Netflix – 2011 Forest David
A.
Case Abstract Netflix is a comprehensive strategic management case that includes the company’s year-end 2010 financial statements, organizational chart, competitor information information and more !he case time setting is the year year 2011 "ufficient internal and external data are provided to ena#le students to evaluate current strategies and recommend a three-year strategic plan for the company company $ead%uartered in &os 'atos, (alifornia, Netflix’s common stoc) is pu#licly traded under the tic)er sym#ol NF&* Netflix founded in 1++, Netflix provides DDs and .lu-ray discs to /nternet #ased su#scri#ers in the nited "tates, (anada, exico and &atin merica and DDs and .lu-ray discs delivered to the homes of customers in the nited "tates (ustomers, 3ho receive DDs #y mail, )eep )eep the media for as long as as they 3ish 3ith no late fees and return the DD in a prepaid shipping envelope and then are eligi#le to select their next DD "u#scription plans start as lo3 as 4++ 4++ per month !he company had 25 million su#scri#ers as of "ummer 2011
B.
Vision Statement 6proposed7 !o #ecome the num#er one mail order and live streaming movie company in the 3orld
C.
Mission Statement 6proposed7 t Netflix 3e see) to #e the highest %uality su#scription #usiness that offers /nternet streaming and DD #y mail content 627 8e #elieve in offering the #est customer service possi#le #y teaching our employees employees to #e honest, respectful and ethical 697 3hile also valuing every customer’s individual needs :ur employees 6+7 are provided 3ith the latest technologies, excellent #enefits, and the safest 3or)ing conditions in the industry 8e provide outstanding customer service and in return, our customers 617 i n our North merican and exican mar)ets 6;7 recommend their friends to Netflix 657 :ur vast li#rary of DD’s and streaming service 6<7 provides a competitive advantage 67 as compared to offering offering only streaming t Netflix, 3e strive to #e a good corporate citizen 6=7 1 2 ; < 5 9 = +
(ustomers >rod >roduc ucts ts or serv servic ices es ar)ets !echnology (oncer (oncern n for surv surviva ival, l, gro3th gro3th,, and profi profita# ta#ility ility >hilosoph y "elflf-concept (onc (oncer ern n for for pu#l pu#lic ic imag imagee (onc (oncer ern n for for emp emplo loye yees es
D.
External Audit !!ortunities
1 2 ; < 5 9 = + 10
1< million people in the nited "tates 3atch online videos Digital distri#ution of media is gro3ing at a rate of ;0? a year /nternational mar)ets account for over 50? of spending in " filmed entertainment " ! mar)et accounts for less than 15? of the 3orld@s ! households (hina@s #ox office annual gro3th rate continues to gro3 over 10? a year Aivals such as .loc)#uster are struggling 3ith their #usiness models (onsumers spent over 420 #illion on home video purchases in 2010 ore people )no3 Bnglish no3 than ever #efore $igh price of an outing at the movie theater 8ea) " Dollar ma)es glo#al mar)ets more attractive
"#reats
1 2 ; < 5 9 = + 10
>oor glo#al economy has reduced personal spending Cou!u#e o3ns over 5? of the multimedia 3e# mar)et share !ime 8arner (a#le@s movies on demand $ulu, an ad #ased streamer, provides ! sho3s and movies for free DAs are in <0? of " homes as of 2011 .arriers to entry are lo3 as startups can #e launched for relatively lo3 costs .y la3, Netflix cannot release ne3 DDs until 2= days after retail release /ncrease in " postal fees 3ould reduce profit margins /nfringements on Netflix patents and other proprietary assets Netflix is the o#ect of complaints regarding collusion 3ith 8al-art
Com!etiti$e %rofile Matrix
E&E Matrix
E.
'nternal Audit Stren(t#s
1 2 ; < 5 9
Aevenues increased 2+? from 200+ to 2010 +0? of surveyed su#scri#ers 3ould recommend Netflix to their friends &i#rary of choices gre3 ;0? in 2010 (urrently have over 100,000 DDs availa#le for customers Netflix expanded into (anada, exico and &atin merica in 2011 Netflix is the largest streaming movie company 3ith over 25 million su#scri#ers as of Fall 2011
= + 10
Aecent customer satisfaction "(/ score 3as =5 out of 100 nlimited access to internet movies and mail in DDs for 4++ Net income dou#led from 4=;. to 4191. from 200= to 2010 pple uses Netflix to stream movies to its pple !, i>hone, and i>ad
)ea*nesses
1 2
Aeliance on the " ail "ystem for delivering of DDs in " ar)ets Aelies upon mazon for a maority of its cloud computing services and cannot easily s3itch to another cloud provider ; :nly 2 of the top = executives are 3omen < Netflix has no pu#lically availa#le vision or mission statement 5 Netflix deal 3ith Disney and "ony expires in 2011 9 /n 2010, Netflix did not ran) in the !op 10 among online video content providers Netflix charges 4+5 to mazon@s 4+ for unlimited streaming 3ithout DDs = Netflix collects data from su#scri#ers and some firms have received criticism for this practice + Netflix is the o#ect of patent infringement regarding client-server communications 10 "toc) price fell 90? #et3een Euly 2011 and :cto#er 2011 &inancial +atio Anal,sis -rot# +ate %ercent "ales 6tr vs year ago %tr7 Net /ncome 6C!D vs C!D7 Net /ncome 6tr vs year ago %tr7 "ales 65-Cear nnual vg7 Net /ncome 65-Cear nnual vg7 Dividends 65-Cear nnual vg7
Netflix <=90 9<50 25+5 ;0+ -
'ndustr, <0 510 25< ;0;2 -
S/% 00 1<+0 950 =2= = 59
%rofit Mar(in %ercent 'ross argin >re-!ax argin Net >rofit argin 5Cr 'ross argin 65-Cear vg7
;99 12+ =1 ;5
;95 12 =0 ;5
;+5 1=0 1;1 ;+<
iuidit, +atios De#tGB%uity Aatio (urrent Aatio uic) Aatio
090 12 -
05+ 12 -
100 1< 0+
%rofitabilit, +atios Aeturn :n B%uity Aeturn :n ssets Aeturn :n (apital Aeturn :n B%uity 65-Cear vg7 Aeturn :n ssets 65-Cear vg7 Aeturn :n (apital 65-Cear vg7
=20 1< ;2= 2== 1<9 221
=0= 11 ;2; 2=2 1<; 21
2=1 == 11 2;= =0 10=
10+,15 21
10,92< 1< 00 21
11=,0; 152 12; 0=
Efficienc, +atios /ncomeGBmployee Aeceiva#le !urnover /nventory !urnover sset !urnover
Net )ort# Anal,sis 6in millions7
'&E Matrix
&.
S)" S Strate(ies
1
/ncrease advertising expenses #y 15? in 2012 and 201; 6"1, "<, "5, :1, :27
2 ; <
:ffer first ; months at reduced price to ta)e advantage of at home movie customers 6"=, :7 ggressively enter the (hinese mar)et 6"+, :5, :=, :107 >rovide free month service to any customer 3ho recommends 5 friends 6"2, :1, :27
) Strate(ies
1 2
Bxtend expansion into (anada, exico, &atin merica and (hina #y 15? per year 689, 810, :;, :<, :5, :=, :107 Aene3 deals 3ith Disney and "ony 685, :27
S" Strate(ies
1 2
>rovide a free month of service for anyone 3ho recommends 5 friends 6"2, !17 /ncrease AHD #y 25? for mar)eting of online streaming movies 6"9, "=, !9, !=7
)" Strate(ies
1 2
-.
Form a partnership 3ith >" to deliver all DDs 681, !=7 Develop a clear mission 68<, !1, !97
S%ACE Matrix
3.
-rand Strate(, Matrix
'.
"#e 'nternal4External 5'E6 Matrix
Di$ision DD Division "treaming Division
%rofits 492 4<<1
7.
8S%M
9.
+ecommendations 1 /ncrease advertising #udgets #y 15 percent 2 Bxpand #y 15 percent into &atin merica, exico, and (hina
.
E%S:EB'" Anal,sis 6in millions7 mount NeededI 41,000 "toc) >riceI 4120 "hares :utstandingI 52 /nterest AateI 5? !ax AateI ;9?
M.
E!ilo(ue Netflix is do3nplaying pro#lems 3ith its " operations #y focusing on its plans to expand into the J and /reland in early 2012 .ut the company lost a#out 5+0,000 " su#scri#ers in the third %uarter of 2011 as a result of a rate increase on customers that get #oth DDs #y mail and streaming video /n :cto#er 2011, the company scrapped its plans to split into t3o separate #usinessesI 17 Netflix for streaming video and 27 3i)ster for DDs # y mail !hat move 3ould have forced customers getti ng #oth services to manage t3o accounts, pass3ords, rental %ueues and 3e#sites Bnraged customers flooded Netflix@s site 3ith tens of thousands of comments, as 3ell as a #arrage of t3eets under the hashtag KDearNetflix Netflix had a 3ave of cancellations in Euly 2011 as the company raised rates, and a second 3ave of cancellations hit the company throughout "eptem#er and :cto#er as the price hi)es too) effect Netflix scrapped that idea after facing a maor #ac)lash from customers and ridicule from analysts and comedians Netflix is focused no3 on gro3ing its streaming video service, especially outside the " Netflix added (anada in 2010 and <; countries in &atin merica and the ( ari##ean in "eptem#er 2011 Netflix’s (B: Aeed $astings recently spo)e #luntly a#out the recent pro#lems in its third-%uarter 2011 earnings letterI L!he last fe3 months have #een difficult for shareholders, employees, and most unfortunately, many mem#ers of Netflix 8e@ve hurt our hard-earned reputation and stalled our domestic gro3thL Netflix said it 3as focusing on the future, promising customers that L3e are done 3ith pricing
changesL .ut the su#scri#er hemorrhaging may not #e over Netflix had 2;= million total " su#scri#ers as of "eptem#er ;0, 2011 - do3n from 2<9 million three months earlier #out 215 million customers had streaming su#scriptions, and ust under 1< million had DD su#scriptions, 3ith most customers mixing the t3o Netflix expects those num#ers to drop further #y year-end 2011 3ith the total #eing 20 to 21 million streaming customers and 11; million DD su#scri#ers in the " /n late :cto#er 2011, Netflix shares plunged 2 percent i n after-hours trading, though the company reported earnings that #eat analysts@ expectations Netflix earned 492 million, or 4119 a share, on a record 4=22 million in revenue in the third %uarter of 2011 Netflix has 3arned shareholders that it 3ill #e unprofita#le in coming %uarters Netflix’s expansion into Burope 3ill ma)e the company@s overall #usiness unprofita#le Lfor a fe3 %uartersL starting at the #eginning of 2012 !he company plans to halt its international expansion after its J and /reland launches Luntil 3e return to glo#al profita#ilityL Netflix #egins its fiscal fourth %uarter 2011 under a dar) cloud /n a conference call 3ith analysts, (B: $astings said 3i)ster 3as a product of LNetflix not listeningM $e predicted the next fe3 years 3ill #ring La slo3 declineL for Netflix@s DD #usiness !he company needs a clear strategic plan for the future since rival firms are large and aggressive, and seizing on t he misstep of Netflix
