Zanoria Diamond Angel Y.

Mgt220-A

January 21, 2019

1. Reed Hastings, CEO of Netflix is facing challenges particularly on financial impact of its
slow domestic market. Its way of offsetting the uprising matter is to push for international
expansion which the U.S. operation is represented about two-thirds of Netflix’s revenues.
However, the international expansion has its setbacks. The Number of international
subscribers was nonetheless increasing at a rapid pace but not all international subscribers
were satisfied with Netflix’s service. When it first opened, Netflix was purely a website-
Users would put in their orders and receive a DVD in the post. When they'd finished with
them, they simply posted them back to Netflix. Today it has over 151 million paid
subscribers in over 190 countries around the world. It offers a wide range of TV series,
documentaries, and feature films across a wide variety of genres and languages-based
movie rental service. It allowed people to rent DVDs online. It was originally a rent-by-
mail DVD service that used a pay-per-rental model. Users would browse and order the
films they wanted on their website, put in an order, and Netflix would post them to your
door. After renters had finished with the DVDs, they would simply post them back. They
would eventually introduce a streaming model in 2010 that we all know today.
Netflix's model would directly challenge the market dominance of rental giants like
Blockbuster at the time. Netflix had adopted an aggressive expansion strategy into global
market to offset slow domestic growth in its U.S market and started targeting to expand
into 200 countries and establish itself as a global force by 2016. Before its expansion it was
reported that Netflix had a subscriber growth rates of around 2.4 million people per year
and eventually jumped to an average of 7 million subscribers per year. An increase in
growth rate was reported of 2.74 million subscribers in its international segment. Due to
cultural differences among regional audiences with limited -time offers which minimized
the financial involvement and potential risk in the engagement with untested market,
Netflix established a successful business model for minimizing risk. It also implemented
 elements of its new strategic direction like exclusive licensing of content and developing
its own content for streaming into its international expansion strategy.

1. SWOT Analysis

 Strengths
1.) Biggest Market Share of Instant Streaming Services
- By January 2016, the company had an estimated 74 million subscribers
worldwide.
- There were more than 3,500 full-time employees and reported revenues
upwards of $6.78 billion as of 2015.
- Netflix’s business model became so popular and launched an initial public
offering (IPO) to sell shares of its common stock, selling 5.5 million shares at
$15 per share in 2002.
- Netflix concluded the 2015 fiscal year with a market value of $32.9 billion,
making it more financially valuable than established television networks.
2.) Highest Circulation of Instant Streaming Services
- In 2014, the company hit a subscriber milestone when it surpassed 50 million
worldwide subscribers, 36 million of whom were in the united states.
- Netflix had supplemented its role as content provider by providing original
content, acting as a developer of popular TV programs
- Netflix concluded the 2015 fiscal year with a market value of $32.9 billion,
making it more financially valuable than established television networks.
3.) Wide variety of movies and TV shows spanning all genres and interests
- Netflix generated revenue primarily through its subscription system, through
which subscribers paid a flat monthly fee to have access to its digital library of
movies, television shows, and other original content.
4.) Easy accessibility through many different platforms
- With the mobile viewing platforms like tablets, large-screen smartphones, and
laptops, VOD capitalized on the business opportunities available by streaming
 through internet which was an indispensable tool in launching the content-
streaming service.

 Weaknesses
1.) Reduced demand for high price subscriptions
- Trying to raise prices didn't sit well with consumers and caused Netflix stock
to stumble. The effect of this going forward will be to make management a little
gun shy at raising prices any time soon. If explained well to consumers given
the company's new content, though, Netflix could likely get away with small
increases.
- Slow growth in the domestic market in United States with profits dropping 50%
compared with the year before.
2.) DVD Subscriber base will continue to fall
- In the second quarter, Netflix lost 475,000 DVD subscribers; this left the
subscriber base at 7.51 million. Netflix expects that DVD subscriptions will
continue to fall until they're zero.
3.) Reliance on business partnerships may increase acquisition and licensing costs
- Netflix does not own all its original contents, it only has streaming rights instead
- Show ownership: Netflix outbid everyone for "House of Cards" and other
Netflix originals.
- Netflix paid significant premiums for global licensing deals which resulted in
very high costs for its international business segment.
- Netflix reported at significant losses of $68 million.
4.) International Market Regulations
- Netflix is currently trying to break into international video streaming markets,
which have different regulations and standards for content.
- This is important because expanding market share is necessary for continued
corporate growth and financial success.
- In order to stay competitive with Amazon Prime streaming and Hulu Plus,
Netflix must be accessible to anyone with a mobile data connection and
smartphone.
 - Netflix has performed market and demographic segmentation in order to figure
out where their expansion would be best received. breaking into international
markets requires foreign licensing, however, which is essentially granting
permission to the foreign entity for them to produce/market/operate within a
certain geographical area.

 Opportunities
1.) International expansion
- Beginning solely in the U.S., Netflix is currently available in Canada, England,
Netherlands, Scandanavia, and much of Latin America. Netflix will continue to
invest in new territories/opportunities.
2.) Raising capital
- With people willing to pay this much for Netflix stock, the company might do
well to sell more shares. This might be a good move even if it dilutes the
holdings of existing shareholders.
3.) Advertising
- Netflix could use a lot of the white space on its website for banners of products
that would be synergistic with its business, however. Examples would be the
aforementioned Internet-ready TV's, Google's Chromecast device, or other
synergistic technologies. This would be a painless way for the company to
increase revenues.
4.) Product line expansion like video games
5.) Total integration of Netflix’s platform across mobile devices

 Threats
1.) Increase in industry rivals and substitutes
- Traditional networks like CBS and Disney have launched or announced plans
for their own streaming services.
- The challenge from Hulu (a joint venture between several of the major
broadcast networks) is also very substantial.
- Other major competitors of Netflix are Amazon, YouTube, and HBO.
 2.) Political and Cultural Censorship
- Netflix is looking to expand into India, China, and other overseas markets. This
is going to be particularly difficult in the case of China, because online
streaming is historically very closely controlled by the Chinese government.
The government also closely censors content, and anything "objectionable" can
be noted and banned by government officials.
- This is important because of the variety of shows Netflix offers. With popular
content being so easily disapproved and censored, there is very little reason for
users to pay for a subscription.
- Sociocultural differences also mean that Netflix has to worry about language,
attitude, value, and cultural differences in their target foreign markets. These
can influence the kind of programming that foreign users want to see, and also
impact the customer service expectations.

2. The premise was simple, Hastings believed that he could leverage the high-performance
culture and data-drivenness embodied by tech companies to succeed in the DVD-rental-by
mail business. Within a decade Netflix was bringing in more than a $1 billion in revenue
a year and revered as one of the most innovative companies in Silicon Valley. This case
covers four distinct eras of Netflix, spanning from 1997 to 2015: A.) the Pre-IPO Era,
within which Netflix withstood the dot com bubble and settled on a successful DVD-rental-
by-mail business model; B.) The DVD Growth era, within which they held an initial public
offering and scaled their business to more than 850,000 subscribers; C.) The Introduction
of Streaming era, where Netflix introduced their online video-on-demand service and
eventually pivoted to offering streaming only subscriptions; and D.) the Content era, within
which Netflix began producing their own exclusive television shows and movies to in
response to the ever rising costs of content licensing.

3. As stated in the previous section, they will have to create tailored content for the new
markets which will entice them into joining the service. Most of the foreign markets speak
different languages and have different cultures and Netflix has to adapt to the various
demands or face competition from rivals. Netflix already has a globally recognized brand
but that will mean little if they are not able to capitalize on it and engage with foreign
content creators to understand what works for each market.

Original, Local Content

Netflix is popular in the U.S., primarily due to its original content. Yet the company is still
trying to build its international library. Viewing preferences differ from country to country
and even between different regions of the same country. In order to attract subscribers,
Netflix needs to have a broad content library catering to the preferences of the diverse
audience.
Lack of enough local content is being cited as one of the reasons of its slower
growth in international markets. Further, several of its existing shows are licensed only for
the U.S. and cannot be broadcast in other regions. This limits its content library until the
company renegotiate the terms for these shows. Expanding its existing content to
international markets will lead to higher licensing costs, impacting the margins negatively.
Creating original, local content for each international market is also an expensive
proposition, especially if the costs cannot be justified by a huge subscriber base. However,
as Netflix attracts more subscribers, its international segment should become profitable.

Content Compatible With Lower Internet Bandwidths

One of the key challenges which Netflix faces in international markets such as India is
lower internet penetration and existing connections with low bandwidth. This limits its
target consumers in these countries to the small section of the population that have access
to high speed internet. Using Netflix on mobile phones is an expensive affair for most
countries in Asia, where data download and upload limits exist for mobile phone plans.
However, we believe Netflix can surpass these challenges and grow its international
subscriber base at a steady pace over our forecast period.

Making its international segment profitable is a challenging task for Netflix. The company
needs to invest heavily in local content and better streaming quality over low bandwidth
connections to attract subscribers. However, these costs can be recovered only if the
subscriber base expands rapidly.
4. In the future, Netflix will have many things to consider and deal with if they are to remain
profitable and leading the market. The main initiative that I would suggest is to slow down
on their global expansion of the service and focus more on consolidating their existing
main markets. Due to the increase in demand for streaming services, many rivals have
emerged and are chipping away their subscribers while Netflix is focused elsewhere. By
retreating and maintaining their customers, they will be stabilizing their core markets. The
second initiative is looking into purchasing streaming services in other countries. They will
be essentially leaving the regional streaming services to tap into the emerging markets and
establish themselves before Netflix swoops in and takes over. It might seem like an
expensive option but considering that it will save them a lot of struggles in establishing
dominance in foreign markets, it will prove worth it in the long run. Also, Netflix should
create additional revenue streams through advertising.