Fall
NETFLIX Case Study
Katherine McLarney GBA 490
08
Netflix Case Study GBA 490
Contents
Katherine McLarney
Executive Summary! Strete"ic #ssues and $%ti&ns'! $%ti&ns'!
(ec&mmendati&ns')
#ndustry Analysis'* +ES,EL Analysis'Le"al'.ive .&rces Analysis'9 /rivin" .&rces'0 Key Success .act&rs' Strate"ic Gr&u% Ma%'! .inancial Analysis' Analysis') ) S1$, Analysis'2 Netflix Current Strate"y'3 1ei"hted C&m%etitive Stren"th Analysis'9
1
Netflix Case Study GBA 490
Executive Summary
Katherine McLarney
,his re%&rt as c&mmissi&ned t& examine the current state &f Netflix and ma5e rec&mmendati&ns f&r areas &f im%r&vement t& enhance Netflix sales6 c&ntain c&sts6 &r ref&cus Netflix %resent strate"y ,he inf&rmati&n in the #ndustry Analysis 7%a"e 48 dras attenti&n t& the "r&in" vide& &n demand mar5et and Netflix %lace in the mar5et
Strategic Issues: Netflix is facin" a numer &f strate"ic issues6 hich can e f&und in de%th &n %a"e 4 ,he m&st %ressin" issues are summari:ed el&' Decreased Domestic Customer Retention:
Cust&mer retenti&n has een a %ressin" issue since !00*6 hen the suscri%ti&n cancellati&n rate e"an t& increase ,he current mana"ement referred t& this as the churn rate and elieved this as n&t an issue as l&n" as the numer &f ne suscri%ti&ns as hi"her than the numer &f canceled suscri%ti&ns /urin" the %eri&d &f ;uly !0nited States ,here is als& a trend &f increasin" utili:ati&n &f c&ntent fr&m internet
Netflix is currently facin" a decrease in financial stren"th as a result &f heavy investment in mar5ets ar&ad #n the %ast t& years6 the "r&ss %r&fit mar"in6 &%eratin" %r&fit mar"in6 net %r&fit mar"in6 t&tal returns &n assets6 and return &n st&c5 h&lder e?uity have all declined6 this is detailed &n %a"e ! ,he decrease in financial stren"th in a c&ncern f&r Netflix as the decrease in financial stren"th is caused y ex%ansi&n int& the >nited Kin"d&m and Latin America as ell as risin" c&sts t& sh& streamin" c&ntent ,here is little ar"ainin" %&er ith su%%liers ecause there are fe su%%liers6 m&vie studi&s and th&se h& %r&vide licensin" f&r m&vies6 and the c&ntent if critical t& Netflix &%erati&n
O!tions: O""er reduced !rices "or long#term commitments:
As a ay t& reduce the churn rate6 Netflix &uld &ffer a reduced %rice e?ual t& Ama:&n +rime 7@39 %er year8 %aid annually and aut&matically reneed each year A l&n"
Netflix sh&uld c&mmissi&n a re%&rt f&r internal understand the cause &f the cancellati&n &f suscri%ti&ns and analy:e trends t& find any c&ntriutin" fact&rs t& the cancellati&n 1hile this re%&rt &uld e &th la&r and time intensive6 it &uld %r&vide insi"ht int& c&nsumer %atterns and Netflix c&uld adust it=s m&del t& address ma&r fact&rs leadin" t& suscri%ti&n cancellati&n 2
Netflix Case Study End Ex!ansion in Latin %merica GBA 490
Katherine McLarney
Latin America as res%&nsile creatin" a l&ss &f @!)) milli&n d&llars in the third ?uarter f&r Netflix 1hile the current mana"ement elieves there is a mar5et in Latin America6 des%ite the re"i&n lac5in" critical c&m%&nents f&r success Latin America d&es n&t have a hi"hly devel&%ed #nternet infrastructure6 there is little t& n& culture acce%tance &f vide& streamin"6 there are hi"h c&sts &f &tainin" licensin" f&r c&ntent in native lan"ua"es6 and there are far feer devices ith the ca%aility t& h&st Netflix By %uttin" the ex%ansi&n in Latin America &n h&ld until the infrastructure t& su%%&rt internet
#ncreasin" the %rice &f service c&uld c&m%ensate f&r the increase in the c&st &f c&ntent ac?uisiti&n and &&st financial stren"th #f ch&sen6 the su%%lier6 &r the m&vie studi&s sh&uld d& this ith am%le c&mmunicati&n &f the increased c&sts6 and that the CE$ ishes he didn=t have t& raise the %rice ut as left n& ch&ice after the m&vie studi&s increased the %rice ,hr&u"h am%le and "enuine c&mmunicati&n6 Netflix %&tentially c&uld av&id the reacti&n &f c&nsumers hen the // /elivery %lan and internet
Recommendations: #n &rder t& c&ntinue t& have a str&n" %r&fit mar"ins and e mar5et leader in the d&mestic mar5et Netflix sh&uld' Commission an Internal Re!ort on te Net Loss o" Su$scri$ers
#f Netflix ishes t& e an industry leader6 they sh&uld see5 t& understand the l&ss &f suscriers in &rder t& increase their value %r&%&siti&n t& ensure a net "ain &f cust&mers after each ?uarter ,he l&ss &f cust&mers due t& suscrier cancelati&ns has een a trend since !00*6 and if Netflix d&es n&t address this trend they face the ris5 &f l&&sin" their mar5et share An industry re%&rt &uld investi"ate the cause &f suscri%ti&n cancelati&n and issue rec&mmendati&ns a&ut h& t& c&ntain the causes t& %reserve mar5et share and increase Netflix %r&fits End ex!ansion in Latin %merica
Netflix sh&uld end ex%ansi&n in Latin America ecause the infrastructure t& su%%&rt internet< streamin" vide& &n demand is n&t currently availale internet
#n &rder t& %reserve mar5et share and cust&mer retenti&n6 Netflix sh&uld &ffer a &ne
Netflix Case Study Katherine McLarney divisi&n6 Netflix sh&uld als& c&nsider all&in" cust&mers t& l&c5 in their rate f&r a %eri&d &f ) years GBA 490
if they are a yearly memershi% suscrier By all&in" cust&mers t& l&c5 in their %rice6 Netflix ill e"in t& reuild dama"ed relati&nshi%s ith it=s cust&mer ase and als& decrease the churn rate ecause suscriers &uld e less li5ely t& cancel if they 5ne they &uld e savin" m&ney y c&ntinuin" t& suscrie t& l&c5 in their %rice
4
Netflix Case Study GBA 490
Industry %nalysis:
Katherine McLarney
Industry gro't !otential
,he vide& &n demand industry has a hi"h %&tential &f "r&th in the c&min" years As an emer"in" industry6 ,he N+/ Gr&u% elieves that the mar5et ill c&ntinue t& "r& ecause &f the elief that internet
,here is a m&derate de"ree &f sh&rt
Netflix has a c&m%etitive %resence in the internet
Netflix Case Study GBA 490
Industry %nalysis +continued,:
Katherine McLarney
ulu +lus sh&s a c&mmercial durin" it=s c&ntent ulu +lus lac5s Netflix c&ntent readth ith &nly *64!* titles in its c&ntent lirary c&m%ared t& Netflix 206000 titles Netflix has &r5ed ith c&nsumer electr&nic device ma5ers t& have a Netflix utt&n in the rem&te c&ntr&ls6 hich all&s f&r ease &f access t& Netflix and an increased c&nsumer aareness &f Netflix ,he case d&es n&t menti&n ulu +lus ein" inte"rated in rem&tes s& it is assumed that ulu +lus d&es n&t have this c&m%etitive advanta"e 7Chart 8 Netflix and Ama:&n &th &ffer the same am&unt &f c&ntent t& suscriers6 h&ever the ma&rity &f Ama:&n +rime=s c&ntent is &nly accessed thr&u"h %ayin" a fee %er title in additi&n t& the yearly suscri%ti&n %rice ,he illin" and %rice &f Netflix and Ama:&n +rime differ6 Netflix is a m&nthly fee &f @399 and Ama:&n +rime is yearly fee &f @39 Ama:&n +rime differentiates itself fr&m Netflix &n the &ther %r&duct &fferin"s includin"' free t& day shi%%in" &n all ama:&n &rders6 &ne Kindle e< &&5 %er m&nth /es%ite the increased %r&duct &fferin"s6 Ama:&n +rime &nly has ar&und *D &f t&tal numer &f suscriers &f Netflix 7Chart 8 Net"lix a$ility to ca!itali-e on industry o!!ortunities or te vulnera$ilities o" 'ea(er rivals:
Netflix is %&ised t& ca%itali:e &n the ea5nesses &f its rivals ,hr&u"h &fferin" a ider c&ntent selecti&n than &th Ama:&n +rime and ulu +lus6 Netflix is ale t& attract cust&mers thr&u"h a ider selecti&n at a c&m%arale %rice t& ulu +lus and &fferin" m&nthly illin" rather than yearly illin" as is the case ith Ama:&n +rime 1hile Netflix d&es n&t &ffer the additi&nal %r&ducts and services that Ama:&n +rime d&es the numers &f the suscriers sh& that the additi&nal %er5s are n&t a%%ealin" t& the ma&rity &f c&nsumers6 and y ch&&sin" Netflix suscriers fees can e used t&ards a ider c&ntent lirary instead &f the c&sts ass&ciate ith the additi&nal %r&duct &fferin" Net"lix
.ulu &lus
%ma-on &rime
Titles in Content Li$rary
206000 titles
*64!* titles
/ontly Cost:
@399
@399
%dvertisements: %mount o" Streaming: Free Trial &eriod: .ig#De"inition: Su$scri$ers: 0lo$al &resence:
N& >nlimited $ne M&nth 1ith A%%le , !)4 Milli&n es
es >nlimited $ne 1ee5 Many E%is&des N&t Menti&ned N&t Menti&ned
36000 titles included ith the suscri%ti&n and 4!6000 titles f&r an additi&nal fee @39 %er year6 illed annually N& >nlimited $ne M&nth N&t Menti&ned )*<* Milli&n N&t Menti&ned
1e als& ma5e the assum%ti&n fr&m the case that Netflix is the &nly internet
Netflix Case Study GBA 490
Katherine McLarney
Industry Dominant Economic Caracteristics:
/ar(et Si-e:
Annual Sales (evenue' ,&tal &lume'
@ Billi&n 40 Milli&n C&nsumers
Sco!e o" Com!etitive Rivalry:
,he "e&"ra%hic area &ver hich m&st c&m%anies c&m%ete in the vide&
,he mar5et "r&th rate in the industry is ex%ected t& increase in !0! t& )4 Billi&n m&vies vieed via a vide& &n demand service Degree o" &roduct Di""erentiation:
ide& &n /emand %r&viders are n&t hi"hly differentiated y the m&vie titles &ffered due t& m&vie studi& ar"ainin" %&er t& av&id "ivin" exclusive ri"hts t& ust &ne c&m%any in &rder t& fully reali:e the revenues &f each film Num$er o" Com!anies in te Industry:
+hysical // (ental' Suscri%ti&n Based ide& &n /emand'
)' Blockbuster, Redbox, Netflix )' Netflix, Hulu Plus, Amazon Prime
Num$er o" 1uyers:
#n !06 there ere 40 milli&n users &f vide& &n demand services ,here are )4 milli&n %&tential users ith access t& the techn&l&"y in %lace t& en&y vide& &n demand services &roduct Innovation:
+r&duct inn&vati&n exists thr&u"h the c&ntinued ex%erimentin" &f the timin" &f m&vie releases y m&vie studi&s $%%&rtunities exist t& &verta5e rival firms y cultivatin" relati&nshi%s ith m&vie studi&s t& all& the vide& &n demand %r&vider t& e the first t& &ffer streamin" c&ntent &f m&vies +r&duct inn&vati&n als& &ccurs in the f&rm &f c&ntent %r&vided f&r vari&us a"e "r&u%s6 includin" ex%andin" the %r&ducts &ffered f&r children Su!!ly and Demand Conditions:
/ue t& the nature &f the vide& &n demand %r&duct6 si"nificant issues ith su%%ly sh&rta"es d& n&t exist as the %r&duct &ffered6 vide&s &n demand6 can e vieed y multi%le vieers at the same time ,here are multi%le firms &fferin" vide& &n demand services6 s&me as c&m%lementary %r&ducts f&r already suscriin" memers6 &thers char"in" a fee %er m&vie &r a flat suscri%ti&n fee Tecnology and Innovation:
,echn&l&"y is 5ey t& success in the vide& &n demand industry6 all services re?uire si"nificant techn&l&"ical infrastructure in %lace f&r users t& stream vide&s &n their &n devices Advancin" techn&l&"y thr&u"h the creati&n &f easy t& navi"ate interface6 al"&rithms t& accurately rec&mmend m&vies6 and increased c&m%atiility &f devices all are 5eys t& all&in" a vide& &n demand service ,echn&l&"ical advances are driven y research and devel&%ment6 ith multi%le firms heavily investin" in techn&l&"y and %r&duct inn&vati&n in &rder t& secure and retain a s%&t as an industry leader ith a lar"e mar5et share Scale Economies:
,he vide& &n demand industry is characteri:ed y ec&n&mies &f scale in %urchasin"6 advertisin" and uildin" techn&l&"ical systems ,he fixed c&sts can e s%read &ut &ver multi%le users t& l&er the %ercenta"e &f revenues reduced y the fixed &verhead c&sts
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Netflix Case Study GBA 490
&ESTEL %nalysis:
Katherine McLarney
&olitical: Chan"es in m&vie re"ulati&ns that limit c&ntent shared &nline •
Economic: Currency fluctuati&ns that &uld im%act %r&fit Chan"es in credit card %r&cessin" fees that &uld im%act %r&fit Chan"es in dis%&sale inc&me &f c&nsumers that &uld im%act revenue • • •
Social: Chan"e in the 5n&led"e and usa"e &f techn&l&"y y different a"e dem&"ra%hics that &uld chan"e numer &f suscri%ti&ns Chan"e in the time s%ent atchin" vide&s that &uld chan"e the numer &f suscriers &r value %laced &n the internet
•
•
Tecnological: Ne techn&l&"ies emer"in" that limit certain vide& &n demand services aility t& e atched &n devices Ne techn&l&"ies emer"in" that ma5e vide& &n demand se"ment &s&lete #nternet #nfrastructure chan"es &r thr&ttlin" that sl& d&n &r s%eed u% certain firms c&ntent delivery t& c&nsumers •
• •
Environmental: < Legal: M&vie licensin" chan"es that &uld chan"e the availaility &f c&ntent Ex%anded le"al liaility f&r c&ntriuti&ns t& %irated m&vies that &uld chan"e the aility t& access c&ntent f&r suscriers and affect the numer &f suscri%ti&ns • •
Five Forces %nalysis: Com!etitive &ressures Created $y Rivalry %mong Com!eting Sellers: /oderate • • •
Buyer demand is "r&in" ra%idly ,he %r&ducts &f rival sellers are m&derately differentiated y c&ntent lirary ,he uyer ex%eriences l& c&sts hen sitchin" c&m%etit&rs
Com!etitive &ressures Created $y Treat o" Ne' Entrants: /oderate •
Buyer demand is "r&in" ra%idly6 the industry is ex%ected t& increase in vies 8
Netflix Case Study GBA 490 • ,he %r&ducts &f rival sellers are m&derately differentiated y c&ntent lirary ,he uyer ex%eriences l& c&sts hen sitchin" c&m%etit&rs •
Katherine McLarney
Com!etitive &ressures "rom te Sellers o" Su$stitutes &roducts: Strong • • • • •
G&&d sustitutes are readily availale 7ie ulu +lus6 Netflix6 Ama:&n +rime8 Sustitute "&&ds are attractively %riced .eatures such as interface ease &f use6 m&vie rec&mmendati&ns6 etc differentiate sustitutes ,he end c&nsumer has l& c&st t& sitch eteen internet
Com!etitive &ressures "rom Su!!lier 1argaining &o'er ) Su!!lier# Seller Colla$oration: Fierce •
•
•
M&vie Studi&s have a differentiated in%ut that enhances the ?uality &f the %r&duct and is critical t& the internet
Com!etitive &ressures Stemming "rom 1uyer 1argaining &o'er ) Seller#1uyer Colla$oration: 2ea( • •
• •
Buyer sitchin" c&sts are l& A %articular internet
Driving Forces: Canges in te Long#Term Industry 0ro't Rate: ,he N+/ estimated that share &f vide& &n demand rentals is ex%ected t& increase )4 illi&n vies in !0! ,he mar5et share is c&ntinued t& increase %ast !0! due t& cust&mer %erceived value &f #nternet streamin" and cust&mers %erceive vide& &n demand %r&viders t& have a etter selecti&n &f m&vie titles than traditi&nal m&vie delivery services Increasing 0lo$ali-ation: Netflix has e"un an a""ressive cam%ai"n t& %r&m&te cust&mer understandin" and aareness &f streamin" in unt&uched mar5ets t& "ain mar5et share ,his cam%ai"n t& increase understandin" &f
9
Netflix Case Study Katherine McLarney vide& streamin" may &%en the mar5ets t& c&m%anies and decrease the entry arriers t& enter GBA 490
"l&al mar5ets f&r &ther firms in the industry
Tecnological Cange and Innovation: ,echn&l&"ical chan"e is a ma&r drivin" f&rce in the industry #n !0!6 there ere 300 devices ith televisi&n streamin" ca%aility uilt int& the device6 and televisi&n rem&te c&ntr&ls are addin" devices t& all& f&r a direct c&nnecti&n f&r vide& streamin" services Every ma&r net&r5 r&adcaster6 multichannel , %r&vider6 and %remium m&vie channel have een investin" in #nternet a%%s f&r all ty%es &f #nternet c&nnected devices t& %&siti&n t& e ale t& &ffer , everyhere %ac5a"es
/ar(eting Innovation: B&th vide& &n demand services and m&vie studi&s are &r5in" t&"ether t& ex%eriment ith sh&rtened release %eri&ds t& disc&ver revenues all&in" m&vies t& e sh&n &n vide& demand services ef&re they had %revi&usly een released f&r at h&me viein" Entry o" /a3or Forces: ,here may e a lar"e influx &f entry int& the mar5et y traditi&nal televisi&n suscri%ti&n services &fferin" vide& streamin" as a c&m%limentary service t& %reserve their mar5et share Am&n" the industry there is als& a ide s%read elief that the &nly ay t& c&m%ete effectively ith Netflix #nternet streamin" service is t& &ffer sh&s and m&vies at any time thr&u"h a traditi&nal televisi&n suscri%ti&n
4ey Success Factors: 56 Tecnology:
Ex%ertise in internet
Aility t& achieve ec&n&mies &f scale i"h utili:ati&n &f c&ntent lirary 86 /ar(eting Related
1ide readth &f m&vie selecti&n 10
Netflix Case Study GBA 490
1ell 5n&n rand name
Katherine McLarney
96 S(ills and Ca!a$ility Related:
#nstant /elivery Gl&al /istriuti&n Ca%ailities Str&n" &nline user interface site that is easy t& navi"ate ,alented &r5f&rce t& desi"n techn&l&"y and maintain relati&nshi%s ith su%%liers 6 Oter:
L& c&sts that are ale t& meet cust&mers ex%ectati&ns f&r value Str&n" alance sheet and access t& financial ca%ital t& ac?uire c&ntent C&nvenience in aility t& access #S/$ &n multi%le devices
Strategic 0rou! /a!:
11
Netflix Case Study GBA 490
Katherine McLarney
12
Netflix Case Study GBA 490
Katherine McLarney
Financial %nalysis: Financial %nalysis o" Net"lix (evenue'
&ro"ita$ility Ratios: Gr&ss +r&fit Mar"in' $%eratin" +r&fit Mar"in' Net +r&fit Mar"in' ,&tal (eturns &n Assets Net (eturns &n ,&tal Assets (eturn &n St&c5h&lders E?uity'
+rice
7;5;
7;55
)*90
2-!!0
6!0*)0
6230)0
!62!2 0
)6!0*20
7;;;
7;;
7;;<
7;;=
7;5;
7;55
7;;;
<
Leverage Ratios:
/ividend ield &n C&mm&n St&c5'
7;;=
0*0
Li>uidity Ratios:
Oter Ratios:
7;;<
7;;;# 7;55
Ca%ital Annual Gr&th (ati&'
,&tal /et t& ,&tal Assets (ati&' L&n"<,erm /et t& Ca%ital (ati&' /et t& E?uity (ati&' L&n" ,erm /et t& E?uity (ati&'
7;;
00! <02* <2) < < 0-0
0ro't Ratios:
Current (ati&'
7;;;
<
7;;<# 7;55
0!7;;
33 7;;;
<
0)! 0!9 002 0) 0! 09
7;;
0)* 04 002 0) 00 02 7;;=# 7;55
0!4 7;;<
!07;;<
0)* 032 003 03 03 0*-
0)3 032 003 0* 02 0**
0)2 03* 003 003 003 0)*
7;55# 7;5;
0!! 7;;=
-4 7;;=
7;5;
24 7;5;
7;55
49 7;55
0)0) 0)) 040 040 there is n& inf&rmati&n a&ut any l&n" term det in the case 02 049 4 )4 9 there is n& inf&rmati&n a&ut any l&n" term det in the case 7;;;
7;;
7;;?
7;;=
7;5;
7;55
there is n& inf&rmati&n a&ut the yearly avera"e %rice &f c&mm&n st&c5 there is n& inf&rmati&n a&ut the yearly avera"e %rice &f c&mm&n st&c5 there is n& inf&rmati&n a&ut dividends %er share in the case --492D 40*!D !293D 22D 3!-D <03D
13
Netflix Case Study 0ross &ro"it /argin: GBA 490
Katherine McLarney
F 7(evenues< C&st &f G&&ds S&ld8 (evenues
,he "r&ss %r&fit mar"in is an indicati&n &f a Netflix financial health c&m%uted y usin" the f&rmula a&ve ,he "r&ss %r&fit mar"in is an indicati&n &f the am&unt &f m&ney Netflix ill have t& %ay f&r additi&nal ex%enses and savin"s after acc&untin" f&r the c&st &f "&&ds s&ld Netflix "r&ss %r&fit mar"in has decreased y !)4*D fr&m !00 t& !06 and si"nals that the firm has a decreased %r&fit mar"in des%ite the increase in revenues
O!erating &ro"it /argin: F $%eratin" #nc&meSales (evenues
,he &%eratin" %r&fit mar"in si"nals h& much &f Netflix revenue is left after %ayin" f&r variale c&sts &f %r&ducti&n6 such as techn&l&"y and devel&%ment6 "eneral ex%enses6 mar5etin" c&sts6 am&n" &thers Netflix sh&uld have an &%eratin" %r&fit mar"in &f at
Net &ro"it /argin: F +&st<,ax Net +r&fitNet Sales
,he net %r&fit mar"in indicates h& much &f each d&llar earned y a c&m%any is transf&rmed int& %r&fits An increase in the net %r&fit mar"in ill indicate that a c&m%any=s financial health is im%r&vin" #n the %eri&d &f !00* t& !006 Netflix net %r&fit mar"in as v&latile $f m&st %ressin" c&ncern is the *D decline fr&m !00 t& !06 hich indicates that Netflix as earnin" *D less &n every d&llar earned
Total Return on %ssets: F Net #nc&meH #nterest Ex%enses H ,axes
,&tal returns &n assets are a rati& that is used t& measure h& a c&m%any is usin" its earnin"s6 &r the earnin"s f&r each d&llar &f the assets &f c&m%any
Ca!ital %nnual 0ro't Ratio: F 7Endin" alueBe"innin" alue8 7ears8 <
,he ca%ital annual "r&th rate is ay t& l&&5 at "r&th &f a c&m%any ut instead &f "r&th %er year the ca%ital annual "r&th rate avera"es the "r&th &ver a numer &f years t& find the rate &f return if it had een a steady investment Netflix hi"her annual ca%ital "r&th rate &ver years c&m%ared t& it=s ca%ital annual "r&th rate &ver t& years dem&nstrates that the ma&rity &f the "r&th &f the c&m%any as fueled in the first fe years
Current Ratio: F Current AssetsCurrent Liailities
14
Netflix Case Study Katherine McLarney ,he current rati& indicates the aility f&r a c&m%any t& %ay &ff its dets A current rati& &ver &ne indicates a GBA 490 c&m%any is ale t& ta5e care &f its &li"ati&ns Netflix current rati& &f 49 indicates that they are ca%ale &f %ayin" &f their dets f&r the current year and is sufficiently investin" excess assets
Internal Cas Flo': F $%eratin" Cash .l&Sales (ati&
Total De$t to Total %ssets: FSh&rt ,erm /et H L&n" ,erm /et ,&tal Assets ,he t&tal det t& t&tal assets rati& hen c&m%ared &vertime sh&s if a c&m%anies financial ris5 %r&file is ec&min" m&re &r less ris5y ,he "radual increase in the t&tal det t& t&tal asset rati& has sh&n that Netflix is ta5in" &n m&re det and ec&min" financially ris5ier
De$t to E>uity: F,&tal LiailitiesSt&c5 &lder E?uity
,he det t& e?uity rati& sh&s a firm li?uidity
15
Netflix Case Study GBA 490
Katherine McLarney
S2OT %N%L@SIS: Strengts:
2ea(nesses'
I Lar"est mar5et share in the internet
I i"h churn rate I >n%r&fita9le mar5ets a9r&ad in Latin America and the >nited Kin"d&m I Leadershi% lac5s a%%r&%riate c&mmunicati&n 4ith c&nsumers
O!ortunities'
Treats'
I Ex%anded %artnershi%s t& "ain exclusive m&vie ri"hts I Ex%anded %artnershi%s f&r 9undlin" &f %r&ducts I .irst m&ver advanta"e in #nternati&nal mar5ets
I I I I I
(ival firms devel&%in" similiar techn&l&"y L&ss &f %artnershi%s /ecreasin" 9ar"ainin" %&4er 4ith su%%liers +iracy Mar5et trend in increased usa"e &f Cide& &n /emand 4ith a decrease in %urchased Cide& &n /emand 7vide& &n demand 9ein" 9undled f&r free 9y ,C net4&r5s t& %erserve mar5et share8
16
Netflix Case Study GBA 490
Katherine McLarney
Net"lix Current Strategy: Netflix currently de%l&ys a est
Decreased Trend in Customer %c>uisition and Customer Retention: Netflix s%ends heavily t& attract ne cust&mers and &ffers a free &ne m&nth trial6 ith the h&%es &f havin" "ained additi&nal cust&mers6 this strate"y &r5s ell as dem&nstrated y the "ra%h el& in ac?uirin" cust&mers ut d&es n&t ensure the l&n"
17
Netflix Case Study GBA 490
Katherine McLarney
Decreased Trend in the Acquistion and Retention of Netix Customers 18000 16000 14000 12000
Number of Subscriptions (in the 1s!
10000 8000 6000 4000 2000 0
Gra%h ' ,his sh&s the trend &f suscri%ti&n additi&ns and cancelati&ns eteen !000
Decrease in Overall Financial Strengt: ' Netflix is currently facin" a decrease in financial stren"th as a result &f heavy investment in mar5ets ar&ad #n the %ast t& years6 the "r&ss %r&fit mar"in6 &%eratin" %r&fit mar"in6 net %r&fit mar"in6 t&tal returns &n assets6 and return &n st&c5 h&lder e?uity have all declined6 this is detailed &n %a"e ! ,he decrease in financial stren"th in a c&ncern f&r Netflix as the decrease in financial stren"th is caused y ex%ansi&n int& the >nited Kin"d&m and Latin America An&ther c&ntriutin" fact&r the decrease in financial stren"th is the risin" c&sts t& sh& streamin" c&ntent ,here is little ar"ainin" %&er ith su%%liers ecause there are fe su%%liers6 m&vie studi&s and th&se h& %r&vide licensin" f&r m&vies6 and the c&ntent if critical t& Netflix &%erati&n
Continued Strong Focus on Continuous Im!rovement %ctivities: Netflix is c&mmitted t& c&ntinu&us im%r&vement activities as their current CE$ n&ted in his %&st t& c&nsumers hen he stated the reas&n f&r the s%in &ff Netflix // rental divisi&n t& Jui5ster as t& all& Netflix t& f&cus &n ra%id im%r&vements in it=s streamin" techn&l&"y Netflix is l&&5in" t& im%r&ve all three &f it=s %r&duct &fferin"s y im%r&vin" d&mestic streamin" techn&l&"y6 actively l&&5in" t& ex%and it=s internati&nal %resence thr&u"h im%r&vement &f c&ntent &ffered ar&ad6 and the enhancement &f value added t& the /&mestic // y Mail service y ex%andin" it=s &fferin"s t& all& vide& "ame rentals in additi&n t& // rentals e"innin" in !0
Decreased Image and Re!utation %mong Customers: /es%ite the a""ressive s%endin" y Netflix t& attract and retain ne cust&mers6 Netflix faces a strained relati&nshi% ith its cust&mers due t& lac5 &f c&mmunicati&n and increases in the %rice #n !06 Netflix ann&unced a ne %ricin" %lan that resulted in an increase in the t&tal %rice %aid f&r &ver half &f their cust&mers6 y se%aratin" the mail y // service fr&m the vide& streamin" service6 hich &uld increase the c&st &f a c&m%arale %lan y *99-D6 fr&m @999 t& @*9- ,his m&ve y Netflix alienated many cust&mers h& %&sited ne"ative c&mments &n s&cial media a&ut the m&ve ,he result &f the %ricin"
18
Netflix Case Study Katherine McLarney chan"e resulted in the l&ss &f an estimated 2006000 suscriers h& canceled their memershi% durin" this GBA 490 %eri&d
2eigted Com!etitive Strengt %nalysis: Netflix KS. Stren"th Measure'
$ther +r&ducts $ffered' Advertisements durin" C&ntent' C&st' Gl&al +resence' Selecti&n' Ne +r&duct #nn&vati&n' Sum &f 1ei"hts' $verall Stren"th'
ulu
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49
19
Netflix Case Study GBA 490
Katherine McLarney
20
