Securities and Exchange Commission EDGAR database

Week 3 Assignment 1

Joanna Nasser

Strayer University

BUS499 Business Administration Capstone

Dr Keller

Netflix

Pay TV is one of the industries that were significantly affected by the internet revolution. The 21st Century television industry is gradually departing from the old models that one needs a set-top box and television cable connection, antennae or satellite. Nascent pay television companies are relying on new television models that have WiFi and Ethernet connection capabilities. Netflix is a leader in the internet television industry with millions of subscribers all over the globe. Netflix offers its subscriber Bluer Ray and DVD rentals as well as online streaming of movies and television series. The titular selling points for internet television is a la carte programming that allows viewers to pick the content they would wish to watch and absence of television advertisements- that viewers are growing increasingly of. Netflix and other streaming services solely rely on viewer subscription fees for revenue rather than ads. The strategies employed by Netflix enabled the firm to stave off competition from other pay-TV companies since the competitors had just copied and pasted the traditional model of television on online platforms. Since it had minimal need for infrastructural investments and global reach, Netflix can offer low subscription fees and as a result, maintains a grip on the market.

Globalisation

The internet is the foremost agent of globalisation. It is regarded as a terus nullius (no man's land) in which territorial boundaries are diminished. Online business has no geographical boundaries while regulatory barriers of entry are severely damaged. The internet offers Netflix and other online television companies an opportunity to reach global audiences at lower costs. Online firms are no longer preoccupied with local audiences; they have shifted their attention to the global market that is comprised of billions of audiences.

Consequently, they can take advantage of higher economies of scale that would enable them to offer discounted subscription fees and still make decent returns on investment. The fact that the company is of American origin gives it an advantageous position as most of the content would be in English, a culturally superior language that is widely spoken around the world (in virtually all the continents). Netflix also has programs that are available in more than one languages. Money Heist, originally a Spanish language program, is available in English and Spanish languages. The inadequacy of the television program has turned millennial to the internet in search of programs more suited for their entertainment needs. These needs are quality programs, on-demand programming and low subscription costs (Cunningham & Craig, 2016). It is the ability to reach global audiences and make content that corresponds with their language, needs and global culture that enable these firms to thrive.

Technology

Online television firms depend on a motley of technologies for survival. Availability of fast internet connection is the most basic requirement for the firms' business model. The advent of connection of fibre optic cable, even in less developed nations, enable audiences to stream content online. Due to vast geographical distances between the online television firms and their audiences, there is a need for e-commerce platforms such as Visa, Mastercard, Paypal and mobile money transfers. Use of emergent data mining technologies to predict what types of content that audiences would prefer. Netflix used Cinewatch, a predictive algorithm, in producing shows that became a success (Kovacs, 2015). The combination of the technologies as mentioned above enables these firms to operate efficiently across the globe.

Industrial Based Model

The industrial based model examines firms' competitive edge based on the threats. Porters' five threats are: new entrants in the industry, rivals, substitute products, powerful buyers and powerful suppliers. The severity of the threat of new entrants is highly dependent on barriers to entry such as regulation and the requirement for expensive capital investments (Olsen & Safdar, 2014). Television companies that deliver content via streaming are not required to invest in national infrastructure or work with partners to penetrate the international market. Thus, the requisite capital for such ventures is lower than for traditional television networks. Netflix's approach to television has been and will continue to be, emulated by new entrants who pose threats to the firm's market share. Threats from rivals are perhaps the most severe. Netflix faces threats from HBO and Showmax, which hold considerable market share in the industry. The rival firms engage in price wars and aggressive advertisement campaigns in social media. Substitute products such as pay television are also threats to Netflix. Product differentiation regarding quality would give Netflix an edge over their rivals. The inclusion of local programs and movies in international markets and lower subscription fees have enabled Showmax to endear itself to viewers. Pay television is not extinct, in fact, 43% of Americans still subscribe to pay TV for live events such as sports (Kovacs, 2015). To maximise on their earnings, they should consider adding live sports in their menu. Powerful buyers are a threat to any industry as they impact on a firm's success or failure. In Netflix's case, individual subscribers are influential and have to be appeased by the quality of the content, price and convenience. Netflix does not own most of the content in their network. They rely on show and movies producers who are at times unwilling to release some of the current content that would keep their audience in their network. The workaround the problem is to produce content. House of Cards, Orange is the New Black, Money Heist and Bird Box are some of the content produced by Netflix. Production of content is a capital intensive venture but the dividends- retaining subscriber base- is worth the money.

Resource-Based Model

The resource-based view assumes heterogeneity of firms' resource and immobility of the said resources to other firms (Olsen & Safdar, 2014). In the resource-based model, firms' products should be valuable, rare, inimitable and non-substitutable. Online television companies face a risk of having uniform products due to non-exclusive licensing agreements with producers. Non-exclusive licenses are cheaper as the producers can sell rights to several firms. Uniform products would expose firms to price wars which are detrimental to their bottom line in the long run coupled with the fact that the network producers still have the rights to make the programs available to their audiences in their networks. Thus, the importance of firms in the industry to produce their content that would be exclusively available in their networks. Netflix has produced award-winning shows, such as House of Cards and Orange is the New Black, which further endeared the firm to global audiences. These programs (products) perfectly fit the criteria for the resource-based model; rare because they are exclusive to the firm, inimitable, non-substitutable and valuable because audiences love the shows. However, competition from rivals' content such as HBO's Game of Thrones is still a matter of concern. The show is arguably one of the most favourite television contents of the decade and surpasses all Netflix shows regarding global viewership. Netflix maximises its returns on investment and increasing efficiency by creating content that is geared towards satisfying and retaining the customer.

Vision

Netflix's vision is to provide a good experience for customers who stream content online and becoming the best company in the field of online television. The firm also promises to create global markets for content creators. This vision is what guides the firm in ensuring that they stay ahead of the curve regarding technical quality and content quality. The actions, governed by the company's vision, helps in promoting the brand globally.

Mission

Netflix's mission is to improve customer experience to grow their global subscription base with a view of developing the interface of devices (television, computer and handheld devices). Netflix's contents are compatible with all internet-enabled devices. This increases convenience and enables the company to reach more subscribers regardless of the devices used to access the content.

Stakeholders

Netflix's stakeholders comprise of: the shareholders, the employees, the suppliers (television networks and independent producer who license the firm to air their content) and global subscribers. Netflix's employees in production, customer service and marketing departments enable the firm to succeed by working in sync by ensuring that each department works towards the realisation of the firm's goals. The ICT department ensures that the subscriber has an easy time online by ensuring that the various technological aspects are functional. The production team provides that the programs are of high quality. Customer service staff ensure that subscriber complaints and concerns are addressed while the marketing de0partment formulates strategies for gaining and retention of customers are sound. The shareholders make a fund for operations available and set policies.

References

Cunningham, S. & Craig, D. (2016). Online Entertainment: A New Wave of Media Globalization? International Journal of Communication 10(2016), 5409–5425.

Kovacs, G. (2015). An Analysis of Strategies by Netflix in the Television Market. Undergraduate thesis, Aarhus University, Department of Business Administration.

Olsen, T. & Safdar, I. (2014). Effects of Industrial Organization Perspective and Resource-Based View on Firm Performance: The Moderating Role of Industry Characteristics. Master’s Thesis, Buskerud and Vestfold University College.