Introduction to Netflix

As a management consultant of Netflix, the learner would present an industry report analysis on the online videos streaming on Netflix. After having a brief overview of the company, we will then focus on the company’s leadership on a specified geographical area, which is India.This report aims to answer specific questions. The changes apply to the online streaming because of the change in macro settings, how the industry will earn the profit, main opportunities and threats faced by this company in online video streaming. Lastly, tentative layouts would be proposedcompany’s leadership to exploit opportunities and counter threats. Then the relevant conclusion will be drawn based on the findings.                

Netflix is a well-known American media-service provider, with its headquarter located at Los Gatos in California. It was founded in August, on the 29^th of August in the year of 1997 (Netflix, 2018). Two of its prominent founders were Marc Randolph and Reed Hastings (CEO) in the Scotts Valley in California. It produces streaming media-videos on demand and thus falls under the entertainment industry. It mainly serves with film production and its distributions along with television productions. Its main divisions are US streaming, International streaming and domestic DVD. Its main business focuses on the in-house productions of the television programs and online streaming of films. At present, it is serving a wide area covering around 190 countries, and according to the findings of 2017, it presently consists of 5,400 employees. Based upon recent findings there is 137 million subscriber in all over the world and 58.46 million alone in the U.S. as on October 2018. It is not available at few places like North Korea, Syria, Crimea and Mainland China. It also has its other offices located in Brazil, South Korea, India, Netherlands and Japan (Netflix, 2018).

Netflix initially started with DVD as its business models, then in the year of 2012 it introduced its first own content production with its first debut series named “Lilyhamer”  and that is how “Netflix Originals”  came into focus. By 2016, 190 countries operated 126 of its original series. Netflix distributes a “Netflix Original”, it is a content, which Netflix services produced and co-produced. This “Originals” comes up with their concepts and thus are accepted worldwide (Netflix, 2018).

In January 2016, Netflix was launched in India. Netflix was able to appeal the Indian market easily. As a result, in a year and a half it has 4.2 million subscribers. When Netflix was first launched in the US, it had taken almost four years to earn that many customers. However, as said earlier the customer back in the early 2000s gets all DVD-by-mail (CNBC, 2018).

Overview of Indian Online Video Streaming Market

Netflix in India has succeeded in impressing the youth of the country. Unfortunately, it has barely reached 1.5% of the population. However, when you compare it with the United States, it reflects upon less infraction. The United States alone has 52.77 million subscribers who pay to the Netflix for the subscription (CNBC, 2018). Netflix is streaming into at least 30%of homes worldwide covering 190 countries including Brazil, Ireland, the United Kingdom and Canada being few of the core sectors (Khanna, 2017, P.289).

In India, the most challenging part was it had started late, and because of that, other media service provider has established a strong position in the market. Hot star is India’s one of the leading media-service provider which is launched in February 2015. Hot star has more than 63 million subscribers, one out of the four households, according to Quartz (CNBC, 2018). Netflix has huge programming, which attracts the youth especially to those who are having interest in English movies and TV programmes. However, what is lacking in Netflix is the content in local languages.

Netflix’s vice president of communication, Jessica Lee explained in an event at Singapore that they do not have a good collection of regional content. However, they wanted to have. They are trying to double their content library (Nazzar, 2017).

Netflix is trying to improve their content library as the other media service provider are available in the market. It has increased the competition. Thus, to survive in a competitive market, Netflix has improved their market strategy and recently introduce some Bollywood movies like Raees, Padmavati, Dangal and Bahubali and deals with the Red Chillies Entertainment (Qz, 2018).

India’s movies and entertainment company generate a large amount of revenue around 19.2 million dollars annually which worth fighting. There are other OTT competitors in the market around three dozen and Netflix is up against them for the revenue according to Indian Media and Entertainment Industry Report 2017. A competitive market is creating challenges for Netflix. Moreover, Netflix also facing a disadvantage of higher charges for subscription (Kpmg, 2017). The monthly subscription charge of Netflix in India is Rs500, which is around $8.00. Whereas the monthly subscription of another service provider like Hotstar is maximum Rs 199 which is around $3.2, and Amazon gives their customer unlimited content at just Rs 499 per year (Jain and Madan, 2017, p.379).

According to the report of KPMG’s “there will be the growth of 2.2-fold in the number of video-capable in the year from 2016 to 2021 which will reach around 800 million in number in India” (Kpmg, 2017). That will be a big boost in the video market of India, which is already sizeable, and despite heavy competition, Netflix is fighting for that business to earn revenue.

Main Drivers of Change in the Macro Environment

The main drivers of change in the macro environment relevant to the online streaming business are:

Consumer Behaviour: Consumer-behaviour changes including content preferences, a willingness to pay, genre, privacy, level of interactivity, scripted/unscripted collecting and ownership. As per the view of Aquilani et al. (2017, p198), by creating successful strategies and organisational power shift, the intense impact can be made on revenue, business models and margins. For example a consumer gain access through on-demand services to a broad range of title, they may not need that much content. It will reduce the value of the sell-through market and will move the control of distributors to subscription-based.

Regulatory Changes: These drivers include net neutrality, privacy regulations, censorship, antitrust enforcement, advertising regulations, copyright enforcement, local-on-local, universal broadband, local-production and localisation requirements (Aiken et al. 2018, p. 246). Aggregators and content owners will be favoured by severe privacy rules. Distributors empower the ownership of their ad inventory by giving the ability of advertising through better forecasting and complex revenue of management. Moreover, allow them to expand the additional roles.

Technology:Technology is rapidly evolving and the advancement causing the introduction of “Ultra-high-definition television“, “holographic display”, “stretchable screens”, “ultra-broadband”, “sensor technology”, “voice command technology” etc. Along with this, there are many remarkable technological discoveries which include the upgrading of regular graphics cards to more powerful ultra HD rendering graphics cards with the feature of real-time 3D modelling. Accompanying by multiple angle cameras, this technology can make a 3D model of virtually any object for designing and learning purpose. Furthermore, the technological innovation used today has introduced 3D printers which could print any object and save significant time. The dramatic evolution of technology has a mass appeal which requires mass production. This has also caused a reduction in market price which has helped the technology to be accepted by the mass population (Mittal, 2017).

Macroeconomic conditions: The term macroeconomic includes multiple factors such as”recessions”, “macro-shock”, and “trade-balance and protectionism”, “commodity pricing and supply”.In spite of being less predictable than other factors, these factors can impact the macroeconomic conditions of a country significantly. Moreover, these conditions can impact to having lack of access to “credit market” and “financial incentives”. These outcomes may seem not significantly important but too much lack of the supplies can cause a change of location of production and types of shows, as well as various kind of shows, requires a different amount of funding. For instance, it could be said that a decline in advertising budget could lower the budget of the entire project where the producers might switch their agenda of delivering a series to reality show as it would cost less (Gnocchi, 2015, p.304).

Drivers of Profitability in the Industry

In spite of being significantly important, these factors are highly unpredictable. Thereafter, it is not possible to determine that in which direction it might lead the industry (Matvienko, 2017, p.577).

Netflix has a remarkable growth at an alarming rate and simultaneously its profit as well.  Nowadays online video streaming is the latest trends worldwide. Due to increased use of mobile and internet, online video has become very easily accessible, and the innovative, original contents meet the views expectations thus increasing its craze among the population. Though Netflix has an increased subscription price still its international expansion has led to remarkable growth in its profit margin that should quiet critics of Netflix spending. There are“7.4 million Streaming subscribers”where only “6.6 million” were likely to be present and among them “5 million”were not from the native land of US. Alongside, the high subscription price combining with the unexpected subscriber figures gave a huge boost to the revenue.

The gross profit of Netflix is accelerating at an excellent pace. It always succeeds in achieving higher profits than previous time and breaks the previous year record. Another record breaking forecast of profit limit was made in the current quarter, which was of “$290.1 million” in net income followed by which, in 2016, the organisation experienced comparatively more profit in three months than what they had in that financial year. It has also been forecasted that if the organisation achieve its 2^nd quarter projected profit, then it will earn more than “$558.9 million” in half year, which was the profit of 2017 (Netflix, 2018).

Netflix had a massive success with the help of its highly diverse product basket containing very popular content. The growth shows no signs of slowing down as it has reached 50% of its revenue internationally with 55% of its memberships (Netflix, 2018). Netflix has invested in huge amount in its expansion to the international market, and the organisation is about to enjoy the payout of the same in the international market with its attractive content.

As the organisation grew massively, it has expanded to the Indian market, became an instant success by profiting Rs. $2.2 million, and reported gross revenue of $5.8 billion, which on an annual basis turn out to be approximately $10 billion. As there are more than 300 million mobile phone subscriptions, there lies a huge market for the organisation. With the help of 130 million global subscriptions, the organisation has stated revenue of “$11.7 billion” in the year 2017 and half of the market is outside home (Netflix, 2018). Sacred Games being one of the most hit films, Netflix is affiliated to “Love per square root” etc. Several shows will also be hosted under the banner of red chillies entertainment. There is huge anticipation for the upcoming season of sacred games after it has created a huge buzz amongst the viewers.

Opportunities and Threats for Netflix in Online Video Streaming in India

India’s multi-regional setup with a large amount of population using internet facilities serves as a great opportunity for the growth of Netflix in India. Irrespective of this, it faces threats because of factors like high pricing, mostly English contents, competitions from its Indian rivals and their diversified services. These factors serve as threats in India because of certain factors, they are:

Price: since in Indian market price elasticity is very high, a small increase in price may lead to huge loss of consumer base. Netflix’s subscription costs roughly Rs500 which serves as a threat. Hotstar and Amazon prime being a clear winner.

Content: Netflix content has mostly American content which is watched mostly by the millennial crowd; hence they lose a lot of customers from various age groups. Although Netflix is now coming up with more Indian content (ex: Sacred game) with best actors (Nawas) which in turn will surely be increasing their penetration in the Indian market.

Business Model: If we look at model adopted by Hotstar or let say voot, they both have a subscription and advertising-based business model, if you can use the service (with lots of ads) without being forced to get into the premium subscription-based model (Burns and Dewhurst, 2016, p.45).

Diversified service: we can see sports (famous English league) as well on Hotstar. There are many more different kinds of content.  

Overcoming these threats tactfully can turn the table into opportunities (Aguiar and Waldfogel, 2018, p.450).

Factors that could be transferred into Opportunities:

Local Programming: The viewership of TV in India takes active participation in prioritising Hindi and Regional content in comparison to contents presented in English. The setup of multi-region in India reflects upon several opportunities and challenges for creating contents in several types of language to initiate a pan Indian offering. Investments across films, web series and several documentaries take active participation in infusing local talents and a mix of culture towards the existing catalogue. The people in India are in love with the sports as wells as news-a territories for testing waters before introducing similar types of services towards the wider market (Jenner, 2016, p.263).

Innovative Pricing: The consciousness regarding the cost factors is relatively high amongst the customers in India. The present model of pricing serves as a weak one in the particular case. The platinum subscription comprises nearly about 300 channels costing nearly Rs 500 to 600 per month. The cost of subscription averaging between Rs 500 – 800 is relatively higher for appealing the mass production of India. Therefore, the company needs to adopt innovative price models for addressing the needs of the masses. There is a need to collaborate with manufacturers of devices and packages based on broadband. Special emphasis should be given towards deal-based packaging and advertisement based services. The Netflix in India is in the requirement of a basic tier that would offer at least 100 channels from their massive catalogue in order to attract mass consumers for a longer duration of time. Rs 99 subscription model could attract the consumers serving as a case of reference before approaching the model in a different place.

Recommendations for Netflix’s Leadership

Infrastructure: The dependency towards the slow speed of the broadband, use of credit cards and lacking connected devices for play out on the large screen requires to be attained on a primary note.

While bundling alongside Broadband and Netflix Subscription, the speed of broadband in India is on the lower side, and the case is same with the connections of broad residential bands. The majority of the subscribers on the Internet are users of mobile Internet with the expectations of exploding upon the onset of 4G LTE services offered by Reliance. Bundling of services (Broadband connections along with Netflix) will help in improving the scenario for Netflix.

Conclusion

As per demand, this report was completed according to the provided instructions. First, a brief introduction was given, and the company’s leadership skill over India was discussed. The aim of answering three questions, which was the main drivers of alterations towards the macro environment profitable drivers within the industrial context, main threats and opportunities and tentative way outs to turn the table into opportunities were done.

References

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Burns, P. and Dewhurst, J. eds., (2016). Small business and entrepreneurship.Macmillan International Higher Education.

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