Corporate Strategy Project Bocconi University - MSc in International Management

1. Luigi Mastromauro Andrea Valenti Riccardo Rosato
Siddharth Kumar Axel de Geer Guillherme Teixeira

2. Situation
A NEW OPPORTUNITY
Fragile Advantage
New competitors
Growth is slowing
Network effect
WHAT IS
HAPPENING

3. Situation
The music streaming
industry1 High Growth (+45% revenues in 2015)
2 Consolidation trend between Music and Video Industry
3 Long-term growth of the market
4 Low profitability
5 Network effect

4. Industry Analysis
Digital music: 5
forces
Rivarly
Customer
Substitute
Product
Supply
New
Entrants
NEGATIVE
PROFIT
Medium-low concentration
High barriers to exit
Price war: 9.99$ as most common price
Diversity among competitors
Millenials are price sensitive
Size catalogue is crucial
Interactivity
Customization
Youtube
Piracy
Radio
Size and concentration
Country specific
High Bargaining power
Size of catalogue
High switching cost for customers
Economies of scale
Huge new players of other markets

5. Industry Analysis
A further look to the
trends GROWTH of DIGITAL MUSICCOMPLEMENTARY PRODUCT
Both music and video streaming industry depends on
the development and diffusion of another
product/infrastructure: Internet connection
This hinders penetration in Asian and African Market

6. Industry Analysis
A further look to the
trendsAnalysts foresee a 50% increase in revenues per user and a 33% increase of users over the next 4 years
The growth began in 2015 lets analysts forecast positive earnings in the near future:
THIS MARKET WILL BE PROFITABLE SOON!
Average Revenues per User Penetration Rate

7. Firm Analysis
RESOURCE analysis
1. First mover advantage in the video
streaming industry
2. 7th most disruptive brand in 2015 (Forbes) a
1. Exclusive contracts (Disney)
2. Profit sharing negotiation model
(Bargaining power)
3. This allows Netflix to cut costs
1. Highest retention rate in the US market
2. Diversified contents (tail effect)
3. Wide customer base (43% market share
worldwide)
4. Competitive price
5. Specific features (easy to use,
customization, interactivity, reliability)
1. Based on data analysis capability
2. 5$ billion investment (4.5$ Warner Bros)
3. Successful original series
4. Lower dependency on studios
Brand awareness
Supplier Relationship
Original Productions
Customer relationship

8. Firm Analysis
5 tests analysis
Brand Awareness
Customer
Relationship
Supplier
Relationship
Original
Productions
Inimitability Durability Appropriability Substitutability
Competitive
Superiority
Path
dependency
Netflix and
chill
Exclusive
contracts
Economic
deterrence
Keep Investing
Low churn rate
Depends on
terms
Competitors
catching up
Corporate
Corporate
Corporate
Suppliers
Customers
Corporate
New players
-
Original
Productions
Exclusive
contracts
Piracy
Top of mind
brand
Easy to use
Customization
Bargaining
power
Data Analysis
Indipendence

9. Recommendation
HOW TO: BUY
M&A Deezer
1
Deezer 2016 IPO evaluation: 1,1$ billion
Netflix cash: 1,73$ billion
2
Market share: 6,9 %
Subscribers: 6,3 million
3
Global presence
Segment zero in Asia and Africa
4
Synergies with Netflix
(Bargaining Power, Customer retention, Contracts)
5 Entry barriers prevent MAKE option

10. Recommendation
CONSOLIDATION
Diversification
HIGH
HOW TO: Strategic
group view
Geographic
estension
The different level of geographical coverage has an
impact on the cost structure and the offering of
streaming companies.
The different level of diversification (both correlated
and uncorrelated) affects the way these companies
compete and suffer from market conditions.
Huge players such as Amazon and Google entered the
two industries leveraging on their expertise and size.
Companies such as Spotify, Tidal and Deezer also offer
other services: music video, event tickets and so on.

11. Decision
YES WE CAN
Favourable reasons Unfavourable reasons
• Exploit network effect with Deezer’s
customer base
• Bundle offer for a unique streaming
service to compete in the price war
• Exploit Netflix brand equity on
Deezer’s customer base
• Economies of scope and
economies of scale
• Strengthen Deezer’s Customer
relationship leveraging Netflix
expertise
• High cash needs in video streaming
industry
• Video Industry is a star, Music a
question mark. Both demanding
• Low profitability (temporary)
• Different suppliers in the
two industries (except for
Sony)
• Highly competitive industry

12. IT’S TIME TO CHILL
THANK
YOU

13. Situation
BIBLIOGRAPHY
1. https://blogs.cornell.edu/info2040/2016/11/13/is-netflix-on-the-verge-of-collapse/
2. https://www.statista.com/chartoftheday/Streaming/
3. Annual reports: Netflix and Deezer
4. www.musicindustryblog.wordpress.com/tag/deezer
5. pt.slideshare.net/FranciscoJavierValde5/music-streaming-industry-analysis-65641415
6. Global Music Report 2016 – IFPI
7. The music industry 2012 – JRC Technical Reports