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Transcript of Final Strategic Report
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8/22/2019 Final Strategic Report
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LoganKrieteThisreportisananalysisofthebusinessclimateinwhichNetflixcurrentlyfunctions,aswellasthe
identification,breakdown,andpredictionsofthreeemergingtrendsthatwillaffectNetflixandprescribed
strategiesonhowtobestrespond.
T R F 6 8 3 / C o m m u n i c a t i o n s I n d u s t r y F r o n t i e r s
2 M a y 2 0 1 3
2013NetflixStrategicPlan
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2 0 1 3 N E T F L I X S T R A T E G I C P L A N
A N A L Y S E S A N D R E C O M M E N D A T I O N S B Y L O G A N K R I E T E
TABLEOFCONTENTS
EXECUTIVESUMMARY 3
PART1:THECURRENTBUSINESSCLIMATE 4
SWOTANALYSIS 4
STRENGTHS 4
WEAKNESSES 4
OPPORTUNITIES 5
THREATS 6COMPETITIVEENVIRONMENT 6
PART2:EMERGINGTRENDS 7
SECONDSCREENENGAGEMENT 7
NETWORKNEUTRALITY 8
TRANSMEDIA 10
PART3:TRENDPREDICTIONS 11
PART4:NEWSTRATEGIES 12
RETHINKOURMOBILEAPPS 12
FORMSTRATEGICPARTNERSHIPSWITHISPS 15
DEVELOPTRANSMEDIAPROPERTIES 16
PART5:CONCLUSION 16
WORKSCITED 18
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EXECUTIVESUMMARY
InthisreportIwillproposeafewrecommendedstrategicplansthatIbelievewillhelpNetflix
adapttoboththeimmediateandnear-termchangingmedialandscapewhenlookingatthree
recent,salientdevelopmentsthatwillaffectourbusiness.Theseemergingtrendshavebeen
researchedandforecastedtohaveaneffectonthedigitalspaceinwhichweoperateanditismystrongbeliefthatthemovesIlayoutwillenableustonotonlymeetbutalsopositively
exploittheseaffecters.
Tobegin,IreviewthecurrentbusinessclimateinwhichNetflixfindsitself.AquickSWOT
analysis1revealsustohaveaverywellknown,nationalbrandnamewithmorethanthirty
millionsubscribers.Ourcompetitorshavenowhereneartheconsumersnorcontentwehave
available,andourpublicstockshareshavemorethandoubledinthepastsixmonths.Still,we
aretakingonmassiveamountsofdebttofundtheextremecontentlicensingourbusinessplan
necessitates,andourtraditionalphysicalmedia(i.e.,DVDandBlu-ray)deliveryservicehasbeen
steadilydeclining.Obviouspotentialthreatsincludeourcompetitorsifandwhenthey
eventuallyoffergreatervaluethanwedo(meaningpartofwhatwemustdoiscontinuetoaddvalueforourconsumersfasterthantheycanmatchuscurrently)aswellasthegovernment
regulationlandscapewithissueslikenetneutrality.Finally,weseemanyopportunitieswithour
originalcontentanddemandforstreamingtelevision,especiallygiventherecenttrendstoward
cord-cuttingandinternationalexpansion.
Nowthatourexistingsituationisunderstood,itisappropriatetointroducethethreetrendsI
predictashavingagreateffectonNetflixintheupcomingfiveyears.Secondscreen
engagement,netneutrality,andtransmediaallofferunprecedentedpossibilitiesalongwith
someworrisomerisksifnotmanagedcarefully.Forexample,whenitcomestothenewtrendof
viewersutilizingsecondscreendevices,itisimportanttorecognizethat,foralargenumberof
consumers,weAREthesecondscreen:wearethetablettheyusetowatchtheircontentortheiPhonetheyseekoutnewrecommendationson.Wecancapitalizeonthispreexistingstatein
consumersmindstomorecohesivelyintegrateatrendalreadysweepingnetworkTVintoour
ownoriginalcontent.Similarly,theriseofvideogaming(inparticularcasual,mobilegames)and
lobbyistsagainstInternetfreedomscanandwillhaveaneffectonourbusinessmodels,anditis
timewerespondsuitablytothem.
Itismyrecommendation,then,thatwecarefullyobservethesethreetrendsandselectthebest
coursesofactionthatwillallowustonavigatetheirescalationinawaythatyieldsbeneficial
resultsforNetflixsbottomline.Specifically,weneedtorethinkourmobileappsandsecond
screenexperience(includingaredesignofouruserinterface),developpositivestrategic
relationshipswithcurrentISPs,and(withourfutureoriginalseries)seekoutintegratedtransmediapropertiesthatcanbetiedintothetraditionalcontent.
1SWOT:strengths,weaknesses,opportunities,andthreats. Itisathoroughexaminationof
acompanysstrategicpositioninthemarketplace,includingbothwhatitexcelsandfailsat
alongwithwhatmaycausefutureissuesandfurtherbenefits.
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Therestofthisreportservesasafullaccountoftheanalysis,breakdown,predictions,and
recommendationsforNetflix.Citationsarefoundthroughoutthetext,andacompletelistof
workscitedcanbelocatedaftertheconclusionofthepaper.
PART1:THECURRENTBUSINESSCLIMATE
WebeginwithanoverviewoftheenvironmentinwhichNetflixoperatesinordertolay
groundworkappropriatetounderstandinghowandwhytheselectedtrendswillaffectthe
company.EssentialtothisunderstandingisrecognitionofNetflixscurrentstrengths,
weaknesses,opportunities,andthreats,oraquickSWOTanalysisofthecompany.
SWOTANALYSIS
Tosummarize,Netflixhasacriticalcombinationofmembership,brandawareness,and
accessibilitythatallowsthemtobecompetitivewithsimilarbutsmallerstreamingcontent
providers.Tocopewiththethreatstheyface,Netflixmustredirectresourcesfromitsdeliveryservicestoenhancestrengths.Providingever-expandingstreamingcontentwillenableNetflixto
serveandattractanevenwiderbaseofcustomers(Bauman,Deal,Ishak,&Johnson,2013).
STRENGTHS
TheNetflixbrandisaverywellknown,nationalnameintheUS.Withmorethanthirtymillion
customers,itsidentityisvaluedgreatlyamongconsumersasaquick,easy,andavailable
destinationforstreamingmedia.WearethetopproviderofstreamingcontentintheUS,with
ourservicealoneaccountingformorethanthirtypercentofUSInternettrafficdaily.
Additionally,thevalueofourbrandnamehasbeenontheriserecentlyafterthestrongmedia
attentionstemmingfromthesuccessofourfirsttwooriginalseries, HOUSEOFCARDSandHEMLOCKGROVE,andthecriticalacclaimwevereceivedfromouroriginalscriptedcontenthas
catapultedusintotheworldofEmmynominationsandotherHollywoodawards.
Whenitcomestoourcompetitors,allofthemareeitherlesswidespread(withfewer
customers,suchasHulu)orlessmassive(intermsofcontent,likeRedboxInstant).Wehavethe
largestcontentlibraryavailabletoaudiences,withwelloversixtythousandtitlescomparedto
Amazonsthirty-eightthousand.
Additionally,positivesharescurrentlyweighinourfavorasoneofourstrengths.Thestockprice
ofNFLXhasbeenveryvolatileinthepastsix-to-sevenmonths,comingalongwayfromthe
approximately$50regioninOctober2012toitscurrentpriceofmorethan$180.Combinethiswiththefactthatwestillhaveagoodlistoforiginalcontenttobeunveiledlaterthisyearandit
isplaintoseethatourstockstillhasalotfurthertoclimb.
WEAKNESSES
Despitethemeteoricriseofourstockvalue,thecompanyisundertakinglargeamountsofdebt
tofundthemasslicensingpackagesweusetoacquirecontentfromotherproviders.Whilethis
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doesintheshortrunguaranteeoursuccessintermsofpurenumberswhenreferringto
librarysize,italsoenhancesourcreditriskandrunsthedangerofimpactingfurtherloans.Since
wewanttocontinueproducingexclusive,originalcontent,wedonotwantourabilitytobe
providedmoneyimpacted(Faruk,2013).
Additionally,ourphysicalmediadeliveryservicehassufferedsignificantlossesinjustthepast
yearalone.Whatwasoncethecornerstoneofourbusinessisnowameresidelinetoourtrue
function:morethantwoyearsagoourCEOReedHastingspredictedthatthemarketforDVD
andBlu-raydiscswoulddecline,andhewasabsolutelyright(Roettgers,2013).Unfortunately,
DVDsstillprovidemoreofacontributionmargintoourbottomlinecurrentlyandinFY2012we
lostmorethanthreemillionsubscriberstothatportionofourbusiness.
OPPORTUNITIES
CarefulscrutinyofthemarketrevealsthreemainimmediateopportunitiesforNetflix,all
centeredontheideaoforiginalcontent.First,thecord-cutting2trendpopularamong
consumershascreatedanewdemandforInternet-basedTV.TheincreasedadoptionofInternet-connecteddevicesformediaconsumptionaidssubstantiallyinaddingmoresubscribers
asmoreandmorepeopleareconstantlyhookedup.
This,inturn,fuelsourgreatestopportunity: ORIGINAL,IN-HOUSEPROGRAMMING .Thedemand
forstreamingmediaperfectlyfitsourabilitytoprovidecontentdigitally,andourownexclusive
seriescanbeviewedbyconsumersanytime,anywhere,attheirleisureinsteadofrestrictedto
broadcasthoursorchannels.Theirnaturaltendencyismovingtodesiringcontentonline,and
ouruniqueabilitytobothcompletelyproduceanddistributeviatheInternetisahuge
opportunity.
Interestingly,thisincreasingdesireforourownshowscanbeseeninNetflixsmarketing
expenses,whichhavesteadilygonedownsubstantiallyduringthelastfourquartersandinQ4
2012stoodatjust12.4%ofoursales(Faruk,2013).Thiscanbeattributedtoouroriginal
contentprovidinginvaluableword-of-mouthcampaigns,andasaresult,wecanstandto
actuallysubstitutesomeofourmarketingbudgetandredirectthosefundstoproducingmore
originalcontent.
FIGURE1
2Cord-cutting:theprocessofcancellingacablesubscriptionandwatchingtelevisionsolelyvia
theInternet.
0
50
Q1 Q2 Q3 Q4
Marketingexpensesasapercentageofsales,FY2012
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Finally,theideaoforiginalcontentnaturallyopensupanavenueintogreaterinternational
growth.Asitstands,wehavesomeglobalmarketsbutnotmost,andwhilealargemajority
desireAmericancontent,itstandstoreasonthatprovidingcontentspecificallyforthemwould
attractgreatersubscribers.WearealreadyintheearlystagesofdevelopingcontentforLatin
America;whynotcontinuetheoutreachtoothercultures?Producingoriginalcontentgivesway
intointernationalexpansionaswetakeonnewrolesglobally.
THREATS
OneofthebiggestpotentialthreatstoNetflixrepresentsInternetserviceproviders(ISPs)who
maydiscriminateagainstusifandwhennetworkneutralitylawsfailtomaterialize,atleastin
theUS.In2012MarciaClemmitexplained ISPsmightconsiderittheirfinancialinteresttoslow
contenttrafficto[]competitors[likeNetflix]togainanedgeoverthem.Eventhoughourown
generalcounselDavidHymanarguesthatbandwidthischeapandplentifulandwillonlygrow
moresowithtime,thereisnogoodreasonforbandwidthcapsandfeestotakeroot,the
possibilityisstillgreatlytherethatsuchdiscriminatorytacticscouldtakeplace(Dampier,2012),
andthuswhythisisoneofthethreetrendsIvechosentofocusfurtheron.
Otherobviousthreatsincludeourcompetitorsifandwhentheyreachapointwheretheycan
begintoprovidemorevaluetoconsumers;asitstands,Amazonhasposedthelargestthreat
since2011whenitbeganofferingstreamingasapartofitsAmazonPrimeservicedesignedto
providefreeshippingtoitssubscribers.AlthoughAmazonappearstostaycommittedtooffer
thisstreamingservicemainlyasawaytoattractnewcustomers,itsdeeppocketsandbaseof
loyalcustomersshouldhaveNetflixconcerned.In2012contentgrowthincreasedby70%and
Amazonprimehadbetween3to5millionsubscribers.Additionallythecompanyplanstoattract
5millionadditionalsubscribersbymid2013(Trefis,2012).InthesamereportbyTrefis,they
identifiedthatalthoughComcast'sXfinityserviceofferslesscontentthanitscompetitorNetflix,
itispricedmuchlowerandismoremotivatedtocompetedirectlywithNetflix.Worstofall,Comcastpossessesestablishedrelationshipswithmediacompaniesthatwillsoongainthe
leverageneededtogainaccesstolicensingrightsthatallowcontenttomimicitscompetitor,
onceagainestablishingtheneedtorespondearlyandinafriendlymannertoISPslikeComcast
inordertomitigateanypotentialsouringofrelationshipsifthenetneutralitytrendstands
unregulated.
COMPETITIVEENVIRONMENT
Netflixstartedin1997distributingmail-orderDVDrentalswithnolatefees.Itquicklygained
25%ofthemarketshareintenyearsnowcommandsapproximately37%afteritintroduced
streamingin2008.Itssuccessmotivatedcompetitorstoalsogetinthegame,whichhasresulted
inslow(andthusfarnegligible)lossestoitsmarketsharesince2012.
Today,Netflixoperateswithinthehighlycompetitivemediastreamingmarketthathasbeen
forecastedtoincreasetenfoldfrom$1.3billionin2007to$12.5billionin2017(Bauman,Deal,
Ishak,&Johnson,2013).ItholdstheleadinprogrammembershipsandsinceComcast,its
closestcompetitorintermsofsubscribers,experiencedanetlossofmorethan260,000
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subscribersinQ4of2012,Netflixshowspotentialtokeepthelead,albeitwithtroublingtrends
onthehorizonifnotmanagedcarefully.
INADDITION,AGGRESSIVEGROWTHINCOMMUNICATIONTECHNOLOGYHASLEADTOAN
INCREASEININDIRECTCOMPETITORS.THETWOMAININDIRECTCOMPETITORSAREYOUTUBEAND
VIDEOPIRACYFILE-SHARINGWEBSITESLIKEBITTORRENTANDBEARSHARE.CONSUMERSTURNTO
THESESERVICESBECAUSEVIDEOSTREAMINGISAVAILABLEWITHOUTSUBSCRIPTIONFEES;AN
ATTRACTIVEOPTIONINASTRUGGLINGECONOMYWHERECONSUMERSCONTINUETOSEEKCHEAP
ANDFREESOURCESOFHOMEENTERTAINMENT(Thomas,2012).
Comparatively,Netflixsindirectcompetitorsandpriacyrepresentmoreofathreattoitsprofits
sincetheyharmalllegitimateproviders,regardlessofmarketpositioning.Tohelpunderstand,
thefollowingfigureassociatesNetflixsmaincompetitors:
DirectCompetitors IndirectCompetitors
AmazonStudios/Prime YouTube
Hulu ThePirateBay
ComcastXfinity Bittorrent
Coinstar Dailymotion
FIGURE2
PART2:EMERGINGTRENDS
Itisimportanttorealizethatintodaysdigitalworld,changehappensbothexponentiallyand
erratically.Someofthetrendsdiscussedherewerebarelyonanyonesradarfiveyearsago;
othershavebeenputbeforeCongressforatleastsevenyearsnowandstillseenosignoffuture
slowdown.Assuch,Ihavetriedtoidentifythreeofthemosteffectibletrendsthatwillaffect
Netflix,andinturneliminatedthosefadswithnegligiblelifespans.
Thethreeemergingtrendscomefromallareasofthebusiness,fromnewtechnologiesand
consumerbehaviortoregulatoryandgovernmentissues.Theintersectionofthesegeneral
descriptorsiswheremythreetrendslie:theideaofthesecondscreen,networkneutrality,
andvideogamingwillallaffecttheentertainmentindustrysignificantly,andinparticularNetflix
aswenavigatetheunchartedwatersofcreatingourowncontentforthefirsttime.
Whatfollowsisabriefoverviewofeachtrend.
SECONDSCREENENGAGEMENT
Whenreferringtothesecondscreenintheentertainmentindustry,werefertothegrowthof
tabletsandsmartphonesasextensionsofaconsumersprimarywatchingmechanism.Aviewer
maybewatchingarerunofatelevisionshowthroughtheircablesubscriptionwhileatthesame
timelookinguprelevantinformationabouttheshowonWikipediathroughtheirsmartphone.
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Alternatively,theycanbelive-tweetingtheirthoughtsaboutasportsbroadcastasithappens
andengagewithotherfansandviewersaroundtheworldsimultaneously.Thisistheworldof
thesecondscreen:literally,aworldinwhichtwoscreenspervadeconsumerslives.
Morethan80%ofsmartphoneandtableownersreportusingthesedeviceswhilewatchingTV,
andatleast25%ofthemusethemmultipletimesperday.51%ofthosewhopostsocialmedia
whilewatchingTVdosotoconnectwithotherswhomightalsobewatchingthesameprogram,
and24%ofFacebookusersreportpostingabout
themovietheyrewatchingwhileinthetheater
(Ulanoff,2012).
Amongdigitaldevicesconsumersusetowatch
TV,only3%ofusageactuallycomesfrom
traditionalcomputers:almost40%isthrough
tabletsandawhopping59%ofallstreaming
televisionwatchedisonasmartphone,truly
demonstratingitsubiquityanddesireamong
consumers.Sinceourappsarebyfarthelargest
sectorofouroursubscribersaccessourcontent,
theusageofsecondscreensbyconsumersgreatlyimpactsourbusiness.
NETWORKNEUTRALITY
In2010,anewsetofedictsbytheFCCfinallysettledpartsofthealmostdecade-oldargument
surroundingnetneutrality:wiredbroadbandproviderswererestrictedfromInternettraffic
discriminationbutwirelessproviderswerefreetodoastheypleased,includinglimitingor
completelyremovingaccesstoservices(FederalCommunicationsCommission,2010).
Unfortunately,thisdidnothingtoresolvetheissueswhenmostcableproviders(likeAT&T)simultaneouslyoperatewirelesscells.Ultimately,thecontroversysurroundingnetneutralityis
stillverymuchalive.
TheargumentboilsdowntotheideathatcompaniesthatprovideInternetaccesstoconsumers
shouldhavetherighttomonitorandrestrictwhattrafficandservicesarerunacrosstheirown
infrastructure.Theyrelayingthecables,buildingthecelltowers,andlettingacustomeruse
theirequipmenttoaccesstheInternet,sowhyshouldnttheybeallowedtosaywhatisallowed
tousetheirlines?Internetfreedomactivistsvehementlyopposetheissue,citingabase
degradationofthefoundingprinciplesoftheInternet,whichistoallowthefreeandopen
sharingofinformation.Whilesomegovernments(liketheEU)havecodifiedtheideaofnet
neutralitythatis,thatISPcompaniescannotrestricttrafficoraccesstotheopenInternetintolaw,theUSremainsrecalcitrantinfollowingtherestoftheworldslead.Sincewearea
serviceaccessedbyconsumersoverISPInternetconnections,theresultofthisdebateholdsa
hugeeffectoverus.
Withnoregulation,thisopensupsometrulyterrifyingpossibilities,suchasISPscharging
consumerstieredpricingforaccesstocertainservices.Thefigure#4onthefollowingpageisan
exampleofwhatcouldcometopassonedayifnetneutralityisnotrespected:
Tablet Computer Smartphone
FIGURE3
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FIGURE4
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TRANSMEDIA
Theideaoftransmediarelatestocross-platformstorytelling.Whereastheoldmodelof
storytellingcomprisesamovie,andthensubsequentlyanovelizationofthefilmandperhapsa
gamerehashingtheplot,thenewworldoftransmediaopensuplimitlesspossibilitiesthat
continueastoryacrossplatforms,insteadofsimplyduplicatingit(Rose,2011).Theimagebelowgraphicallydepictsacomparisonofhowtransmediafranchisescanbettersuitconsumerstoday:
FIGURE5
Withoverthreebillionhoursperweekspentgloballyonvideogaming,theideaofcontinuing
storiesthroughalternativemediaplatformsshouldbehighlyattractivetoNetflix.In2005,the
averageAmericanspent78hourspermonthplayingvideogames;inthelastyearof2012,that
numberroseto142hourspermonth.Sincecasualgaming3inparticularhasbeenalargepartof
thatincreaseandconsumersalreadyuseourappstoobtainourcontent,itwouldbeveryeasy
andprofitabletocombinethetwoandcreateadditionaltransmediafranchisesforouroriginal
series.NBCUniversalhasrecentlytriedthisbyco-buildinganimmersiveonlinevideogamewith
theircableseriesDEFIANCEonSyfy,andtheywererewardedwiththeirmost-watchedscripted
seriespremiereinhistory(intermsofratings)andmorethansevenmillionhoursofplaytimeonthegamesincelaunch(Morabito,2013).
3Non-immersive,simple,on-the-gomobilegameslike AngryBirdsorFarmville,asopposedto
traditionalfirst-personshootersorrole-playinggameslikeHaloorWorldofWarcraft.
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PART3:TRENDPREDICTIONS
Justasidentifyingthetrendsthemselvescanbeacapriciousundertakingduetotheconstant
ebbandflowofwhatspopular,predictingwheretheymayleadisalsoaficklebeastofa
problem.Still,IstronglybelievethatthedirectionsIlayoutbelowforeachofthethreetrends
areprettygoodobjectivesofwheretheywillendupandillustrateourneedtorespondappropriately.
Thesecondscreenwillcontinuetoseepositive,beneficialengagementamongconsumersforas
longasdigitalexists.Tablets,oncethoughtofasapassingfad,arenowhighlyintegratedinto
manyconsumerslives,andthosewithoutthemhaveatleastsmartphones.Slowly,atleast
everyhouseholdintheUSwillhavesomeformoftabletorsecondscreendeviceandconsumer
behaviorpatternsindicatetheywillcontinuetoutilizethemassuchduringtheprimary
consumptionofmediacontent.ThiswillbebeneficialtoNetflixaswecancapitalizeonour
subscribersestablisheduseofsecondscreenappstoenjoyourcontentbycreatingricherand
friendlierexperiencesforthembywhichtonavigateourservice,includinggreatersocialmedia
integrationforsharingwithusersotherrelationships.
Networkneutralityhasseenaneventualpushbygovernmentstocodifyitsprinciplesintolaw,
butmoresointernationallylikeintheEUthaninAmerica.Ittookalmostfiveyearsofbattling
andlobbyingCongressonbothsidesfortheFCCtorenderanysortofdecisionintheUS,andits
recentimplicitfederalauthorizationforwirelessproviderstosubstantivelyNOT benet-neutralis
asignthatwecannottrustgovernmentregulationstoincubateourbusiness.Thistrendis
potentiallydangerouslydisruptivetousasitisnotunreasonabletothinkthatanISPmay
eventuallydecidetochargeconsumersmoresimplytoaccessourservice:now,paying
essentiallytwiceforourcontent,customerswillbelesslikelytobecomeoursubscribers.
Alternatively,anISPmaydemandthatinsteadofoffloadingcoststotheconsumer,wepaythem
fortheabilityofourservicetoreachcustomersuninterrupted,orslowdownsandinaccessibilitywillresult.Mostfrighteningly,thiscantaketheformofanticompetitivepracticesbysuchlarger
conglomeratesasComcastwhoownandoperatebothISPsandcontentproduction/delivery
companieslikeNBCUniversal,whohasalargestakeshareinHulu.Suddenly,everyonewhouses
ComcastforInternetcanaccessHulustreamsmuchbetterthanourown,andourbusinesswill
sufferforit.Truly,networkneutralityisthemostpotentiallydisruptivetrendthatfacesusright
now.
Asforvideogaming,thereseemstobenostoppingofitscurrentexplosivegrowth.Likethe
secondscreenandtablets,itcontinuestoseeincreasedadoptionamongconsumers,andthe
pastdecadehasseennothingbutupwardnumbersforAmericansandinternationalcultures
engaginginvideogames.Sincetransmediapropertiesarehighlyvideogame-centric,thisprovidesuswithanexcellent,positiveopportunitytointegratecasualandmobilegamesAKA
transmediaelementsintoouroriginalseries,creatinganevenfurthervalueforsubscribers
whoenjoyourin-houseprogramming.
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PART4:NEWSTRATEGIES
GiventhetrendsIvediscussed,howtheycanaffectus,andourcurrentbusinessclimate,Ive
comeupwithafewrecommendedstrategiesforNetflixtoadoptthatwouldhelpadapttothese
trends.Insomecases,thesetaketheformofnewstrategicrelationships;inothers,itwillresult
inusdevelopingnewbusinessmodelsandcorecompetencieswhilereformingothers.Intotal,adaptingtheseprescribedstrategieswillhelpusrespondinthebestwaytobeneficiallydeal
withourtrendsathand.
RETHINKOURMOBILEAPPS
WhilemanyconsumershavecutthecordandmadetheswitchtoInternet-onlyTVofferings,
undoubtedlytheyveexperiencedfrustrationsaswell.Ourmobileapps,whilegood,canbe
overhauledtopresentamuchbetterandmoreseamlessexperienceforthoseontablets,
especiallywhenutilizingsecondscreenviewingmodessuchasAirPlaystreamingtoabig-screen
TV.
Fromaninterfaceperspective,thegreatfolksatYOUiLabscreatedademoofaproducttheycall
FLIPtv,anaturaluserinterface(NUI)thatdemonstratesthecapabilitiesoftabletsforstreaming
mediacontentaswellastheirvisionofhowsecondscreenscanprovidenewandinnovative
waystoenjoycontent.TheytooktheirinterfaceandtranslateitovertoNetflixstabletapp,and
theresultsareastounding:
FIGURE6
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Comparedtothecurrentappsdesign,thisnewproposalfeelsfreshandclean.Whileretaining
theNetflixbrandidentity,itrevitalizestheoft-useddiscoverfeatureofourservice,while
providingnewopportunitiesforsocialintegrationandcommunitycollaborationthroughsuch
ratingssitesasMetacriticandRottenTomatoes.Moreover,theyproposetheloginscreen
changebyallowingsocialcredentialsasauthenticators(muchaswedoonthedesktopversion;
thefeatureisshockinglyabsentinthemobileapp)aswellasminimizingthescreenrealestateneededforloginbyaddinglarge,high-resolutiontilesofnewly-addedcontenttoencourageuse
oftheservice(TheLabBlog,2013).
FIGURE7
Theycontinuetosuggestadded-valuefeatureslikedragging-and-droppingcontentpostersonto
dynamicwatchlistsandqueues(figure7),skeuomorphicanimations,andmoredetailed
friendshipconnections,includingtheabilitytoseewhatfriendsonbothFacebookandTwitter
havewatched,theirrecommendations,andsharecontentwithothers(TheLabBlog,2013).
Byfar,theirmostimpressivechangeiswhenwatchingshowsthemselves:thenewviewing
playerincludesataggingfeature(figure8)thatIbelievetobeinstrumentalinexpandingthe
socialwatercooleraspectsofourcontent.Viewerscantapthebuttonatanytimeduringa
showtotagmomentsonthetimelinerelevantwithquotesfromthatsceneormakeacomment
regardingwhattheysaw.Subsequentfriendswatchingthecontentcanseethesetags,opening
upadialoguebetweenthepartnersandencouragingmoresocialconversationthroughourapp
(TheLabBlog,2013).
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FIGURE8
Similarly,manytabletsofferanabilitytowirelesslystreamvideocontentfromthetabletoalargerTV;forexample,aviewersiPadcanbesignedintoourNetflixappandwatching
ARRESTEDDEVELOPMENT whentheychoosetoAirPlaystreamthevideoitselftoabig-screen
LCDmonitor.Atthispoint,thetabletappbecomestheprimerealestateforsecondscreen
contentsinceitisalreadytheoneprovidingthecontentstimeline;itiscompletelysyncedwith
theshowasthevieweriswatching,allowingforcontextualads,tweets,shopping,relevant
socialconnections,IMDbandcast/crewinformation,andmore(figure9).Truly,thiscreates
extraordinaryopportunitiesforsecondscreenengagement,especiallywithourowncontent,
andfurtherbrandingprospectswithourlicensedcontentfromthirdpartiesaswellasahigher
valuetothem4.
FIGURE9
4Theywouldhavenoneedtodevelopasecondscreenappoftheirownwhenwehavethe
capabilitybuilt-intodeliveronealreadytotheirviewers.
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LimitlesspossibilitiesaboundwhenweconsiderwhatcanbedoneoncewerealizethatweARE
thesecondscreen:wearetheappconsumersusetoconsumecontent.Theveryfactthat
contentisstreamedfromourserverstocustomersuniqueaccountsopensupamazingchances
fortakingadvantageofthisone-on-onetimewiththeviewer.Forexample,wealreadypermit
uptotwostreamsatonceperaccount:ifacoupleisalong-distancerelationship,whynotlet
thembothsignintothesameaccountatthesametimeandsynchronizewhattheywatchtogether?CouplesalreadyholdSkypedateswheretheywatchafilmtogetherwhenapart,
buttheyreplaguedbymanuallysyncingthefilmsandrequiringtwooftheexactsamecopy.
Wevealreadygotthecontent;wecaneasilystreamtheexactsametimelineofaTVshowor
movie,atthesamesyncpoint,intime,totwocomputerssimultaneously.Thisisjustone
exampleofaveryeasy,cheapchangethatcanbeimplementedatrelativelylittlecosttousbut
withbigvalueforoursubscriber,somethingthatwillconvincethemtowantusmore.
Whenwerecognizethepotentialthatsecondscreenappshold,wecanandshouldreadjustour
mobileappstobetterpresentmoreintegrated,pleasingexperiencesforoursubscribers.
FORMSTRATEGICPARTNERSHIPSWITHISPS
Thisshouldhonestlybeano-brainer,butitbearsaquickbreakdown:netneutralitythreatens
ourbusinessbecauseISPscouldeasilyrequireeitherNetflixortheconsumertosubsidizethe
trafficrelatedtomediastreaming.Thisisapotentiallydisruptivetrend,sothebestwayto
respondappropriatelyistodevelopstrategicpartnershipswithISPs.
NotethatIdidnotsaydevelopco-productionswithISPs,orco-offeringsofcontentorservices.
Wedontneedtomakeproductswiththem,butwedoneedtogetinbedwiththem,soto
speak.NetflixneedstomakesurelargeISPsareonitssideifandwhenthenetneutralitydebate
favorsthosewiththeabilitytothreatenusinthefuture.Itsasimpleidea:makefriendsnow
withthosewhocanharmuslater.Thegoalistodevelopsuchcloseworkingrelationshipsthat,whenthetimecomes,werebetterabletostemsuchwarringpricediscrimination.
Thesepartnershipscancomeinmanyforms,andadmittedlyshouldgothroughenough
administrativeoversightandwithsufficientinputbeforebeingformed,butIcansuggestsome
preliminarywaysinwhichtheymaycomeabout.AT&Tcurrentlyhasnostakeinanymedia
conglomerate,butalargeportionofsmartphoneusersstreamourcontentoverAT&Ts4GLTE
wirelessnetwork.TheFCCslastdecreeonnetneutralitygivesAT&Ttherighttolimitor
degradeaccesstoourservice,whichwouldinturnpullcustomersawayfromaccessingusover
theirsecondscreenandmobiledevices,whichwouldofcourseultimatelyturnthemofffrom
oursubscriptionsentirely.Tomitigatethisthreat,wecouldnowexplorepotentialrelationships
withAT&Tthroughtheguiseofrecruitingnewcellsubscribersfortheir4GLTEservice.PerhapsinouradvertisementsforNetflixappsondevices,thephonesandtabletsusedcouldbe
prominentlyonlyAT&Tsnetwork,gentlyencouragingcustomersthatweworkbestthrough
AT&T.Granted,thisisaveryrough,earlyidea,butthefactisthatbypartneringwithAT&Twe
wouldprovidethemaserviceadditionalsubscribersthatlatertheycanlookuponasagood
thinginourrelationshipthattheywouldnotwanttosourbyharmingusthroughtieredpricing
andInternetaccessmodels.
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DevelopingthesestrategicpartnershipsnowwithISPswillhelpdefrayattentionfromthetrue
reason,becauseotherwisebasiccapitalismwillkickinatthecorporatelevelandanyInternet
providercurrentlynotlimitinguswillbehard-pressedtofindareasonnottoimmediatelystart.
Wedontholdmanycardsinthishand,soitisstrategicallybeneficialforustoavoidthe
disruptivethreatbycozyingupnowtothosewhocanultimatelyhurtus.
DEVELOPTRANSMEDIAPROPERTIES
Videogaming,asIpointedout,isheretostay,andtransmediapropertieslikeNBCUs DEFIANCE
onSyfyarequicklybecomingagreatwaytoaddvaluetoatraditionalfranchiseseries.Weve
gotanadvantageinbeingabletopushoutcontenttoconsumersanytime,asfastaspossible,
andnotbeinglockedintonetworkairdates,butalsothefactthatourappsarealready
downloadedbyconsumers.Tobefair,itistoughtoarguethatweshoulddevelopcasualgames
intoourmainapp,butthetrustisalreadytherewithconsumers:itisnaturalforthemtohave
Netflixappsontheirdevices.Itwouldbenodifferentwithvideogamesandothertransmedia
propertiescreatedbyus.
Furthermore,wecouldnotsimplymakevideogamesbasedoffeverythinginourlibrary;aside
fromnothavingtherightstodoso,itdbeimpracticalanduseless.Instead,itisourownoriginal
seriesthatcanbenefitmostfromthecreationofrelatedtransmediaproperties:ourin-house
productionswillquicklyberealizedtohaveanaddedvaluebeyondthoseshowscreatedby
traditionalnetworksorcablechannels.SyfyalreadycreatedaTVshowthattiesintoanonline
videogame,butwealreadydistributeonline:whycantournextseriesbeproducedalongsidea
casualgamethatviewerscanplayontheirsecondscreenwhilewatchingontheirmain
monitor?Or,alternatively,wecouldaugmentourappwithanalternativerealitygamethat
wouldalloweagle-eyedviewerstospotcluesinastoryline,tagorselectthem,and
collect/achieveprizesinthegameworld.
Understandably,thepossibilitiesarelimitless,andthebestwaytocapitalizeontheupward
trendofvideogamesandsuccessoftransmediapropertiesistogetintothegameourselves.
Wealreadyhaveplansformanyseriesindevelopment,andsomeofthosewillworkbestas
traditionalproperties.Butafewcanprobablyofferoursubscribersmuchmoresatisfying
conclusionsbyimmersingthemselvesintotheworldofourcreation;viewerscangaineuphoria
atcollectingallthepieces.Iprescribeweshouldabsolutelygetintothebusinessofatleast
startingtoexplorethetransmediapotentialouroriginalserieshave,sincethiswillofferadded
valuethatwillmakeviewersmorelikelytochooseusinsteadofcompetitorsthatcannot
competewithourcontent.
PART5:CONCLUSION
Asdemonstrated,Netflixsurvivestodayinathrivingbusinessenvironmentwithhealthy
competitionandaflourishing,prosperoussubscriberbase.Weprovideamassivecontentlibrary
toviewers,includingtherecentlaunchofourownoriginalseries,andhaveplentyof
opportunitiesforinternationalexpansionwithfurtherin-housecontent.Thefewthreatsthat
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existnowaresolelywithcompetitorslargelyunabletovieharmfullyforourbusiness,andthose
moresignificantareaddressedinmyprescribedstrategies.
Sometrendsthatarecurrentlydevelopinginthemarketplaceincludesecondscreen
engagement,networkneutrality,andvideogamingalongsidetransmediaproperties.Second
screenengagementhasseenhugeincreasesinadoptionbyconsumersasmorehouseholds
purchaseandusetabletsregularlytowatchstreamingmediacontent,andvideogaminghas
likewiserisendramaticallyinthelastdecadeinbothcasualgamingandmoreimmersive
markets.ThedebateoverInternetfreedomcontinuestorageinboththebusinessworldand
governmenthouses,andcanpotentiallyspelltroublesomeairsforNetflixsaccessibilityto
consumers.So,whiletwoofthesetrendshavethepotentialtobenefitus,anothercanreally
hurtus,anditisimportanttorespondappropriatelytoallofthem.
Itismypredictionthatbothsecondscreenengagementandvideogameswillcontinuetoriseat
unprecedentedlevelsduringatleastthenextfiveyears,soitonlymakessensetotake
advantageofthesetrendsbydevelopingproductsthatexploittheirusebyconsumers.Viewers
tendencytowardsecondscreentaskscaneasilybeaddressedbyredesigningourmobileapps
andpresentingmorestreamlined,integratedinterfacesforthecurrentsocialworld,andtheir
greathoursspentperweekplayingvideogamescanaugmentouroriginalseriesbygivingthem
addedvalueovercompetitorsofferingsifwedeveloptransmediapropertiesthatwholly
enhancethetraditionalwatchingofcontent.Together,thesetrendsandtheirpredicted
directionscanbestberespondedtobythestrategiesIveprescribedandItrulybelievethiswill
leadtogreaterprofitsandcustomerloyaltyamongoursubscribers.
Asforthenetneutralitydebate,itisstillaveryambiguoussituation.Internationalmarketslike
theEUnowhavestandardizedgovernmentregulationinsupportofInternetfreedomandwedo
nothavetoworryaboutanticompetitivepracticesoverseas.ButtheFCCsessentialsidingwith
wirelessInternetprovidersintheirlatestdeclarationonthematteropensupthepossibilityof
mobiledataproviderslimitingsubscribersaccesstoourserviceunlessthecustomerorNetflix
payadditionalfees,apotentiallyveryharmfulthreat.Thus,nowformingstrategicpartnerships
withISPscanbestdiminishthisdisruptivetrend,sothatwearefriendlyifandwhenthetime
comes.
Truly,thedynamicmedialandscapeisanever-changingone,andthrowingbusinessintothemix
onlycomplicatesmattersfurther.Butbylookingaheadtothetrendsthataffectusand
predictingtheirdirectionstothebestofourability,Netflixcanbesuretorespondinthebest
wayappropriatetomeetingthechallengesaheadandultimatelycomeoutontop.
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