A Network View of Netflix How Partners, Competition, and Opportunities Dictate Strategy
Changing How We WatchNetflix began as a DVD-by-mail service, However, increasingly streaming ofusing the web to improve the rental video online has become one ofindustry with recommendations, queues, Netflix’s core strategies forand automation. delivering content to viewers. $14m in Q3 2011 $21.5m in Q3 2011Figures based on Netflix Q3 2011 Financial Statements
Focusing More on Streaming Netflix Investment in Streaming vs. DVD Content 700,000 Netflix is constantly adding new content to itsDollars Invested (Thousands) 600,000 streaming library, including new partnerships with AMC, CBS, DreamWorks, and Warner Bros. 500,000 400,000 “Our core strategy is to grow our streaming Streaming subscription business within the United States 300,000 and globally.” DVD 200,000 - Netflix Annual Report 100,000 “[The DVD-by-mail business] will probably be something like AOL dial-up from 2002 through to today, where it’s a steady decline every year a little bit, but there’s a long-term residual market. And 0 there’s very little fixed cost in the business. So that’s not a material cutoff of its efficiency, it’s almost all variable cost. 2009 2009 2009 2009 2010 2010 2010 1 Q1, 2011 2011 2011 Q1, The postage, the labor, all of those aspects.” 2010 Q2, Q3, Q2, Q3, Q4, Q1, Q2, Q3, Q4, - Netflix 10K Figures based on Netflix Q3 2011 Financial Statements 1“Netflix’sCEO Discusses Q3 2011 Results.” http://seekingalpha.com/article/301738-netflix-s-ceo-discusses-q3-2011-results-earnings-call- transcript?part=qanda.
Pulling Content From All Around Netflix purchases DVDs or holds content agreements with countless production studios and distribution companies. These are just a few of the partnerships Netflix currently holds. A constant concern for Netflix is gaining new content and holding onto the content agreements it already has. Just recently, Starz opted not to renew its agreement with Netflix, meaning that in February Netflix will lose a great deal of its streaming content. This is a growing concern as other companies enter streaming.
Others Catching OnSubscription Service Á La Carte Advertising Subsidized FreemiumOne Price, Unlimited Viewing Pay Per View Free Viewing with Ads Some Content Free, Other Paid“I think in the long-run, the long-term margin structure forstreaming will be ultimately determined by the competitivespace, and how many competitors we have. In the shortrun, we’ve been aggressively adding streaming content at thesame rate of subscriber growth, and we continue to anticipateinvesting in 2012.”1 - David Wells, CFO, NetflixCompetitors like Amazon, YouTube, Hulu, Blockbuster (now partnered with DishNetwork), Facebook, and Apple are getting in on the action too. All sixcompanies have revenue generation models based on either selling digitalcontent to consumers or using advertisements to subsidize viewing. 1“Netflix’sCEO Discusses Q3 2011 Results.” http://seekingalpha.com/article/301738-netflix-s-ceo-discusses-q3-2011-results-earnings-call- transcript?part=qanda.
Getting Content to YouRather than just getting content to viewers through DVD players, Netflix has partnered withnumerous other device makers to help turn any screen into one that can stream Netflix movies andTV shows from the web. Nintendo Wii Microsoft Xbox 360 Sony PlayStation 3 Gaming Systems
Getting Content to YouRather than just getting content to viewers through DVD players, Netflix has partnered withnumerous other device makers to help turn any screen into one that can stream Netflix movies andTV shows from the web. Apple iPad and Windows Phone Google Android iPhone Mobile Devices
Getting Content to YouRather than just getting content to viewers through DVD players, Netflix has partnered withnumerous other device makers to help turn any screen into one that can stream Netflix movies andTV shows from the web. Roku Box Tivo Apple TV Web-Enabled TV and Devices
Getting Content To You Netflix’s vast array of partnerships allow it to be available on a plethora of platforms, meaning that Netflix’s streaming services can reach just about everyone— either on the computer through a browser, through web-enable televisions, gaming consoles, or mobile devices. However, a growing concern is the exclusivity of these relationships. Hulu is already available on many of these platforms, as is access to Apple content. What exists to ensure that Netflix with continue to enjoy its proliferation?
Area For Concern - Content While its content partnerships are among Netflix’s strengths, they are also one of its weaknesses. The growing standard of exclusivity means that content may soon only be available in one place, rather than across multiple websites. Will content creators and distributors continue to partner with Netflix and give it the content it needs to exist, or will they find greener pastures, possibly even focusing on their own online distribution to build revenue?
Area For Concern - Delivery Another area for concern for Netflix are the platforms that deliver its streaming services. While browsers on computers will always be able to access Netflix.com, what about the numerous devices that make Netflix so easily accessible? What happens if they decide to partner with Hulu or Amazon exclusively for streaming services? Maintaining partnerships with these device makers is vital—especially considering the numerous connections Apple already holds for content.
Looking Forward Netflix Investment in Streaming vs. continue to build up its streaming Netflix will DVD Content 700,000 library, maintaining a DVD selection that willDollars Invested (Thousands) eventually be slowly phased out. 600,000 500,000 Because of this need for new content, Netflix has to maintain content rights with a growing 400,000 variety of content providers. Exclusivity rights Streaming and new partnerships will constantly be threats 300,000 and opportunities for Netflix. DVD 200,000 100,000 Netflix must also keep relationships with platforms that allow Netflix to stream its 0 content via apps. With many new streaming options entering the market, it is vital to Q1, 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, remain ubiquitous and a well-known brand name across platforms.