MKT336_Final_Paper_Netflix_1.2

MARKETING

RESEARCH

PROJECT

Marketing 336

Golden Gate University

2015

Alejandrina Imola

Hsin-Ling Hou

Hsuan-Wen Huang

Table of Contents

Executive Summary 3

Project Proposal 4

Introduction 4

Company 4

Industry 5

Problem Definition and Research Objectives 8

Management Decision Problem 8

Marketing Issues 8

Management Research Question 8

Methodology Overview 10

Secondary Research 10

Primary Research11

Quantitative Research Plan 11

Complete Questionnaire 12

Sampling Plan 12

Sampling Population 12

Sampling Frame 12

Sampling Techniques 12

Sampling Size 12

Quantitative Data Analysis 13

Appropriate Age Range and Gender Considerations 20

Respondents Demographics 21

Qualitative Data Analysis 22

Recommendations 22

Limitations of the Study 23

Conclusion 23

Appendix 29

References 30

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NETFLIX MARKETING RESEARCH

EXECUTIVE SUMMARY

Netflix, Inc. is a pioneering and innovative company founded by in California during the late ‘90s. In the recent years, due to technology development and the global reach of the internet, Netflix was faced to transform its first business model, from DVD-by-mail service towards online entertainment streaming service in order to keep bringing innovation and value proposition to its millions monthly subscribers.

Our Marketing Research is conducted to determine whether Netflix’s strategy towards retaining and gaining market share is achievable and what the deviations its subscribers would take. Are Netflix’s subscribers happy with this service? Does Netflix needs to improve its library content in order to retain customers? How’s the company leading this competitive market? What makes Netflix’s product unique?

In order to answer many of these questions, we conducted an in-depth investigation, first we researched our extensive University’s Database to learn about this industry and the company. In addition, we explored today’s most prestige Business Newspapers and Media Channels, and Marketing Research Companies. Moreover, we conducted our own survey to reach Netflix’s subscriber’s opinions and a personal interview to a Netflix’s former Manager.

After performing an extensive research, our team concluded that the financial strength of Netflix together with the shifts this industry present numerable opportunities to fortify Netflix’s position as the market leader and continue to grow exponentially. We also developed strategic recommendations for Netflix’s strengthen of its core business, increasing the number of US subscribers and targeted global expansion.

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PROJECT PROPOSAL

1. INTRODUCTION

A) Company

Netflix Inc., was founded in 1997 in Scott Valley, California by CEO Reed Hastings and Marc Randolph, and currently is headquartered in Los Gatos, California, in the heart of the Silicon Valley. Netflix’s classical “service business model” in the subscription-based film and television program rental service, where customers can currently watch unlimited videos, anytime, anywhere, on nearly any internet-connected device.

From its beginnings, Netflix’s service started from DVD-by-mail rental business using USPS service that later evolved in streaming video technology, also known as internet video-streaming service. This monthly subscription fee service was offered at a flat rate, with several membership tiers. First these two services were offered separately, with a larger disc library for DVD distribution. As global technology developed, by 2004 the sophistication of internet streaming devices became more popular and customers started opting for the streaming service. Today, Netflix is the world’s leading internet television network with over 57 million members in nearly 50 countries.

Netflix’s subscribers watch more than two billion hours of TV shows and movies per month, including original series, documentaries and feature films. According to IBISworld (Carter, 2014), there are no major players in DVD rental and streaming industry, and the life cycle for this industry it has been declining in the past several years. As described by Prof Charles Baden-Fuller, from Cass Business School in London, the main value propositions to streaming consumers are the legal access to the 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 customers’ ratings serve as the basis for the recommendations and not a film’s popularity at the box office. The development of rating algorithm creates a better use of movies available on the website tailored to customer's taste. In addition, Netflix also creates value by having one of the widest supported devices ranges, including game consoles, tablets, PCs, and internet TVs. Finally, Netflix offers original and exclusive content to its subscribers, with the latest inclusion of it self-produced award TV series and movies.

Today’s Netflix subscription price starts at $7.991, and it has reached 40 million of US Subscribers. According to Lew, Bowers and Weiss, Netflix had its IPO on May 29th 2002, selling 5.5 million shares of common stock at US $15 per share. On June 14th 2002, Netflix sold another 825,000 shares at the same rice. Netflix posted its first profit during 2003, earning $6.5 million profit on revenues of $272 million. Moreover, based on Figure 2, Netflix’s stock price is $563.45, and the company has a lot of cash on hand and healthy cash flows to support its expansion.

Netflix’s financials reflect a resilient, lucrative company in a booming industry. Netflix has proved its staying power in the industry and can be considered the market leader among its competitors.

1 1 Note: As of April 17th 2015, CEO Reed Hastings has announced plans to increase subscription fees by $1 (from $7.99 to $8.99).

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B) Industry

Fifteen years ago there was no such thing as online TV. The online streaming industry is young and Netflix is its pioneer. In terms of competitors, Amazon’s subdivision Amazon Prime provides the same streaming service of shows and movies. However, any financial comparison between Netflix and Amazon Prime2 would prove challenging, as separating Amazon Prime from Amazon in the financials is difficult. Also, we must have in consideration that Amazon Prime product is very different from Netflix, because Amazon has a yearly subscription in addition to free shipping of products, music database, books, and etcetera. In reality, Netflix’s biggest competitors are illegal streaming sites that allow users to download media content for free. Overall, analyzing Netflix’s financials alone provides enough evidence for Netflix’s financial health.

One of the biggest challenge this industry faces is the illegal content downloads. This practice is still thriving, and file-sharing networks called torrents are very popular amongst users who wish to download media content (movies, TV shows, music, etc.) without paying for it. Content that appears on torrent websites is attractive because is literally free, and its comprehensive and constantly updated library. Television shows and movies that have just been broadcasted can often be seen on torrent websites the same day. As regulations are becoming stricter, the number of users who practice piracy is still very large.

Despite of these illegal activities there are other competitors in this industry. Some of them are related to satellite, cable and online products that will continue to grow in this industry over the next five years. A 2013 Nielsen3 study found that two of the fastest-growing home entertainment segments were online streaming for a one-time fee and streaming through a subscription service, which having in considerations this study, Netflix only offers one of these services.

Moreover, according to Industry Report by IBISWorld database, The DVD, Game and Video Rental industry will need to reinvent itself to maintain profitability and revenue. As previously described, in response to changing technology, many major operators have already expanded into internet movie downloads and movie rentals from kiosks. Moreover, in order to remain up-to-date with consumer needs and to ensure financial viability, industry players will need to set themselves apart from other competing media. These differentiating factors may include better customer service and improved media selection (as known as content) in their databases. In addition, we analyzed in-depth Porter’s Five Forces model for this industry. Porter Five Forces

FORCE STRATEGIC SIGNIFICANCEINTENSITY OF EXISTING COMPETITION LOWTHREATS OF NEW ENTRANTS LOW/MODERATETHREATS OF SUBSTITUTE PRODUCTS HIGHBARGAINING POWER OF SUPPLIERS HIGHBARGAINING POWER OF COMSUMERS HIGH/MODERATE

2 Analysis based from our Interview with Mark Kalman3 References to Lew, J., Bowers, T., & Weiss, J. (2014).

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(Lew, Bowers, and Weiss, 5)

Intensity of Existing Competition

Netflix’s strategy was shifted its focus away from DVD rentals to become primarily a provider of on-demand Internet streaming media. Netflix does not have many direct competitors, and its business model4 is so broad and incorporates many levels of the media distribution chain such as the creation of content, collection, and also its distribution. According to Lew, Bowers and Weiss (2014), Netflix’s main competitors in the online media industry include Amazon Prime, Hulu, HBO Go and VZ-CSTR although none of these companies have operations that line up exactly with Netflix’s. Players in the market compete mainly among prices, quality of content, and ease of use. Netflix has recently begun to provide original content to distinguish itself from competitors, and some of these series such as Orange is the new Black or House of Cards have gained national recognition and awards.

According to CNBC News, Anchor Morgan Brennan and Tech Expert Jeremy Rosenberg 5explained the latest letter to shareholders, where Netflix addressed HBO as their main competitors but also stated their concerns with other large threat: piracy site popcorn time. Tech Expert analysis describe a non-related correlation between piracy site and a direct impact in the number of subscriber Netflix has. Although, the awareness of piracy impacting this industry is real and growing.

Threat of New Entrants

The threat of new entrants is low, and should not pose a danger to Netflix’s online streaming services, mainly because there are large barriers to entry. Some of this barriers is the large amount of capital costs required in order to obtain content and a strong distribution network. As Lew, Bowers and Weiss described, “companies trying to enter the market need to be able to offer a variety of high quality content online at fast download speeds, and this level of infrastructure is costly”. However, larger companies, such as Apple and Google, have expressed modest interest in entering related markets, and these companies do have the capital

4 Analysis based from Interview with Mark Kalman5 CNBC News: Anchor Morgan Brennan interviewed Technology Expert Jeremy Rosenberg, who analyses and explains in details the latest news on Netflix http://www.inquisitr.com/2021300/netflix-price-increase-movies-related-to-local-internet-piracy-levels

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requirements to threaten Netflix. Subsequently, Netflix does have a first-mover advantage, and is one of the best-known brands in the market.

Threat of Substitute Products

One of the biggest and dangerous threat to Netflix is illegal pirating, as we earlier mentioned, Torrent. It is possible that government agencies might choose to enforce these anti-pirating laws more strictly, and substitute products would then no longer concern Netflix. In fact, it may be in Netflix’s best interest to lobby for tighter enforcement of these laws because as it stands, illegal pirating poses one of the largest threats to Netflix’s business model. Moreover, Amazon Prime, HBO and Hulu may are the subsequent competitors after illegal piracy.

Bargaining Power of Suppliers

There are relatively few quality media content providers and thus few substitutes that Netflix could deal with. In this respect, the bargaining power of suppliers is relatively high. Netflix has recently started developing its own content with its Netflix Originals, which have gained some traction amongst viewers and received acclaim from the entertainment industry. However, most of Netflix’s revenue is derived from its core product, such as aggregating and distributing media content. Therefore it is critical that Netflix maintains good relations with its content providers.

Bargaining Power of Consumers

Customers in the Internet media streaming industry do have significant bargaining power because switching costs are so low, and customers are willing to change services quickly. Netflix currently charges a monthly membership fee of $7.996, which is extremely affordable. However, because customers are not locked into contracts for long periods of time, they are very price-sensitive and will choose other distributors.

One strategy that Netflix has employed to limit customer bargaining power has been its original content creation. The company has produced original series, such as Black is the New Orange and House of Cards7, which both received much attention and acclaim, but most importantly they cannot be found on other large distributors.

6 Price increased in monthly membership on April 17, 2015 to $8.997 Forbes Magazine Article http://www.forbes.com/sites/dorothypomerantz/2013/07/18/the-producer-behind-house-of-cards-on-how-netflix-offered-creative-freedom/

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2. PROBLEM DEFINITION AND RESEARCH OBJECTIVES

A) Major Marketing Issues at Netflix

Netflix, alike many companies in this industry and despite of being one of the pioneers in this business and one of the most successful startup from Silicon Valley since 1997, still faces several challenges.

1. The first challenge that came across for Netflix is related to subscription price-point in this market. Today’s highly competitive market, where strong players such as Amazon are fighting for a bigger piece of the pie, raising prices seemed to be a complicated strategy for Netflix. In 2011, when Netflix raised their monthly-based subscription price, received as consequence a loss of 800,000 U.S. subscribers and many dissatisfied customers provided a negative feedback, damaging Netflix brand image.

2. The second challenge that Netflix is facing is a DVD-by-mail service monthly subscription declination. Since online media streaming becomes more popular, available, instant and part of today’s daily necessities for people, DVD-by-mail rental service has dramatically decreased. The online streaming service does not require “waiting” for a day or two for USPS delivery, so hungry-for-entertainment subscribers are able to watch their favorite shows and series immediately. This “more convenient” service is inexpensive and very simple. Last but not least, after watching their favorite’s TV shows, customers does not need to run to the post office and drop it off, neither gets lost in the “mail”. It’s literally the best win-win situation.

3. The third challenge that Netflix faces is the exclusive negotiation for the expansion of the U.S. TV cable reach. In the early 2014, Netflix was operating with a few small cable companies, including Sendenlink and RCN. Yet, the number of users from those companies was less than two million in the U.S., bringing to the conclusion that this expansion does not gather enough customers in this market. Additionally, Netflix has stated that they want to become like HBO8. If it is their goal in 2015, Netflix should partner with a larger cable company, such as Comcast, DirecTV/AT&T, Dish Network, Time Warner Cable to reach a broader range of customers.

4. The last challenge we found for Netflix is its competitor’s scene. Due to continue technological advances, online entertainment service has become popular since the past few years. Forcing providers of this service to adapt quickly to this system. Amazon Prime, as example, is one of the main player in this Market. Although, their product is quite different than Netflix’s. They provide an annually membership, free shipping for products, books, music and on-demand video streaming platform. It seems like it is more beneficial than Netflix as a package, but of course more expensive. In addition, customers has to pay the annual membership upfront, while with Netflix is a monthly subscription base and customers can cancel it anytime.

8 CNBC News: Anchor Morgan Brennan interviewed Technology Expert Jeremy Rosenberg, who analyses and explains in details the latest news on Netflix http://www.inquisitr.com/2021300/netflix-price-increase-movies-related-to-local-internet-piracy-levels

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Furthermore, according to Netflix “the world’s leading linear TV networks, such as HBO, ESPN, Canal+ and BBC, 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. ESPN will keep improving its app to try to stay ahead of MLB, which offers another terrific Internet TV sports app. HBO’s app makes its films and series more accessible than on HBO’s linear channel. The BBC app in the UK provides a rich and popular on-demand interface for a wide range of BBC programming. CBS now offers CBS All Access app for its content. The other major linear networks are not far behind.”9

B) Secondary Research Proposal

Conducting an online research to explore reports and articles from sources such as New York Times, Business Magazines, WSJ, and Golden Gate University extended database, to name a few will be our first course of action. During our primary exploratory research, we would conduct quantitative and qualitative secondary data analysis, these findings will bring profound insights and a clarification to Netflix’s problem identification.

Our qualitative and quantitative research method will be performed as a descriptive research, such as surveys (Netflix’s previous and existing customers) and a personal interview (Netflix’s former Manager). All collected Data will provide us in-depth information about Netflix’s users and the company insider will help us to observe this industry from another standpoint. We also want to investigate how customers feel and what they think about this service, in addition to perceive how loyal they can be to this company.

2.1. Management Decision Problem

As previously described, the first issue that Netflix encounters is their subscription price-point, due to competitive market share. Raising prices in this environment is merely impossible. In 2011, Netflix’s management increase the subscription prices and the lost 800,000 subscribers, which back in that day, was a large amount of business for their market share.

2.2. Management Research Questions

1. Does price matter to Netflix’s subscribers?2. What is the major problem for subscriber to drop their monthly subscription? (e.g. poor

streaming quality, outdated content)3. What should Netflix do to increase subscriber’s loyalty?4. Should Netflix’s approach a new business strategy? (e.g. additional payment per latest

movie)

9 Netflix long term view: http://ir.netflix.com/long-term-view.cfm

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3. Methodology Overview

Providing additional information and the greatest accuracy in our collected data is our primary objective. In order to attain such, we extended our research to computerized online, internet and offline databases. In addition, our primary research consist in the usage of descriptive research method, e.g. survey and interviews.

3.1. Secondary Research

According to Nielsen (2012a), most people spends around five hours each day watching TV in the United States. In the past years, they mostly use TV to watch movies and TV shows, but now they are changing to other technologies, such as online video streaming. It is easier for the users because they can watch whatever they like and whenever they have free time.

Additionally, people use more online streaming when there are newly released movies or TV shows. Therefore, Netflix should add this new social trendy shows to their library and provide more extended content, such as newly updated movies/TV shows, in order to increase their subscription and keep existing customers satisfied.

While comparing Netflix and Hulu, another online streaming service in this market, we can clearly observe users differentiated behavior while using each companies, such as chosen platform and content. According to Nielsen (2011a), Hulu users have significant difference between each preferred device, 89% of the Hulu users like to use the service directly on computer, 20% like to connect computer with TV, and less than 10% of users prefer connecting with gaming device. Contrarily, 42% of Netflix users use it directly on computer, 14% of users like to connect computer with TV, and more than 25% of users like to use gaming device. From this data, we can state that Netflix users are more likely to connect from their gaming device. On the other hand, Hulu users are not. In addition, Netflix and Hulu users are watching different content. Data reported that 53% of Netflix users watch movies, 11% of Netflix users watch TV shows, and 36% watch both equally. Instead, Hulu users’ content goes to only 9% watching movies, 73% watching TV shows, and only 18% of them watching both equally. Moreover, both companies ‘subscriptions have differentiate strength in this market.

With intent to segment this market efficiently, Nielsen (2012b) manifested that 57% of females are using Netflix, and there are 40% of users in age 18 to 34 years old, 26% of users in 35 to 49 years old, 18% of users in 2 to 17 years old, 13% of users in 50 to 64 years old, leaving only 4% of users in 65+ years old. In addition, 76% of white people like to watch Netflix. From all these data, conclusions are that white female young adults are the largest members of this market. Therefore, Netflix should develop more strategies to target this segment with precision.

What is the price that customers are satisfactory willing to pay for this service? According Nielsen (2011b), customers want their subscription price as low as possible, or even better if it’s free. 63% of people think that low/free subscription rate is the best for them, 23% of people think it is somewhat important, 9% of people stand neutral, while 3% of people think it is not that important, and only 1% of people does not care about the price at all. This means that if Netflix plans to raise its subscription price, this new number shouldn’t be larger than additional 10-15% to current prices.

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3.2. Primary Research

Methods

A. Participants (Population)

1. Characteristics of sample

a) n = 50

b) Between ages above 18 that is old enough to have a debit card.

c) All female and all male

d) No mental impairments, no history of drug abuse, or any other problems that might results in impaired performance on the memory test

e) Must apply for people who use or have used Netflix

2. Recruitment

a) Since our participants are required with a big range in the age, no gender limited, and should use or have used Netflix. The method use to reach out our survey recipients is social media and emails.

b) After evaluating the elements of the nonprobability convenience sampling technique, our respondents were selected from our student group, members of our organizations, family, friends, and colleagues. This is the least expensive and least time-consuming of all sampling techniques. The sampling units are accessible, easy to measure and cooperative. In despite of these advantages, this form of sampling has serious limitations. It’s not representative of any define population. Hence, it is not theoretically meaningful to generalize from a convenience sample, but it is chosen for our exploratory research hypothesis.

B. Procedure

1. Study Design: Single cross-sectional of descriptive design (Survey), which provides quantitative data.

a. Questions about the users experience of Netflix. Structured questions will be used, where possible responses are pre-specified. These structured response formats fall into three categories: multiple-choice, dichotomous, and scales. In multiple-choice questions, the alternatives will include all possible choices and should be mutually exclusive.

b. Using electronic methods

c. May have limited reliability because the results are from convenience sampling.

2. Procedure (Data Collection)

a. Using Internet survey by Qualtrics from electronic methods.

b. Giving timeline for two week in order to get enough quality data.

4. Quantitative Research Plan

A survey will be design for our data collection

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4.2. Sampling Plan

The sampling size for our survey is 50 people and due to cost-time efficiency, we conclude to use a convenience sampling method.

4.2.1. Sample Population

The sampling population for our primary research is targeting people whose age are above 18, and they are currently customers of Netflix or they had been customers before. Extend: United States.

4.2.2. Sampling Frame

People whose age are above 18 in order to get answers from mature and considerable opinions. Also, people are currently customers of Netflix or had been their customers before with having more than one month users experiences. No matter the account they used is their personal account or their friends’ account, because each account of Netflix is allowed more than one person to use.

4.2.3. Sampling Techniques

Sampling without replacement, which means once an element is selected for inclusion in the sample. Since the survey is asking about users experiences, the sample should be conducted more than one time because people are not possible to have twice experiences about using Netflix.

4.2.4. Sample Size

In order to do T-test, the minimum sample size is at least 30. For getting more accurate data, the survey will need a sample size of 50.

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5. Research Results and Main Findings

5.1. Quantitative Data Analysis

How many times do you think you had used Netflix during the past month?

Frequency Percent Valid Percent

Cumulative Percent

Valid One Time 9 17.6 18.0 18.0

Two Times 4 7.8 8.0 26.0

Three Times 5 9.8 10.0 36.0

Four Times 8 15.7 16.0 52.0

Five Times & More

24 47.1 48.0 100.0

Total 50 98.0 100.0

Missing System 1 2.0

Total 51 100.0

The average for using Netflix in the past month, most of the users have used it five times or more. It shows that people like to watch online streaming movies and TV series. It is possible

for Netflix to produce more movies and TV series to keep the existing subscribers.

5.1.1. Product Attractiveness

How long have you been a Netflix's subscriber?

Frequency Percent Valid Percent Cumulative Percent

Valid Under 1 year 17 33.3 34.7 34.7

1-2 years 11 21.6 22.4 57.1

2-3 years 10 19.6 20.4 77.6

3-5 years 9 17.6 18.4 95.9

Over 5 years 2 3.9 4.1 100.0

Total 49 96.1 100.0


Total 51 100.0

Most of the Netflix subscribers are using it under 1 year, and only 2 people use it over 5 years. It means it is possible that people might drop the subscription after 3 years.

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Has your usage of Netflix increased, decreased, or stayed the same in the past 3 months?


Cumulative Percent

Valid Increase 17 33.3 34.0 34.0

Decrease 13 25.5 26.0 60.0

Stay the Same 20 39.2 40.0 100.0

Total 50 98.0 100.0


Total 51 100.0

The usage for Netflix subscriber is that 39.2% of the users stay the same, 33.3% of the users increase their usage, and only 25.5% of the users decline their usage. By this means that most of

the Netflix users still keep the same interested in the content that Netflix provides.

How enjoyable is the content available on Netflix?


Cumulative Percent

Valid Very Happy 9 17.6 18.0 18.0

Happy 30 58.8 60.0 78.0

So-So 6 11.8 12.0 90.0

Unhappy 3 5.9 6.0 96.0

Very Unhappy 2 3.9 4.0 100.0

Total 50 98.0 100.0


Total 51 100.0

The data shows that 58.8% of the Netflix subscribers are happy with the service, 17.6% of the subscribers are very happy with the service, and less than 20% of the users are not very happy with the service. By this means that even more than 50% of the subscribers are happy with the

service, there are still some reasons that make them are not 100% satisfy in the service.

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If Netflix were to provide the rental of the newest available movies at an individual rate. How much would you be willing to pay for it?


Valid $2 per Movie 33 64.7 68.8 68.8

$3 per Movie 9 17.6 18.8 87.5

$4 per Movie 3 5.9 6.3 93.8

$5 per Movie 2 3.9 4.2 97.9

$6 per Movie 1 2.0 2.1 100.0

Total 48 94.1 100.0


Total 51 100.0

For the Netflix subscribers, they think that if Netflix provide new release movie online, 64.7% of the users would like to pay $2 per movie, 17.6% of the users like to pay $3 per movie, and 5.9% of the users would like to pay $4 per movie. It shows that people are willing to pay for the new

release movie, but the price should keep as low as possible.

5.1.2. Pricing Considerations

Do you feel that the price for a monthly Netflix subscription is too high, too low, or about right?


Valid Too high 10 19.6 20.0 20.0

Too low 2 3.9 4.0 24.0

About right 38 74.5 76.0 100.0

Total 50 98.0 100.0


Total 51 100.0

There are 47.1% of the users have never canceled the subscription, 19.6% of the users do not have enough time to use the service, 9.8% of the users cannot find the content that they want,

and there are only 7.8% of the users switch to other online streaming service. From this data we can see that Netflix’s subscriber has their brand royalty.

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What are the reasons that you have ever canceled Netflix's subscription?


Cumulative Percent

Valid Price is too high 3 5.9 6.5 6.5

Content I want isn't available

5 9.8 10.9 17.4

I didn't have time to watch Netflix

10 19.6 21.7 39.1

Competitors offer better options for me

4 7.8 8.7 47.8

I have never canceled my subscription

24 47.1 52.2 100.0

Total 46 90.2 100.0


Total 51 100.0

There are 47.1% of the users have never canceled the subscription, 19.6% of the users do not have enough time to use the service, 9.8% of the users cannot find the content that they want, and there are only 7.8% of the users switch to other online streaming service. From this data we can see that Netflix’s subscriber has their brand royalty. Also, it can be seen that actually the reason that people who have dropped the subscription is because they

don’t have enough time to watch it.

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How likely are you to recommend Netflix's subscriptions to your Family and Friends?


Cumulative Percent

Valid Very unlikely 2 3.9 4.0 4.0

Somehow unlikely

1 2.0 2.0 6.0

Neutral 15 29.4 30.0 36.0

Somehow Likely 23 45.1 46.0 82.0

Very Likely 9 17.6 18.0 100.0

Total 50 98.0 100.0


Total 51 100.0

For the people who are using Netflix, 45.1% of them somehow likely to recommend the Netflix service to their friends and family, 29.4% of users are stand on neutral, and 17.6% of the users are very likely to recommend the Netflix service. By this means that when people have enough

satisfaction on the Netflix service they are highly willing to share the experience with their friends and family, therefore, Netflix should take this advantage to recruit new members by using

world of month.

pg. 17

Group Statistics

Gender

N Mean Std. Deviation

Std. Error Mean

If Netflix were to

provide the rental of the

newest available

movies at an individual rate. How

much would you be

willing to pay for it?

Male 18 1.5000

1.04319 .24588

Female

32 1.5000

.87988 .15554

Independent Samples TestLevene's Test for

Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-tailed)

Mean Differenc

e

Std. Error Differenc

e

95% Confidence Interval of the

Difference

Lower Upper

If Netflix were to

provide the rental of the

newest available

movies at an individual rate. How

much would you be

willing to pay for it?

Equal variances assumed

.037 .848 .000 48 1.000 .00000 .27723 -.55742 .55742

Equal variances

not assumed

.000 30.638

1.000 .00000 .29095 -.59368 .59368

From this T-Test, it can be seen that the gender doesn’t matter with how willing people pay the extra money to see the latest movies and TV shows. From the P value we got 0.848, which is

larger than 0.05. It means that we do not reject the null hypothesis. Therefore, there is no significant relationship between gender and the level of willingness to paying extra money for

the latest movies and TV shows.

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5.1.3. Competitors Compare

Netflix

Please, Indicate on a smiley face scale from happy to unhappy, how do you feel about the video streaming service of the Netflix. * Please, Tell us the reason

Cross tabulationPlease, tell us the reason Total

Price Latest Movies/TV Shows or

Others

Please, indicate on a smiley face scale

from very unhappy to very happy, how you feel about the video streaming

service of the Netflix.

Happy Count 28 10 38

Expected Count 25.1 12.9 38.0

% within Please, Indicate on a smiley face scale from very

unhappy to very happy, how do you feel about the video streaming service of

the Netflix

73.7% 26.3% 100.0%

Unhappy Count 5 7 12




the Netflix

41.7% 58.3% 100.0%

Total Count 33 17 50




the Netflix

66.0% 34.0% 100.0%

pg. 19

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Exact Sig. (2-sided)

Exact Sig. (1-sided)

Pearson Chi-Square

4.166a 1 .041

Continuity Correctionb

2.862 1 .091

Likelihood Ratio 4.002 1 .045

Fisher's Exact Test

.077 .047

Linear-by-Linear Association

4.083 1 .043

N of Valid Cases 50

a. 1 cells (25.0%) have expected count less than 5. The minimum expected count is 4.08.

b. Computed only for a 2x2 table

pg. 20

From the cross tabulation that was asking how responders feel satisfied about Netflix and what’s the reason for it, it can be seen that 28 of 50 people feel satisfied about Netflix because of the price, and only 10 people feel satisfied about Netflix’s latest

movies services. This shows that the reason that people feel satisfied about Netflix is mostly because of its price. However, the P value in the chi-square is 0.041, which is

less than the hypothesis 0.05. It means that it reject the alternative, and there is a significant relationship between people like Netflix and mostly because of its price and

its latest movies and TV shows.

5.1.4. Appropriate Age Range and Gender Considerations

What age group best describe you? * Has your usage of Netflix increased, decreased, or stayed the same in the past 3 months? Cross tabulation

Has your usage of Netflix increased, decreased, or stayed the

same in the past 3 months?

Total

Increase Decrease Stay the Same

What age group best describe you?

21-30 Count 13 7 9 29

% within has your usage of Netflix increased, decreased, or stayed the


76.5% 53.8% 45.0% 58.0%

31-40 Count 2 4 10 16



11.8% 30.8% 50.0% 32.0%

41-50 Count 0 0 1 1



0.0% 0.0% 5.0% 2.0%

51+ Count 2 2 0 4



11.8% 15.4% 0.0% 8.0%

Total Count 17 13 20 50



100.0% 100.0% 100.0% 100.0%

For the Netflix users, 65.5% of the users are female in age 21-30. This is match with the secondary research that their female customers are more than male customers, and the range of

the age are around 20’s to 30’s.

5.1.6. Respondent Demographics

pg. 21

Gender


Valid Male 18 35.3 36.0 36.0

Female 32 62.7 64.0 100.0

Total 50 98.0 100.0


Total 51 100.0

We got more than a half people in the sample size are female.

What age group best describe you?


Valid 21-30 29 56.9 58.0 58.0

31-40 16 31.4 32.0 90.0

41-50 1 2.0 2.0 92.0

51+ 4 7.8 8.0 100.0

Total 50 98.0 100.0


Total 51 100.0

From the data that we have collected from our survey, most of the people who use Netflix are from 21-30 years old.

5.2. Qualitative Data Analysis

Interview with Mark Kalman

Mark Kalman, is a former Product Manager at Netflix and an Industry Expert. His PhD education from Stanford University has given him a profound insight in the video industry, and throughout his career, Mark has worked in many video streaming market player, such as Flip Camera (acquired by Cisco Systems) and Amazon Prime. While some information is consider confidential and due to our non-disclosure agreement our team is not able to explain the details of this interview. In general terms, our perception is that Netflix as a strong market player in this industry and it has a brighter future.

Netflix’s databases and legal agreements with content companies is what makes Netflix’s product unique and exquisite. Overall, Netflix is a company with high employee satisfaction rate and a great place to work, as Mark defined.

6. Recommendations

pg. 22

After extensive analysis of all data related to internet streaming industry, Netflix’s products, market positioning and consumers behavior, we conclude with the following recommendations:

1. Netflix new subscription price increase $8.99 (from $7.99)Consumers will be willing to pay an additional $1 for new video streaming content and this practice will keep Netflix’s on top of the Market. Our survey clearly manifested the majority of correspondent will be happy to pay an extra buck for more content options, since they also believe Netflix’s library is outdated.

2. Additional Movies - TV shows offering newer ContentOur strategic recommendations for Netflix focus on strengthening the core business of the company, on vertical and horizontal integration, which means the company should creating more original content under the Netflix name and bundling with other home entertainment systems in order to attract more subscribers. After the past two years, when House of Card and Black is the new Orange TV series had attracted national attention and became an important success, Netflix should not only maintain this strategy, but also extend it to the Film Industry, producing their own movies. In addition, the company should update their library content to provide the latest movies and TV shows.

3. Additional $2 each newest movie rental Netflix’s subscriber has demonstrated high interest in renting the latest movies and paying an addition fee for that service. As many competitors in this industry are offering movies for additional price tier, Netflix’s strategy should be aligned with the current market trend and also make similar offerings.

7. Limitations of the Study

Convenience Sampling Method

The sampling technique used for the quantitative research was in the non-probability sampling, the convenience sampling. While there are many advantageous to convenience sampling, there are still some obvious drawbacks to this method. This form of sampling allows to formulate theories quickly. Nevertheless, the risk getting biased results by treating the data as accurate depiction of the general public is high, and typically the data is not representative of the entire population.

Among the factors that make this method convenient for the survey are time/cost efficiency. Nonetheless, our team is aware of the drawbacks in terms of sampling error magnitude, homogeneous population, and no objective evaluations that this method might cause for our conclusion. In an attempt to avoid sampling errors, there was an extra effort to control our sample population, ensuring the survey is not taken multiple times by the same correspondent. In addition, the survey was posted online in a hidden location where it was not available to all users.

pg. 23

8. Conclusion

The conclusion reached by hypothesis testing A shows that there is significant evidence that subscribers will not cancel Netflix’s monthly subscription due to a price increase. Based on our P- Value from the T-test and Chi-square test. The second conclusion reached for Hypothesis B shows that there is significant evidence that customers will be willing to pay an additional price for the latest movies/TV shows. In addition, the third conclusion reached for hypothesis C is that there is significant evidence that female’s group age 21-30 are larger than any other subscriber group in Netflix.

pg. 24

III. Project Schedule

A) Project Plan Time Table

The team divided this project on a weekly basis system, and for every due date was a new pointed project manager in charged, sharing even responsibilities. The following 14 steps will determine how due dates were organized and managed:

1. Understand the assignment and write the project proposal by Fri Feb 03, 2015

2. Select and focus topic and research strategy by Sat Feb 07, 2015

3. Write working thesis by Sun Feb 08, 2015

4. Design research strategy by Tue Feb 10, 2015

5. Find, review, and evaluate books by Mon Feb 16, 2015

6. Conduct interviews and surveys by Mon Mar 02, 2015

7. Evaluate all research performed by Thu Mar 05, 2015

8. Outline or describe overall structure by Fri Mar 06, 2015

9. Write 1st draft by Thu Mar 12, 2015

10. Conduct additional research as necessary by Tue Mar 17, 2015

11. Revise and rewrite by Sat Mar 28, 2015

12. Prepare and practice presentation: Sun Mar 29, 2015

13. Put paper in final form by Wed Apr 01, 2015

14. Present Project paper and presentation

III. Hypothesis Testing

HYPOTHESES PLAN FOR NETFLIX MARKET RESEARCH

I. HYPOTHESES, DATA, & STATISTICAL TESTS:

Hypothesis A:

1) Research question to be answered:

Are Netflix’s subscribers canceling their accounts due to a price increase?

2) Null: The number of Netflix subscribers will not decrease by 25% if the price of subscription increase H0: μ≤μ0

3) Alternative: The number of Netflix subscribers will decrease by 25% if the price of subscription increases H1: μ>μ0

4) Data to be used: responses to question #12 on the survey (metric)

5) Statistical test(s) conducted to test hypothesis: t-test Means (one population) σ unknown, and Chi-square distribution test

6) Reason for using specific test(s): t-test will be used because the sample size is larger than 30 (n > 30) and a Chi-square distribution test will be used because the population variance is unknown and the population size is small.

pg. 25

Hypothesis B:


Would customers like to pay the new price of the product if their movies/TV shows are newly updated?

2) Null: Netflix’s subscribers will not be willing to pay an additional price if new products are offered. H0: μ ≠ μ0

3) Alternative: Netflix’s subscribers will be willing to pay an additional price if new products are offered. H1: μ= μ0

4) Data to be used: data from question #13 from the survey (metric)

5) Statistical test(s) conducted to test hypothesis: t-test and Chi-square distribution

6) Reason for using specific test(s): t-test will be used because the sample size is larger than 30 (n > 30) and Chi-square distribution will be used because the population variance is unknown and the population size is small.

Hypothesis C:


Are Netflix female user’s group considerable more relevant in quantity than its male peers group?

2) Null: Netflix’s female subscribers quantities are not considerable significant in compassion to its male peers group H0: μ = μ0

3) Alternative: Netflix’s female subscribers group are considerable larger than its male peer groups. H1: μ < μ0

4) Data to be used: Questions #1, #2 and #5

5) Statistical test(s) conducted to test hypothesis: Cross Tabulations

6) Reason for using specific test(s): The responses to question 1, 2 and 5 can be cross tabulated and the squares can be evaluated in order to assess the significance of differences between the responses. This will give us an idea of whether there is a relationship between sex, gender and time spent on online video streaming or not.

pg. 26

II. CROSS-TABULATIONS & FREQUENCY DISTRIBUTIONS

Cross-tabulations will be done on:

Product Price Acceptability (question 12 from the survey) versus the possibilities of cancellation on the product (question 11 from the survey) → in order to detect any possible relationships for these two variables that may be helpful for the advanced statistical analysis conducted in part III

The possibilities of cancellation on the product (question 11) versus the level of enjoyment in content available (question 8) → in order to detect any possible relationships for these two variables that may be helpful for the advanced statistical analysis conducted in part III

Frequency distributions will be done on:

Product Price Acceptability (question 12) → in order to help test hypothesis A and to assess the overall perceived product acceptability. (Do you feel that the price for a monthly Netflix subscription is too high, too low, or about right?) price respondents are willing to pay extra money on the latest new movies (question 13) → in order to help test hypothesis B and to determine the overall price range respondents find appropriate for the latest movies (If Netflix provided the rental of the newest available movies at an individual rate. How much would you be willing to pay for it?)

III. ADVANCED STATISTICAL TECHNIQUE(S)

Variable(s) to be analyzed:

The variable to be analyzed in relationship with each other are the respondents who are willing to keep their subscription status, even if Netflix increase $1 per month (question 12 - how people feel about the price from monthly subscription: too high, too low, or about right), the perceived overall appeal of the price, and the respondents’ satisfaction level (question 8 or 14).

Metric or non-metric data:

Price data is categorical (ordinal, non-metric), but also can be seen as metric since they are stated in dollar terms (i.e. the middle value of each price could be used as an approximation). Product appeal data are ordinal and thus non-metric.

Hypothesis to be tested:

There is a relationship between the prices that respondents are willing to pay for Netflix and if Netflix has latest movie/TV releases.

pg. 27

Data Analysis Technique to be used:

A One-Tailed Test will be used to examine the interrelationship between these three variables. It is assumed that the price acceptability and the possibilities of cancellation of the product are independent, while both variables have an impact on the price that respondents are willing to pay for the latest new movies. The available non-metric data may have to be transformed into metric data in order to be suitable for an analysis of variance.

III.3.Qualitative Data – Survey Question

Netflix Survey (Qualtrics)

Q1 Gender Male (1) Female (2)

Q2 What Age Group Best Describe you? Under 20 (1) 21 - 30 (2) 31 - 40 (3) 41 - 50 (4) 51 + (5)

Q3 Have you ever had a Netflix Subscription? Yes (1) No (2)

Q4 How long have you been a Netflix's subscriber? under 1 year (1) 1 - 2 years (2) 2 - 3 years (3) 3 - 5 years (4) over 5 years (5)

Q5 Has your usage of Netflix increased, decreased, or stayed the same in the past 3 months? Increase (1) Decrease (2) Stay The Same (3)

Q6 How many times do you think you had used Netflix during the past month? One Time (1) Two Times (2) Three Times (3) Four Times (4) Five Times & More (5)

Q7 On a rank from 1 to 5, with 1 being most watched and 5 being least watched. Please, tell us what you prefer to watch among these categories. Drag and Drop the numbers...______ Movies (1)______ Television (2)______ Children (3)______ Sports & Fitness (4)______ Special Interest (5)

Q8 How enjoyable is the content available on Netflix? Smiley face scale from very unhappy to very happy will allowed you to answer 1 (1) 2 (2) 3 (3) 4 (4) 5 (5)

pg. 28

Q9 Please, Indicate on a smiley face scale from very unhappy to very happy how do you feel about the video streaming service of the following companies.

Categories Happy Somewhat Happy

Neutral Somewhat Sad

Sad Price Customer Service

Newest Movies / TV shows

Netflix (1) Price Customer

Service Newest Movies / TV shows

Amazon Instant

Video (2) Price

Customer Service

Newest Movies / TV shows

Roku (3) Price Customer


Apple TV - iTunes (4)

Price Customer


Direct TV (5)

Price Customer


Hulu Plus (6)

Price Customer


Comcast Xfinity (7)

Price Customer


RedBox (8) Price Customer


Q10 On Scale 1-5, 1 being the most used device and 5 being the least used device, Could you please tell us what platform do you use for your streaming videos? Drag and Drop the numbers...______ Laptop or Desktop (1)______ Mobile Phone (2)______ Tablet (3)______ TV (4)______ Gaming Device (Play Station - Xbox) (5)

Q11 Have you ever canceled Netflix's subscription? If so, please, tell us what was the main reason for your decision? Price is too high (1) Content I want isn't not available (2) I didn't have time to watch Netflix (3) Poor Video or Audio Quality (4) Competitors offer better options for me (5) I have never canceled my subscription (6)

Q12 Do you feel that the price for a monthly Netflix subscription is too high, too low, or about right? Too high (1) Too Low (2) About right (3)

Q13 If Netflix were to provide the rental of the newest available movies at an individual rate. How much would you be willing to pay for it? $2 per Movie (1) $3 per Movie (2) $4 per Movie (3) $5 per Movie (4) $6 per Movie (5)

Q14 On scale 1 to 4, being 1 very unlikely and 4 very likely, how likely are you to recommend Netflix’s subscriptions to your Family and Friends?______ Recommend Netflix

Q15 Do you have any suggestions that you would share to improve Netflix’s products and services?

pg. 29

Appendix

Figure 1

Netflix Financial Information

Yahoo Finance

Figure 2

Netflix Historical

Stock Price 10y

Yahoo Finance

pg. 30

References

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Nielsen. (2011a, July 27). “What Netflix and Hulu users are watching... and How.” Retrieved from http://www.nielsen.com/us/en/insights/news/2011/what-netflix-and-hulu-users-are-watching-and-how.html

Nielsen. (2011b, August 01). “Consumers say free low cost is most important when choosing mobile video apps.” Retrieved from http://www.nielsen.com/us/en/insights/news/2011/consumers-say-freelow-cost-is-most-important-when-choosing-mobile-video-apps.html

Nielsen. (2012a, May 02). “The Cross Platform Report - Q4 2011” Retrieved from http://www.nielsen.com/us/en/insights/reports/2012/the-cross-platform-report-q4-2011.html

Nielsen. (2012b, February 24). “Detailing the digital revolution social, streaming and more.” Retrieved from http://www.nielsen.com/us/en/insights/news/2012/detailing-the-digital-revolution-social-streaming-and-more.html

Reuters. (2015). Leonardo DiCaprio partners with Netflix for documentary projects. Fortune.Com, N.PAG.

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Wingfliend, N., & Sterter, B. (2011, October 11). How Netflix Lost 800,000 Members, and Good Will. The New York Times. Retrieved April 1, 2015, from http://www.nytimes.com/2011/10/25/technology/netflix-lost-800000-members-with-price-rise-and-split-plan.html?_r=0

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