Background of the Business

In today’s world, there are different technologies as well as social media sites, which are available in the internet for the users to enjoy different kinds of services. One such popular site is Netflix through which users can watch live television shows, movies, original series of television series etc. Netflix is tremendously expanding its business. More and more users purchasing subscriptions of Netflix so that they can watch movies anywhere and anytime even on interconnected screens.

The recent statistics show that there are about 104 million Netflix members in more than 190 countries all across the world. They enjoy around 125 million playing hours of different TV shows. It is one of the biggest market players in the present entertainment industry all across the world. The following report will highlight the different aspects of the working of the business of Netflix. By the end of this report, the reader will be able to understand the different aspects of the business such as the impacts of emerging technologies on the Netflix business, the different implications of these technologies such as social, ethical and cultural implications etc.

Marc Randolph and Reed Hastings first created Netflix in the year 1997 in the Scotts valley in California.  Both of them were former employees of a company called Pure Software.  Micro Warehouse, which was a company for computerized mail order, was co-founded by Randolph. Later he was also appointed as the marketing at an organization called Borland international. Hastings founded Pure Software was found by Hastings, which he recently sold for an amount of $700 million, and in turn, he invested an amount of $2.5 million in a startup called Netflix.  Hastings came up with the idea of Netflix when he had to pay an fine of 40$ late fine for not being able to return a movie on time, that he had rented. A more simple and traditional method pay-per-rental was used in the Netflix website which launch on April 14, 1998 post which it started a new subscription method on September 1998 (Mithas and Lucas 2010). Since then the website has come up with its own innovations in the subscription fee structure by eliminating complications such as due dates, shipping as well as handling fees, late fees.

By the year 2005, Netflix had around 35,000 different films in its databases and around 1 million movie DVDs were shipped per day.  In the month of February 2007, Netflix delivered the one-billionth movie DVD. However, it gradually shifted from the traditional business model of shipping out physical discs and into a model of live streaming on a rental basis, which is known as video-on-demand model (Zhang 2011), via the internet. Red Envelope Entertainment, which is an independent division of Netflix also distributed as well as licensed independent TV series and movies on behalf for Netflix.

Target Audience

The target audience of Netflix mainly includes males as well as females aged between 17-60. Households that generally have income levels of around $30,000 and up are the main customers for the company. Students, teenagers as well as homemakers are generally addicted to watching movies and following latest TV series that come up and Netflix takes a good advantage of that. There are three basic target audience groups for the company. They are the busy people who do not have time to go out to watch movies, people who are frequent movie renters who are movie addicts like teenagers and college students, and the most important category of people who are very economical and want to get the most out of the money they spend (Soliman et al. 2013).

The different phases of competitive advantage development for Netflix over its competitors like Hulu and Time Warner plus, are categorized and described below in four major points:

1. The initial pre- public offering (IPO) era, Netflix withstood the dot com trend and it came up with a more successful business model of mail delivery of physical DVD’s on a rental basis. It turned out to be major success factor as well as an advantage in the market since no other companies offered such benefits at that point f time to the users (Turban et al. 2017).
2. The initial public offering was held by Netflix in phase of DVD Growth era, which had expanded their user database to around 850,000 annual subscribers. This had again contributed greatly to the success of the company (Oat 2013).
3. In the Streaming era, the online on-demand video service was introduced by the company, which in turn led to the market advantage of only offering streaming-only model of subscription on a paid basis.
4. Finally in the Content era, Netflix came up with its own original TV programs and movies that the users can watch on a subscription basis. The company implemented this model due to the ever-increasing content licensing costs. This in turn also helped Netflix to increase revenue and strengthen its place in the market by attracting more users from different age groups (O’brien, Knight and Harris 2017).

Netflix is considered as the first major disrupter of the television as well as the movie industry. This is because it provides an on-demand service in a much more reasonable price to the users as compared to the traditional expensive television service providers and it is done using internet. The Netflix services are also available anywhere and anytime. As it had been described in an article in the Sydney morning herald, Netflix has a deep transactional business model wherein people create and sell things whereas others buy and watch their products at a much reasonable price.

Interestingly, it has been found that most of the users in Australia have shifted their preference from a popular TV service provided and a competitor of Netflix, which is Foxtel. On-demand video subscription services of Netflix have overtaken the revenue as well as the market shares of that of Foxtel in Australia (McDonald and Smith-Rowsey 2016). The most important reason why Netflix is a major market disrupter is that it has demonstrated its capability extraordinary reach by launching its own original TV series as well as movies, which in turn also helps in cost cutting for the organization.  It produces and broadcasts local shows via the internet, which are more appreciated and watched by users all across the world instead of having to subscribe the traditionally available television services. Netflix has the capability to simultaneously offer services to 190 countries, which has around 81 million users. This is practically impossible for local cable TV operators and movie stores to provide due to time as well as budget constraints.

Netflix Competitive Advantage and Success Factors

The recent growth of Netflix has forced the TV industry as well as internet providers all across the world to rethink their strategies of customer approach. It was not until the recent times that the users had to consume the different mainstream TV programs within a pre-programmed time, else they would have to lose access to the program again. Because of the market disruption caused by Netflix television service providers are about to come up with services like 7-Plus as well as 10-Play, through which customers will be able to watch the TV programs of their choice even on their mobile phones at any time which is convenient to them and from anywhere, via internet (Adhikari et al. 2012). Telstra and other internet service providers have also come up with more flexible business models regarding data offerings wherein unlimited internet services will be available to the users at a much-subsidized rate, so that services like Netflix can be availed by them easily.

 Users do not have the option ot download a movie or keep a copy of the content they watch in their computers or smartphones for future watch. It is always a on demand online streaming based subscription which the users can avail. This can make the customers dissatisfied at times since internet speeds are up to the mark at all places neither do all users have a regular internet services in their homes at all points of time due their affordability and other reasons. Download options are available in case of other competitors of Netflix such as YouTube etc (Aaron et al. 2015).

 In the process of expanding in countries of Latin America, UK, Scandinavia, regional competitors started showing up. Meanwhile, the international expansion of Netflix had been staggered due the competition from such smaller companies, which in turn caused lack of interest of the users in the newly launched Netflix products across the world. Netflix spent a lot of money to obtain rights on a global scale for its blockbuster-hit movies and TV shows as it did before with Gotham even before the broadcast of the first episode on the television. The global competition is slow but fierce for Netflix and it is not as easy as it seems and is definitely a challenge for the company in the coming times (Matrix 2014).

Netflix has identified the opportunity it has to work on even if it works on the recommendations provided to it because of which it came up with the feature called Netflix Prize. It is further recommended that it improve the Cinematch system through which it can experience continued expansion of customer database since they will continue to increase their video on demand subscriptions. Cinematch also brings lesser known TV series and movies to the notice of the viewers, which can also improve the website personalization experience of the users. They should also start the concept of set top boxes through which secure efficient movie rentals will be possible on a wider scale to the customers (Barkachi 2014).

Digital Disruption within Netflix

                                       

                      Fig: Market position of Netflix in terms of streaming (Source: As used by author)

Netflix allows the customers subscriptions in which they can stream movies on multiple devices at the same time. Customers have taken its advantage, shared login credentials with friends and families, thereby sharing a single subscription across different geographical locations. This is illegal and can have different consequences. The 20th Century Fox also filed a recent lawsuit against Netflix and claimed that it had urged the employees break their employment contracts that they had signed with Fox (Jenner 2016).

According to recent studies, the “Netflix Effect” has affected teens, adults as well as children. Teens get addicted to online movies and television shows and are often late to classes and deterioration in grades. Adults often tend to be late in work or they even tend to gain weight by being more addicted to Netflix and hence not going out to socialize. They tend to sit back in their homes most of the times with their laptops or smartphones watching movies (Gomez-Uribe and Hunt 2016).

Netflix has been reducing the video quality for the users who use Wi-Fi to access Netflix. They do it just to help the users avoid the caps in mobile data. In the process, users do not get to enjoy the good quality of video streaming that thy have actually paid for.

Another important ethical issue that Netflix faces is that it can obtain adequate licenses to stream movies as well as shows, which are not created by them. For instance, the company has faced copyrights violation issues in the case of streaming of Bicycle Thieves, which is originally a film, made in Italy in the year 1948 (Hallinan and Striphas 2016).

Since the content is stored on the cloud it is beneficial to the environment since there will be no physical wastage or recycling created unlike in case of physical DVD’s etc. According to a study, movie streaming requires almost 78% of the energy as compared to what it takes to ship a physical copy. However, carbon imprints of more than 100% are accumulated in the data centers due to online streaming which is a negative cultural impact despite lesser physical waste (Summers et al. 2016).

Present Disruption Analysis of Netflix

User logging details and other information are stored on the cloud on a virtual platform, which in turn can be hacked by the hackers to access illegal aces sot the user accounts. Customers also have to do online transaction to pay the subscription fees, which again is a security issue since the payment gateways are often attacked by virus infections over the internet (Huang et al. 2012).

Conclusion:

Therefore, it can be concluded from the above repot that even though there are multiple strengths and opportunities for Netflix there are different areas like subscription strategies and ethical considerations that should be considered by the organization order to further improve and strengthen their business all across the world. The company can reach greater heights in the media industry in the future provided they have all the back up plans and proper strategies to overcome the treats and risks associated to its business.

References:

Aaron, A., Li, Z., Manohara, M., Lin, J.Y., Wu, E.C.H. and Kuo, C.C.J., 2015, September. Challenges in cloud based ingest and encoding for high quality streaming media. In Image Processing (ICIP), 2015 IEEE International Conference on(pp. 1732-1736). IEEE.

Adhikari, V.K., Guo, Y., Hao, F., Varvello, M., Hilt, V., Steiner, M. and Zhang, Z.L., 2012, March. Unreeling netflix: Understanding and improving multi-cdn movie delivery. In INFOCOM, 2012 Proceedings IEEE (pp. 1620-1628). IEEE.

Barkachi, P., 2014. Copyright in the internet age. Policy: A Journal of Public Policy and Ideas, 30(3), p.21.

Gomez-Uribe, C.A. and Hunt, N., 2016. The netflix recommender system: Algorithms, business value, and innovation. ACM Transactions on Management Information Systems (TMIS), 6(4), p.13.

Hallinan, B. and Striphas, T., 2016. Recommended for you: The Netflix Prize and the production of algorithmic culture. New Media & Society, 18(1), pp.117-137.

Huang, T.Y., Handigol, N., Heller, B., McKeown, N. and Johari, R., 2012, November. Confused, timid, and unstable: picking a video streaming rate is hard. In Proceedings of the 2012 Internet Measurement Conference (pp. 225-238). ACM.

Jenner, M., 2016. Is this TVIV? On Netflix, TVIII and binge-watching. New media & society, 18(2), pp.257-273.

Matrix, S., 2014. The Netflix effect: Teens, binge watching, and on-demand digital media trends. Jeunesse: Young People, Texts, Cultures, 6(1), pp.119-138.

McDonald, K. and Smith-Rowsey, D. eds., 2016. The Netflix effect: Technology and entertainment in the 21st century. Bloomsbury Publishing USA.

Mithas, S. and Lucas, H.C., 2010. What is your digital business strategy?. IT professional, 12(6), pp.4-6.

Oat, E., 2013. Analysis of Netflix architecture and business model. Aalto University T-110.5191 Seminar on Internet Working, Spring.

O’brien, K.H.M., Knight, J.R. and Harris, S.K., 2017. A call for social responsibility and suicide risk screening, prevention, and early intervention following the release of the Netflix series 13 Reasons Why. JAMA internal medicine, 177(10), pp.1418-1419.

Soliman, O., Rezgui, A., Soliman, H. and Manea, N., 2013, August. Mobile cloud gaming: Issues and challenges. In International Conference on Mobile Web and Information Systems (pp. 121-128). Springer, Berlin, Heidelberg.

Summers, J., Brecht, T., Eager, D. and Gutarin, A., 2016, September. Characterizing the workload of a Netflix streaming video server. In Workload Characterization (IISWC), 2016 IEEE International Symposium on (pp. 1-12). IEEE.

Turban, E., Outland, J., King, D., Lee, J.K., Liang, T.P. and Turban, D.C., 2017. Electronic commerce 2018: a managerial and social networks perspective. Springer.

Zhang, J., 2011. The perils of behavior-based personalization. Marketing Science, 30(1), pp.170-186.