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Raphael ThysCompany: Netflix CEO: Reed Hastings Year founded: 1997 Headquarter: Los Gatos, USA Number of Employees (2021): 11,300 Public or Private: Public Ticker Symbol: NFLX Market Cap (Aug, 2022): $107.24 Billion Annual Revenue (2021): $29.69 Billion Profit | Net income (2021): $5.11 Billion
Products & Services: Video on demand | Streaming to game consoles | Recommendations Competitors: Hulu | Amazon prime video | HBO Max | Facebook | Vevo | Sony Crackle | Sling TV | Playstation Vue | YouTube | Disney+ | AppleTV+ | Microsoft | Spotify
Fun Fact:
Did you know that Netflix was originally called Kibble?
An Overview of Netflix
With 222 million subscribers from around the world, Netflix has grown tremendously over the years. It is one of the leading internet entertainment services in the world with paid memberships in over 190 countries.
70% of the subscribers binge-watch the TV series on Netflix. Not just a TV series, it offers movies, documentaries, and feature films with various genres and languages.
In 1997, Reed Hastings and Marc Randolph co-founded Netflix, starting as a DVD sales and rental by mail but after a year they focused on online DVD rental service.
In 2007, Netflix introduced streaming media online while retaining its DVD rental service. They started expanding online streaming internationally in 2010. With such a global reach, Netflix’s profits tripled this year.
How is it so successful? Did it face any ups and downs? To answer these fundamental questions, let’s look at a detailed SWOT analysis of Netflix.
SWOT Analysis of Netflix
The SWOT analysis of Netflix is given below:
Netflix’s Strengths – Internal Strategic Factors
1. Exponential Growth – In the past ten years, Netflix has become an influential brand for online streaming content not only in the US but across the world.
2. Brand Reputation – Netflix has risen to become a household name within a short period. In 2021, According to Interbrand, Netflix ranks #36 – with a brand value of $15.0 billion.
Some close competitors on the list are as follows:
- #10 – Disney ($44.1 billion brand value)
- #19 – Facebook ($36.2 billion brand value)
- #26 – Youtube ($20.9 billion brand value)
- #66 – Spotify ($9.8 billion brand value)
3. Global Customer Base – Netflix is serving over 190 countries across the world, having a global customer base. There are over 167 million subscribers of Netflix, and it gives the company a strong bargaining power with the studios for securing exclusive content.
Image Source: Statista
4. Originality – Another one of its strength is that Netflix has been producing original content over the years with the highest quality. Some of its shows like Tiger King, Stranger things, Money Heist, Narcos, Mindhunter, and Orange Is the New Black became so popular that its subscriber count kept increasing over the quarters.
5. Adaptability – Netflix adapted to various technologies instantly by providing streaming on all internet-connected devices like personal computers, iPads, mobile devices, and televisions. Due to this, their business grew immensely over the years.
6. Customer – Centric Service – For a long time, customers were looking for an offline option to watch Netflix content, in case of travel (plane, subway) or bad internet connection. As a result, Netflix introduced a download now (offline) feature for customers to watch their favorite shows on the go.
7. Affordable Pricing – The pricing strategy of Netflix has given it leverage over its competitors. The plans that Netflix has designed are affordable and offer great value. Subscribers can watch unlimited movies, either on DVD or streaming for an affordable price of $8.99 a month. It is less expensive than cable movies or going to the cinema and also offers a wider selection. For a higher quality Ultra HD (4K+HDR) streaming, subscribers can even get premium plans at $15.99 per month.
8. Award-Winning Shows – It is not a surprise that the popularity of Netflix’s original shows has been growing.
In addition, Netflix has been beating traditional television networks (HBO, NBC) in nominations. In 2020, Netflix has received 160 nominations at the Emmys where as traditional TV networks have received the following nominations:
- HBO – 107 nominations
- NBC – 47 nominations
- ABC – 36 nominations
- FOX – 33 nominations
- CBS – 23 nominations
Image Source: Statista
Netflix’s Weaknesses – Internal Strategic Factors
1. Limited Copyrights – Netflix does not own most of its content, and this affects the company negatively. The rights taken from other studios expire after few years, and that content starts appearing on other sites.
2. Increasing Debt – Netflix is serving its diversified content in many countries around the world which requires huge amounts of money. Netflix keeps adding to its long-term debt to fund new content. As of April 2020, Netflix reported $14.17 billion in debt and plans to raise $1 billion more through a debt offering. The increase in debt every year is a major weakness.
3. Lack of Green Initiatives – Netflix has still not utilized renewable energy and hasn’t created a business model to promote environmental sustainability. Contrary to this, tech companies like Amazon, Google, Apple, and Facebook have already started using renewable energy to help sustain the environment. The four tech giants have committed to using 100% renewable energy for their businesses. The lack of green energy utilization has a negative impact on the brand image of Netflix.
4. Rigid Pricing – Customers demand customized pricing with more options. Unfortunately, Netflix’s pricing model is rigid with only three tiers, Basic, Standard, and Premium. The lack of different options has contributed to stagnation in the number of new subscriptions.
5. Over-dependence on North America Market – Even though Netflix operates globally, it relies heavily on the North American market. In the fiscal year 2019, Netflix reported $10.05 Billion revenue from North America, which represents about 50% of its total revenue ($20.15 Billion). This a major weakness because the North American Market is nearing saturation.
6. Support Shortages – The number of Netflix users and hacked accounts increased in the first six months in 2020 because people were stuck at home due to Pandemic. To make matters worse, Netflix reduced support hours. Users were frustrated by the shortage of customer support and had to wait longer to retake their accounts compromised from hackers.
7. Raising Prices – Netflix has raised its subscription prices, while other new video streaming services such as Disney+ ($6.99 per month) and Apple TV+($4.99 per month) have introduced their services at much lower prices.
Image Source: Statista
8. Growing Operational Costs – Adding more content gives Netflix a competitive advantage, but the cost of supporting the content keeps growing. In 2019, the steaming cost was $14.61 Billion and the amount has exceeded from the last year’s spending of $12.04 Billion.
Image source: Statista
Netflix’s Opportunities – External Strategic Factors
1. Low – Price Mobile Streaming Option – Netflix can offer a lower-priced option to entice and retain subscribers in international market. Netflix has been testing a cheaper mobile-only plan in India that costs only $3/month. It can expand this lower-priced option globally to compete more effectively against cheaper alternatives like Disney+, Apple+, Peacock, and so on.
2. Exploit Ad-Based Model – Google, Amazon, Facebook, and many other service providers make billions in revenue from adverts. Netflix can boost its revenue by adopting an advertising-based business model.
3. Expand Global Customer Base – With such a huge current subscriber base, Netflix can tap into many other countries and expand its services and subscribers. They can start to target the countries where it is currently not available. Recently, Netflix expanded its operations and added a few more countries on its operation list. However, it is still unavailable in China, Crimea, North Korea, and Syria.
4. Refresh Content library – It can expand its content licensing by increasing the contracts with various movie distributors. Additionally, Netflix should refresh its content library as it is now producing its original content.
5. Alliances – It can also partner up with various telecom providers and offer bundle packages in different countries. Alliances and partnerships can prove to be beneficial for Netflix. In the past, Netflix partnered with Channel 4. It can form more solid partnerships with local broadcasters.
6. Niche Marketing – Producing region-specific content in their local languages is also another big opportunity for Netflix. Niche marketing has been proven beneficial for Netflix. For example, it started an original TV series ‘Sacred Games’ in India, and Spanish series ‘La Casa de Papel‘ (Money Heist), which are massive hits.
7. Introduce Cheaper Annual Subscription – Whenever Netflix releases new or fresh content, users will often pay for one month only and binge-watch all their favorite shows within a short period. Netflix loses a lot of revenue because users can cancel their subscription once they have gone through all the new content, without any penalty. The company can increase its revenue by introducing an annual subscription with discounts to encourage monthly subscribers to switch to yearly plans.
8. Support Black Educational Institutions – Netflix has pledged 2% of its holding going forward to support Black communities, which amounts to $100 million. Its shows great Corporate Social Responsibility.
Netflix’s Threats – External Strategic Factors
1. Competitive Pressure – Netflix is not the only one which provides digital streaming around the world. Its competitor keeps increasing every year. Disney+, Apple TV+, HBO, Amazon, Hulu, and YouTube are competing continuously with Netflix by giving repeated access to new and original content to its subscribers.
2. Government Regulations – Strict governmental rules and regulations regarding service providers like Netflix in many countries can be a big threat for them. For example, Netflix expansion to China will be unlikely because of its restriction on foreign content.
3. Piracy – Digital piracy is still at its peak as thousands of people around the world find ways of downloading media content because of high monthly costs which they cannot afford. It is another big threat that Netflix faces.
4. Market Saturation – Netflix added 420,000 U.S. subscribers in Q4 of 2019 and lower than its target of 600,000. In Canada, its target was 218,000 but it added only 125,000 subscribers. For the third quarter in a row, the North American subscriber growth has slowed because the market is reaching saturation. Netflix will find it harder to add new subscribers in the future due to market saturation.
5. Account Hacking – The number of hacked Netflix user accounts increased drastically in Q1 and Q2 of 2020 with the increase in daily users due to lockdown. If account hacking persists into the future, frustrated Netflix users can mass migrate to rival companies.
6. Carbon Emission – According to a study by Shift Project, digital technologies have a larger carbon footprint than the aerospace industry. Online video streaming generates nearly 1% of global emissions. High carbon emission is a major threat in this age and time where countries across the world are threatened by climate change. They can decide to restrict Netflix’s usage.
7. Government Pressure due to Capacity Issues – Netflix users are growing rapidly and straining available infrastructures and resources. In March 2020, the European Union commissioner complained about how Netflix’s large HD content strained infrastructure and interfered with critical functions like defense and hospitals. Netflix was asked to reduce the data in video streams to European users for 30 days and urged users to watch in standard definition instead of HD.
SWOT Analysis of Netflix
Recommendations:
The SWOT analysis of Netflix highlights where the brand currently stands and the threats it is facing in this era. Following are a few suggestions for Netflix that were recommended after this detailed analysis:
- Tap into new geographical locations by partnering up with their local cable providers and streaming their local content as well as international content in various languages. In this way, they will gain more profits and subscribers.
- Netflix should try connecting with IMDB, Rotten Tomatoes, and other internet services to provide a variety of ratings and other information for their users.
- To avoid digital piracy, Netflix should strengthen their security and expose whoever is behind digital They can also provide even more generous subscribing packages for different economic classes.
- Improve their application and website by providing a more user-friendly interface for their subscribers.
References & more information
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