up modem traffic.12 2 This document is authorized for use only by Maria Oliver in MGMT 3000 Principles of Management - Fall 2019 taught by James Hopkins, University of Georgia from Aug 2019 to Feb 2020. For the exclusive use of M. Oliver, 2019. Netflix, Inc. In 1997, 37 percent of US households owned a computer, and 18 percent of U.S. adults used the Internet at home.13 The 56-kilobit dial-up modem was introduced in January 1997, potentially doubling users’ connection speeds. Most connections, however, were limited to 40 kilobits per second by telephone line quality.14 At the turn of the millennium, Internet service providers began offering substantially faster broadband service through digital subscriber lines (DSL) and cable modems. Broadband technology enabled streaming of high-quality video. By 2005, broadband adoption had surpassed dial-up Internet service (Exhibit 1 ).15 REED HASTINGS AND MARC RANDOLPH After high school, Reed Hastings spent a year selling Rainbow vacuum cleaners door-to-door before enrolling in Bowdoin College where he majored in mathematics. He followed college with a Peace Corps assignment teaching math in Swaziland before returning to school again, this time earning a master’s degree in computer science from Stanford. In 1991, Hastings founded Pure Atria Software to commercialize a software debugging program he had written. The company grew quickly under Hastings’ leadership and acquired Integrity QA, where Marc Randolph was the Vice President of Marketing. After the acquisition, Hastings and Randolph began working and commuting together. Marc Randolph began his career fulfilling mail orders for songbooks at the Cherry Lane Music Company. The job allowed him to experiment with different catalog designs and order forms to determine which generated the most sales. He moved on to designing software for managing Cherry Lane’s music magazine subscriptions. In 1984, he helped start MacUser magazine which eventually led to his career in software marketing. In late 1996, Pure Atria’s board decided to sell the company to Rational Software for $585 million.16 Randolph, knowing that his job would likely be cut after the merger was completed, began planning a new venture. Based on his prior experience in direct mail sales, Randolph realized that the recently released DVD format would dramatically change the movie distribution. Unlike VHS tapes, the new DVD discs were thin and easy to mail. In 1997 with funding from Hastings, Randolph began developing a business based on mailing DVDs.17 BUILDING SUBSCRIBERS Netflix’s website went live on April 14, 1998. Netflix built an underground following before launch by seeking out technology writers in Internet Usenet groups (an early form of blogging). Netflix offered them the chance to be the first to write about Netflix after it launched in return for beta testing their rental system. This provided Netflix with the opportunity to work out operational issues and granted it immediate access to tech-savvy customers on launch day.18 To attract new subscribers with the requisite DVD player, Netflix convinced electronics manufacturers to package a Netflix coupon with new DVD players. The coupon was mutually beneficial. DVDs were still not commonly available, but with the coupon, manufacturers could provide their customers access to a library of hundreds of rental DVDs.19 3 This document is authorized for use only by Maria Oliver in MGMT 3000 Principles of Management - Fall 2019 taught by James Hopkins, University of Georgia from Aug 2019 to Feb 2020. For the exclusive use of M. Oliver, 2019. Netflix, Inc. PERSONALIZED WEBSITE Netflix’s website was designed to duplicate the best parts of the video store experience. Netflix’s personalized recommendation engine replaced store clerk suggestions. It also pushed customers to older, in-stock movies instead of suggesting new releases. This enabled Netflix to fulfill demand with cheaper inventory and gave Netflix a reputation for having rare niche and foreign films.20 One day we hope to get so good at suggestions that we’re able to show you exactly the right film or TV show for your mood when you turn on Netflix. – Reed Hastings, Netflix CEO21 Christina Kish, Netflix’s head of marketing, was inspired to create the Netflix Queue based on her frugal reading habits. Kish often visited bookstores to find new books, making a list of the titles she liked for later use at the library. Similarly, Netflix’s Queue allowed users to designate films that interested them and mark them for later viewing.22 BUSINESS MODEL EVOLUTION Netflix’s early business model mirrored that of brick-and-mortar video stores. Netflix customers could browse through DVDs on Netflix’s website and have them mailed directly to their homes. DVDs rented for $4 each, plus an additional $2 shipping fee. If the renter wanted to keep the DVD they could purchase it at a discount.23 Initially, Netflix was also one of the few places where customers could buy DVDs, making sales a primary source of revenue. However, this income stream was under threat as retailers like Amazon and Walmart began stocking DVDs.24 Randolph and Hastings met with Amazon’s Jeff Bezos and agreed to a cross promotion deal with Amazon. Netflix would direct DVD buyers to Amazon in exchange for ad placement on Amazon’s website.25 In 1999, Netflix began testing different ways to increase rentals and drive customer loyalty. Netflix’s Home Rental Library concept sent customers six DVDs at a time for a $20 per month subscription. After returning all the discs, customers could select six more DVDs to rent. Netflix’s Serialized Delivery concept continued using Netflix’s per disc rental pricing but allowed customers to create a short list of future movie rentals. As soon as the customer returned a DVD, Netflix would send another movie from their list. Customers in the market test groups liked both concepts, so Randolph decided to combine them into a concept called the Marquee Plan. Customers were offered four movies for a $15.99 per month subscription. Hastings labeled the program “near DVD-on-Demand” and positioned it as an alternative to Blockbuster’s due dates and late fees.26 Within six months the program tripled rentals to more than 100,000 per week. Netflix announced a change to the Marquee Program in February 2000 to allow unlimited rentals with up to four DVDs out at a time.27 Imagine watching whatever DVD movies you want, keeping them for as long as you want, and watching as many as you want, all for a flat fee of $19.95 per month...Similar to AOL’s transformation of the Internet with its unlimited access plan for a flat fee, Netflix is changing the rules of the movie rental market. – Reed Hastings, Netflix CEO28 NETFLIX TAKES ON BLOCKBUSTER David Cook founded Blockbuster in the mid-1980s. Cook owned a Texas-based software company catering to customers in the oil and gas industry. When the 1980s glut in the oil market began taking a toll on his software business, Cook decided to shift his focus to the video rental m ...
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Final Answer


Change is an example element with significant influence on organizations. It is mainly driven by the need
to deliver quality services to customers giving them value for their money. New technology helps to
determine the frequency in which an organization adopts and implements change. Netflix, for the past
20 years it has been in operation has integrated new processes in their business model. Despite being
among the best organizations offering streaming services, it is crucial that the company adopts new
changes in online streaming industry. It is the ability to integrate new changes taking place in the
industry that will contribute to increased competitiveness. Below is a case analysis of Netflix to identify
the strategies available for its adoption to make it more competitive.
Strategic changes
Business level strategy
Low cost is the main business strategy adopted by Netflix. As one of the major content streaming service
providers, Netflix highly influences the price of accessing online content. Netflix offers its customers
various subscription options whether monthly, quarterly or on a year basis. Due to its popularity, the
company has a large number of subscribers allowing it to offer low costs to its customers. Cost
leadership is a second business strategy adopted by Netflix. The open connect system with Comcast is
an example of a cost leadership strategy the company uses. The strategy allows its customers to get high
speed streaming services at low costs.
Corporate level strategy
Diversification represents the main corporate level strategy adopted by Netflix. The strategy allows the
company to invest its resources variously to allow more content to its customers at low costs while
incurring low costs acquiring content for its customers. For instance, Netflix has developed a
department that allows it to produce its content. That way, the only cost incurred is during production.
In a second example, the company sponsors the production of content by others. By sponsoring
production of content by others, the cost to acquire such content is highly subsidized making it possible
for the company to offer it to customer at low prices.
Strategy shifts
For the past 20 years the company has been operation, the company has applied different strategies to
enhance its competitiveness. For instance, in its formative years, the company offered DVD renting
services to its customers. The DVDs that a customer could rent were limited and the customer could stay
with them for a limited period as well. Later, the company adopted a new strategy that removed the
limitations. As such, the customer could have as many copies DVDs as they could afford and stay with
them for as long as they wanted. Later, the company integrated online services to back-up its DVD
renting service. The strategy allowed customers to queue their preferred DVDs availing them as soon as
the customers wanted. The strategy that followed allowed the company to offer online streaming
services to its customers. The main external condition that called for change of strategy in Netflix is
competition from Blockbuster. However, changes in Blockbuster saw Netflix grow to develop its online
streaming services further making it highly competitive in the industry. The company has maintained its
competitiveness to date. Its leadership, which is highly innovative is among the main factors
contributing to the success of the company.

Strategic analysis
SWOT analysis
Netflix strengths includes large demand for its streaming services allowing it to avail content at low
prices. Easy accessibility on different platforms including smartphones, TV, laptops among others. Large
variety of show attracts a large number of customers. It is through such strategies that the company has
grown to become highly competitive.
Despite its position in the market, Netflix has a number of weaknesses that it needs to address. For
example, it is heavily on internet service providers to avail its content to customers. A fallout with the
ISP would make it hard for customers to get their content. Secondly, the company does not offer high
price subscriptions. That way, it misses on increasing it profit margins even further.
However, various opportunities exist for the company to exploit. For example, increasing its global
presence will result to an increase in the number of subscribers. The ability to develop its internet
service providing services is a second opportunity that will allow the c...

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