GAP ANALYSIS FOR TALENTED WRITER
Zachary Mckinster BA 301 HW #4 2/17/2018 Gaps/Symptoms The first major gap for NFLX is the inability to raise rates the same way traditional pay for TV platforms are able to, year after year. This is mainly due to the expectation of customers to pay a low price for a lot of value. The number one reason 56.6% of customers subscribed to NFLX in 2017 was the low price tag offered (Statista). This creates a major conflict for what NFLX needs to do to support cash flow, and continue aggressive growth globally (NFLX 10-K). Creating this brand image, and being locked into a possible financial trap could cause NFLX to default on debt, if subscribers are lost or enough revenue is not created.
In addition to this fact, NFLX has a second gap caused by increased spending every year and the company plans to spend roughly $7-8 B on original content in 2018. This action is a result of the foreseeable mergers and loss in content NFLX will face in the next 2 years. Intense competition with companies with market share envy, are laying plans to overtake the NFLX subscriber position. Time Warner Inc., and more specifically HBO, are in the process of being acquired by AT&T, pending the court case for antitrust. Disney has now officially acquired major entertainment portions of 21st Century Fox, and has announced that it will take all content off of NFLX by 2019 (Seitz, P.). With this acquisition, Disney now holds the majority share of major NFLX competitor HULU, which won the first Emmy awarded to a streaming service. To make things worse Apple (AAPL) is spending $1 B on original content, which many analysts assume is a test, considering the tech giant has $261.5 B liquid cash. AAPL has also partnered with Amazon (AMZN) to feature the Amazon Video library on Apple TV, leaving NFLX in the dark (Low, E.). AMZN is also ramping up spending with growth; last year $4.5 B was spent on original content, and the 2018 10-K reveals, “Capitalized production costs associated with our original content are limited by the amount of revenue we expect to earn” (AMZN 10-K).
The last gap, and last major competitor to all companies in this space, is global piracy, but this report considers password sharing to be included. Piracy is a growing concern as the digital frontier grows in scale. Internet connectivity has doubled since 2010, and the rate of piracy has grown with it (Statista). It is estimated that in 2017 $31.8 B was lost in revenue and this number is expected to almost double by 2022 (Statista). Password sharing is another key problem for SVoD services, that traditional linear TV services don’t encounter. NFLX has faced this issue for years, and in many ways seems complacent to the loss in revenue. “An analysis by Parks Associates estimated streaming providers will lose $550 million in 2019 from password sharing” (Fortune, Ebsco). Problem
If NFLX fails to maintain an edge on competition by creating, and protecting original content necessary to sustain customers, NFLX could lose market share and revenue; resulting in major solvency issues.
Work Cited Amazon Form 10-K 2017, Edgar Online. Accesses Web 17 February 2018.
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Digital TV Research. "Global Online Tv and Movie Revenue Lost through Piracy from 2010
to 2022 (in Billion U.S. Dollars)." Statista - The Statistics Portal, Statista, www.statista.com/statistics/778338/global-online-tv-movie-revenue-loss-piracy/, Accessed 17 Feb 2018
FierceCable. "Which of The Features of Netflix's Service Do You Find Appealing?." Statista -
The Statistics Portal, Statista, www.statista.com/statistics/544813/netflix-features- appealing/, Accessed 17 Feb 2018
Low, Elaine. "Streaming Content May Become King, but Who Will Wear the
Crown?." Investors Business Daily, 18 Aug. 2017, p. 18. EBSCOhost, stats.lib.pdx.edu/proxy.php?url=http://search.ebscohost.com.proxy.lib.pdx.edu/login.aspx ?direct=true&db=buh&AN=124885326&site=ehost-live.
“People Sharing Passwords Are a Growing Problem for Netflix.” Fortune.Com, 11 July 2017, p.
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Rayburn, Dan. "OTT's Troubling Trend." Streaming Media, vol. 14, no. 2, Mar. 2017, pp. 12-13.
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Seitz, Patrick. "Netflix Stock Retreats on Disney Competitive Threat." Investors Business Daily,
10 Nov. 2017, p. 31. EBSCOhost, stats.lib.pdx.edu/proxy.php?url=http://search.ebscohost.com.proxy.lib.pdx.edu/login.aspx ?direct=true&db=buh&AN=126167229&site=ehost-live.