Page 1 of 5 Strategy in Practice Assignment #2 Chapter 4 EVALUATING A COMPANY’S RESOURCES, CAPABILITIES, AND COMPETITIVENESS Please read these excerpts derived from the Netflix corporate Web site; then, fully respond to the questions that follow. Netflix is the world’s leading Internet television network with over 53 million members in nearly 50 countries enjoying more than two billion hours of TV shows and movies per month, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause, and resume watching, all without commercials or commitments. Netflix’s Long Term View: Internet TV is replacing linear TV, Apps are replacing channels, and screens are proliferating. As Internet TV grows from millions to billions, Netflix is leading the way around the world. Linear TV is popular, but ripe for replacement. People love TV content and still watch over a billion hours a day of linear TV. But people don’t love the linear TV experience, where channels present programs at particular times on non-portable screens with complicated remote controls. Consumers have to navigate through a grid, or use DVRs which add an on-demand layer at the cost of storage and complexity. Finding good things to watch isn't easy or enjoyable. While hugely popular, the linear TV channel model is ripe for replacement. The evolution to Internet TV apps has begun. The world’s leading linear TV networks, such as HBO and ESPN, are moving into Internet TV. The ESPN app runs on many Internet platforms and is specifically designed to showcase sports, both real-time and catch up. HBO’s app makes its films and series more accessible than on HBO’s linear channel. The other major linear networks are not far behind. Internet TV is better than linear TV in ways consumers care about. While Internet TV is only a small percentage of video viewing today, it will grow to replace linear TV because: 1. The Internet is getting faster, more reliable and more available; 2. Smart TV sales are increasing and eventually every TV will have Wi-Fi and apps; 3. Smart TV adapters are getting better and cheaper; 4. Tablet and smartphone viewing is increasing; 5. Internet TV apps get frequent improvement updates; 6. Streaming is the leading source for Ultra HD 4k video; 7. TV Everywhere provides an economic transition for existing networks; and 8. New entrants like Netflix are innovating rapidly and driving improvements. Eventually, as linear TV is viewed less, the spectrum it now uses on cable, fiber, and over-the-air will be reallocated to expand Internet data transmission.  Satellite TV subscribers will be fewer and more rural.  The value of high-speed Internet will increase.    This transformation is occurring at different speeds in different nations. In the UK, for example, the BBC is already programming for its iPlayer app as well as its linear channels, .

1. Page 1 of 5
Strategy in Practice Assignment #2
Chapter 4
EVALUATING A COMPANY’S RESOURCES,
CAPABILITIES, AND COMPETITIVENESS
Please read these excerpts derived from the Netflix corporate
Web site; then, fully respond to the questions that follow.
Netflix is the world’s leading Internet television network with
over 53 million members in nearly 50 countries enjoying more
than two billion hours of TV shows and movies per month,
including original series, documentaries and feature films.
Members can watch as much as they want, anytime, anywhere,
on nearly any Internet-connected screen. Members can play,
pause, and resume watching, all without commercials or
commitments.
Netflix’s Long Term View:
Internet TV is replacing linear TV, Apps are replacing channels,
and screens are proliferating.
As Internet TV grows from millions to billions, Netflix is
leading the way around the world.
Linear TV is popular, but ripe for replacement.
People love TV content and still watch over a billion hours a
day of linear TV.
But people don’t love the linear TV experience, where channels
present programs at particular times on non-portable screens
with complicated remote controls. Consumers have to navigate

2. through a grid, or use DVRs which add an on-demand layer at
the cost of storage and complexity. Finding good things to
watch isn't easy or enjoyable. While hugely popular, the linear
TV channel model is ripe for replacement.
The evolution to Internet TV apps has begun.
The world’s leading linear TV networks, such as HBO and
ESPN, are moving into Internet TV. The ESPN app runs on
many Internet platforms and is specifically designed to
showcase sports, both real-time and catch up. HBO’s app
makes its films and series more accessible than on HBO’s linear
channel. The other major linear networks are not far behind.
Internet TV is better than linear TV in ways consumers care
about. While Internet TV is only a small percentage of video
viewing today, it will grow to replace linear TV because:
1. The Internet is getting faster, more reliable and more
available;
2. Smart TV sales are increasing and eventually every TV will
have Wi-Fi and apps;
3. Smart TV adapters are getting better and cheaper;
4. Tablet and smartphone viewing is increasing;
5. Internet TV apps get frequent improvement updates;
6. Streaming is the leading source for Ultra HD 4k video;
7. TV Everywhere provides an economic transition for existing
networks; and
8. New entrants like Netflix are innovating rapidly and driving
improvements.
Eventually, as linear TV is viewed less, the spectrum it now

3. uses on cable, fiber, and over-the-air will be reallocated to
expand Internet data transmission. Satellite TV subscribers will
be fewer and more rural. The value of high-speed Internet will
increase.
This transformation is occurring at different speeds in different
nations. In the UK, for example, the BBC is already
programming for its iPlayer app as well as its linear channels,
highlighting the large and growing viewership on iPlayer. In
most countries, the conversion to Ultra HD video is being led
by Internet video because Internet services can efficiently serve
just the homes with Ultra HD televisions, while linear would
have to convert entire markets channel by channel.
The Netflix Focus:
Netflix is an increasingly global Internet TV network offering
movies and TV series commercial-free, with unlimited viewing
on any Internet-connected screen for an affordable no-
commitment monthly fee.
We don’t and can’t compete on breadth of entertainment with
Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google.
For us to be hugely successful we have to be a focused passion
brand. Starbucks, not 7-Eleven. Southwest, not United. HBO,
not Dish.
We don’t do pay-per-view or ad-supported content. Those are
fine business models that other firms do well. We are about flat
fee unlimited viewing commercial-free.
We are not a generic “video” company that streams all types of
video such as news, user-generated, sports, music video, or
reality. We are a movie and TV series network.
We are a relief from the complexity and frustration that embody
most MVPD [multi-channel video program] distributor

4. relationships with their customers. We strive to be extremely
straightforward. There is no better example of this than our no-
hassle online cancellation. Members can leave when they want
and come back when they want.
We are about the freedom of on-demand and the fun of
indulgent viewing. We are about the flexibility of any screen
any time. We are about fantastic content that is only available
on Netflix.
Winning moments of truth
We strive to win more of our members’ “moments of truth”.
Those decision points are, say, at 7:15 pm when a member
wants to relax, enjoy a shared experience with friends and
family, or is bored. They could play a video game, surf the
web, read a magazine, channel surf their MVPD/DVR system,
buy a pay-per-view movie, put on a DVD, use a piracy service,
turn on Hulu, or they could launch Netflix. We want our
members to choose Netflix in these moments of truth.
We win those moments of truth when members expect Netflix to
be more pleasurable than their other options, based upon their
prior experiences. The pleasure comes from easy choosing,
total control over when to play/pause/resume a video, and
content that suits the taste and mood of everyone in the
household.
We’ll invest over $400M on technology development to
continue to improve our service and our app on the very broad
range of platforms we support. We put a lot of that emphasis on
some core competencies: streaming delivery, sign-up, billing
and customer service across more than 1,000 devices being used
in nearly 50 countries. Here we strive for operational
excellence. Members want Netflix to just work -- flawlessly.
On this front, we’re well ahead but have plenty of room to

5. improve. We continue to invest heavily to ensure that our
service is always available, our streaming never rebuffers, and
our audio-video quality is pristine.
Another area of focus is personalized recommendations and
merchandising, which drives what content we feature on a
member’s initial screen. For Netflix, the member’s opening
screen is the personalized ranking of what we think will be most
relevant content for that specific member selected from our
diverse catalog. By analyzing terabytes of data from every
recent click, view, repeat view, early abandon, page views and
other data, we are able to generate a personalized display with
the content most likely to please. Our aim is to keep inventing
and tuning algorithms to generate higher satisfaction, viewing,
and retention.
There are numerous other areas we also are improving, such as
how smoothly our scrolling works on an iPad, or how well our
kids section works on a PS4.
Competition
We compete very broadly for a share of members’ time and
spending, against linear networks, pay-per-view content, DVD
watching, other Internet networks, video games, web browsing,
magazine reading, video piracy, and much more. Over the
coming years, most of these forms of entertainment will
improve.
Linear networks have mostly exclusive content against each
other, and this is increasingly true for Internet networks. Piracy
and pay-per-view are the only two competitors that offer a
nearly full set of TV show and movie content.
We call competitors for entertainment time and spending
“competitors-for-time”. We call the narrower set of firms that
do bid against us for content “competitors-for-content”.

6. Netflix margin structure and growth
Our domestic margin structure is mostly set top down. For any
given future period, we estimate revenue, and decide what we
want to spend, and how much margin we want in that period.
Competitive pressures in bidding for content would lead us to
have slightly less content than we would otherwise, rather than
overspending. The same is true for our marketing budget. The
output variable is membership growth that those spending
choices influence.
The primary forces propelling our growth are our own service,
content and marketing improvements, and the improvement of
Internet networks and devices. The primary forces impeding
our growth are market saturation and the broad set of
competitors-for-time all improving their offerings.
Conclusion
If we could look into the future at the ways that people access
entertainment, we would no doubt see a very different image
than we see today - stunning video quality, a proliferation of
screens, yet-unimagined natural user interface, and an
unbelievable range of choice.
But if we were to turn instead and look at the person watching
that screen, we’d observe a number of similarities across
generations. We'd see someone who is taking a moment to
escape into a story - to simply relax and enjoy one of life's real
pleasures with their friends and family.
People love TV shows & movies. We love being the best
possible place to enjoy them. Ours is an amazing opportunity to
grow, innovate and lead for several decades. We will face
strong competition along the way, and we embrace the

7. challenge.
Netflix Disclaimer:
This document contains certain forward-looking statements
within the meaning of the federal securities laws, including
statements regarding our outlook concerning the development of
Internet TV and the decline of linear TV; the scope, timing and
players involved in this transformation to Internet TV; our
approach to being an Internet TV network or “app”, including
improvements to our service features and content licensing,
development and financing; our international expansion; the
impact of competition; our relationship with ISPs; our margin
structure; contribution margin; and sustainability of profits. The
forward-looking statements in this document are subject to risks
and uncertainties that could cause actual results and events to
differ, including, without limitation: our ability to attract new
members and retain existing members; our ability to compete
effectively; maintenance and expansion of device platforms for
instant streaming; fluctuations in consumer usage of our
service; competition; and widespread consumer adoption of
different modes of viewing in-home filmed entertainment.
ASSIGNMENT:
Perform a detailed SWOT analysis of Netflix. Please compose
your SWOT analysis in continuous prose form (i.e. essay
format).
Either following the SWOT analysis that you create, or
embedded within it, please answer the following questions as
thoroughly as possible. Remember to fully develop your written
responses; leave nothing to assumption in the mind of the
reader.
1. What are Netflix’s core competencies? How well do these
competencies satisfy the four
characteristics of VRIN?
2. How does Netflix create competitive advantage?

8. 3. Who are Netflix’s rivals? How does Netflix measure up to its
closest rivals? How do Netflix’s
internal operations compare to those of this rival?
4. As a consumer, evaluate your personal Netflix, or Netflix-
type experience. What changes
could Netflix make to better serve its current customers and
to attract new customers?
5. What recommendations would you make to ensure that
Netflix sustains growth and financial
success in the years ahead?