Systems Analysis of NETFLIX

1. SYSTEMS ANALYSIS
ON
NETFLIX

2. INTRODUCTION
• Netflix represents a classical service business model in
the video-on-demand industry where users of the service
and payers are the same entity.
• Netflix is a subscription-based film and television
program rental service that offers media to subscribers
via Internet streaming and via US mail.
• Netflix founded by Reed Hastings, started as an American
DVD-by-mail service in 1997, and began streaming in 2007
• Netflix was the pioneer who used this business model to
offer entertainment content using video streaming
technology in exchange for subscription fee.
• Netflix is the largest online movie and TV show streaming
provider with more than 75 million streaming members
as of 2016

3. STRUCTURE OF
INDUSTRY

4. COMPETITIVE FORCES
⊡ Players in the industry compete on price, exclusivity and range of content, user
experience in terms of personalization and compatibility with different devices.
⊡ Some of the large competitors include Hulu, which uses a hybrid business
model partly based on advertising revenues, and Amazon’s Prime offering as a
complementary to their retail business.
⊡ Rich movie database (20 000+ episodes) and the personalized service
expressed in the personal suggestion of movies for each customer without
interruption of advertising.
⊡ The rating algorithm makes better use of movies available on the website
tailored to his/her taste to watch.
⊡ Netflix also creates value by having one of the widest supported devices ranges,
including game consoles, tablets, PCs, and internet TVs

5. SWOT ANALYSIS
1. First Mover Advantage
2. Strong Brand Recognition
3. High Customer Satisfaction
4. Large Movie Selection
5. Low Overhead Costs
6. Predictable Monthly Revenue Streams
7. Affordable Pricing
1. Monthly Fee Discourages Membership
2. Lack of Control Over DVD Return Time
3. Comparatively Small Movie Library Available to
Stream
4. DVDs Can Arrive Scratched or Broken Due to
Mailing Process
1. Product Line Expansion – Video Games
2. Expand Downloadable Movie Offerings
3. Print 3 rd Party Advertisements of Red Envelopes
4. . Expand on Partnerships With Content Providers
Technology Providers.
1. Staying power of DVDs
2. Contractual restrictions on streaming content
3.Bigger competition in the streaming video market
4.DVD competition from Red Box, and Blockbuster
SWOT
Analysis

6. PORTER’S FIVE FORCES

7. POWER OF CUSTOMERS : HIGH
⊡ Two sections: needy and convenience consumers.
⊡ Customer’s dissatisfaction
⊡ Widespread response.
⊡ Move to substitutes for movie rentals.
⊡ Customer always has the option to not spend their free time watching movies,
no matter what the source, so the price of rental services cannot climb much
higher than they currently are.
⊡ Individual customers do not hold bargaining power over the price of products
in this market; however, the prices themselves are regulated by the substitutes
and preferences of customers as a whole.

8. POWER OF SUPPLIERS :
MEDIUM
⊡ Studios that create the films: Buena Vista, Warner Bros., Sony Pictures,
20th Century Fox, Paramount Pictures and Universal
⊡ Buyer concentration in this new market is relatively high suppliers
sell their product to maximize their revenue reduces competition for
supply and therefore prevents supplier power from being very high.
⊡ In this particular market, studios may be concerned with
“cannibalizing their own product”.
⊡ Strengthening supplier power studios withhold licensing agreements
to movie download providers such as Netflix
⊡ No power to influence the evolution of the market

9. SUBSTITUTES
⊡ The main substitutes to
streaming movies are:
□ brick-and-mortar rental
stores
□ online rentals
□ pay per view TV
□ Theatres

10. IT IN FIRM VIS-À-VIS
INDUSTRY
STANDARDS

11. THE COMPANY VIS-À-VIS THE
INDUSTRY
⊡ Netflix over the time has managed to
transition from a content aggregator to a
content creator
⊡ It now competes with TV networks like HBO,
Showtime, FX, AMC, Amazon and USA Network
in terms of original content

12. SYSTEMS IN CONTENT
EXCELLENCE
82.3
75.1
74
73.6
73.5
71.8
71.6
65.2
0 20 40 60 80 100
HBO
Showtime
FX
NETFLIX
AMC
Amazon
Starz
USA Network
Average Ratings of Original Series
by Content Providers
HBO Showtime FX NETFLIX
AMC Amazon Starz USA Network
Netflix has surpassed major
traditional TV Networks in
the States like USAnet and
AMC in terms of content
The biggest content provider
in the global level is HBO
The average rating
difference between it and
Netflix is closing in by the
day

13. Big Data + Big Decision =
House of Cards

14. HOW ‘IS’ HELPED NETFLIX
TRANSITION FROM AN
AGGREGATOR TO A CREATOR
“ Since NETFLIX was
built as a native
digital service, it had
competitive advantage
over traditional TV
networks when it came
to collecting and
mining data.”
Before green-lighting House of
Cards, Netflix knew:
⊡ A lot of users watched the David
Fincher directed movie The Social
Network from beginning to end.
⊡ The British version of “House of
Cards” has been well watched.
⊡Those who watched the British
version “House of Cards” also
watched Kevin Spacey films and/or
films directed by David Fincher.

15. ACTUAL VALUE
CHAIN

17. POTENTIAL VALUE
CHAIN

18. POTENTIAL VALUE CHAIN
ANALYSIS – STRATEGY AND IS
⊡ In context to the firm’s value chain, Information Systems have been
deeply embedded in the organizations core processes of content
sourcing, creation and delivery
⊡ Due to a competitive edge, NETFLIX could transform itself from a
video-rental service to a content creator
⊡ While it previously used to compete with mom-and-pop video rental
stores, IT has enabled it to take on global TV and movie studios like
Viacom, MGM and Warner Brothers right from production to
distribution
⊡ A fast growing base of 74.76 million worldwide streaming customers
allows the organization to gather a tremendous amount of data.

19. POTENTIAL VALUE CHAIN
ANALYSIS – INDUSTRY AND IS
⊡ Synergy : While NETFLIX uses
data to create its own TV Shows, it
also syndicates content from
other networks for distribution to
its users. In such cases, everyone
wins
⊡ N/W Economics : Currently
accounts for 34.2% of
downstream data usage in US.
Strategic tie-ups with AWS and
Akamai can ensure network scale
and robust architecture during
the global roll-outs.

20. ALIGNMENT WITH
GOALS AND
BUSINESS STRATEGY

21. PERFORMANCE OF NETFLIX
⊡ Alignment with core strategy
“Growing our streaming subscription business domestically and
globally”
⊡Reference to its brand as a “quest”
Fulfilling its promise, providing customers with the service they
desire
⊡Nine vision statements: Judgment, Productivity, Creativity,
Intelligence, Honesty, Communication, Selflessness, Reliability,
Passion
More emphasis on the first four visions

22. CONTRIBUTION BY IT TO
BUSINESS PROCESSES
⊡ New Business Model
Shutting down of DVD-by-mail service
⊡ Better decision making
Recommendation on what users have watched in the past and
what are their most favoured genres
⊡ Recommendation better than Two-Sigma processes
71.2% choices of viewers are based on what Netflix recommends
them
⊡ Competitive advantage
Fulfilling consumer demand, setting it apart from competition

23. METRICS USED BY THE FIRM
⊡ Data for the User’s Preference
Pause, rewind, fast forward, date, time, concept, device, browsing
and scrolling behaviour, searches, content etc.
⊡ Length of User
Usage of data to know whether the person has closed the app or
just paused
⊡ Evolving Algorithm
Team of 800 developers who work to better the choices of
recommendations to users

24. POTENTIAL ALIGNMENT WITH
GOALS AND STRATEGIES
⊡ Strategic Level
□ Maintain its #1 spot
⊡ Management Level
□ Develop newer goals and strategies
□ Expand its “disruptive technology” model (for e.g. Optimum
development of database
⊡ Operational Level
□Continue its operational events and co-ordinate with the other levels of
management to focus on “communication”
□Acquire more feedbacks to focus on “selfless-ness”

25. CURRENT STRATEGIES
BEING PURSUED

26. NETFLIX – CURRENT STRATEGY
⊡ Pursue market penetration strategy by excellent service and
low prices
⊡ Focus on creating its own content to maintain competitive
advantage
⊡ Increase its innovation budget by 5% next year and continue to
do so
⊡ Use pricing as a last resort measure to increase margin
⊡Choose to stream content only
⊡Create more partnerships to create perfect hardware platform
for its software
⊡Continue its high availability distribution strategy

27. BUSINESS STRATEGY
• Watch instantly works great, even on mobile
DISTRIBUTION
• people love the all-you-can-eat subscription model -
especially compared to Apple where a HD movie rental
costs $5 (~50% of your monthly subscription)
PRICING MODEL
• So far the Best in the industry
MOVIE
RECOMMENDATIONS
• people already associate/trust Netflix with movies/TV
BRAND RECOGNITION

28. CURRENT STATE OF
TECHNOLOGY
• Measuring customer response
• Delivery and Presentation of personalized
information
CUSTOMER
ANALYSIS
• Matchmaking
• Building consumer profiles
DATA
MINING
• Collecting Customer Data
• Securing Customer Data
INFO
MEDIATION

29. POTENTIAL
STRATEGIES /
ALTERNATIVES

30. POTENTIAL STRATEGIES
⊡ Expand beyond Subscription only and branch into
International markets
⊡ Internet Streaming of Content, Specifically Netflix, Continues
to Grow, Ultimately Becoming the Fastest Growing Subscription
Service
⊡ Large Players in the Media Industry become Content Sponsors
due to availability of accurate consumption data
⊡Replace Cable Boxes in the Living Room with Streaming hubs

31. 5 THINGS NETFLIX CAN DO
BETTER

32. BIPASHA GHOSH | SAMPAD ACHARYA | SHASHANK GUWALANI | SHREYAN LAHA | SWATI MOHANTY