Netflix 2.0

2008.5.26 Strategic Management : Netflix

2008.5.26 Strategic Management : Netflix

20022394 김세훈 20022444 박성준 20022450 박종경 20032618 황인현 20052658 장 건

NETFLIX 2.0

Situation Analysis

Issue Definition

Environment Analysis

Strategy & Action Plan

Conclusion

Contents

2008 5.26 Strategic Management : Netflix

Situation Analysis

Issue Definition



Conclusion

Situation Analysis

Contents



Situation Analysis

1

$0

$3

$6

$9

2000 2001 2002 2003 2004 2005 2006 2007

$7.30$7.15$6.70$5.73

$4.37$2.95

$1.40$0.57

U.S Home Video Rental Market(in Billion)

DVD Rentals VHS Rentals

www.videobusiness.com

1. External Situation(1) Home Video Rental Market

http://www.videobusiness.com



Situation Analysis

2

50%

75%

100%

2003 2004 2005 2006 2007

43%

60%

76%

84%87%

DVD Player & VCR Penetration in U.S. TV Households

DVD Player VHS Player

MPAA : Nielson Media Research

1. External Situation(2) DVD Player Penetration


Situation Analysis

2

50%

75%

100%

2003 2004 2005 2006 2007

43%

60%

76%

84%87%

DVD Player & VCR Penetration in U.S. TV Households

DVD Player VHS Player

MPAA : Nielson Media Research

1. External Situation(2) DVD Player Penetration

DVD player penetration is still rising, VCR penetration still dropping

DVD penetration has doubled over the past 5 years, reaching 87% in 2007. In contrast, VCR penetration has steadily declined over the same span, hitting 79% in 2007.


Situation Analysis

3

2. Internal Situation(1) Netflix

Netflix.com : Customer Press Kit


Situation Analysis

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Netflix is the world's largest online movie rental service, offering more than 8 million members access to more than 100,000 DVD titles plus a growing library of over 10,000 full-length movies and television episodes.

2. Internal Situation(1) Netflix



Situation Analysis

4

2. Internal Situation(2)

People who like movies want easy access, huge selection, and great value. Netflix strives to provide customers with an unrivaled selection

and consistently high levels of customer satisfaction.

Netflix Service(1)



Situation Analysis

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2. Internal Situation(3) Netflix Service(2)



Situation Analysis

6



Netflix Facts


Situation Analysis

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Ratings:Netflix has more than 2 billion movie ratings from members. The average member has rated about 200 movies.



Netflix Facts


Situation Analysis

6


Rental Habits:Netflix members say they rent twice as many movies per month than they did prior to joining the service. Netflix members add 2 million movies to their Queues every day.



Netflix Facts


Situation Analysis

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Rental Habits:Netflix members say they rent twice as many movies per month than they did prior to joining the service. Netflixmembers add 2 million movies to their Queues every day.

Inventory:Netflix has more than 100,000 titles and more than 55 million DVDs total. Every three months, Netflix members rent more than 95% of the 100,000 titles in the Netflix library. On any given day, more than 46,000 of the 100,000 titles available at Netflix are in distribution.



Netflix Facts


Situation Analysis

6



Recommendations:Approximately 60% of Netflix members select their movies based on movie recommendations tailored to their individual tastes.

Inventory:Netflix has more than 100,000 titles and more than 55 million DVDs total. Every three months, Netflix members rent more than95% of the 100,000 titles in the Netflix library. On any given day, more than 46,000 of the 100,000 titles available at Netflix are in distribution.



Netflix Facts


Situation Analysis

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Customer Satisfaction:More than 90% of Netflix members say they are so satisfied with the Netflix service that they recommend the service to family and friends.




Netflix Facts


Situation Analysis

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Customer Satisfaction:More than 90% of Netflix members say they are so satisfied with the Netflix service that they recommend theservice to family and friends.


Volume:If you stacked every movie Netflix ships (on average, 1.9 million DVDs a day) in a single pile, the stack would be taller than Mt. Everest within a week.



Netflix Facts


Situation Analysis

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Customer Satisfaction:More than 90% of Netflix members say they are so satisfied with the Netflix service that they recommend theservice to family and friends.


Volume:If you stacked every movie Netflix ships (on average, 1.9 million DVDs a day) in a single pile, the stack would betaller than Mt. Everest within a week.

Environment:If Netflix members drove to and from a rental store, they would consume 800,000 gallons of gasoline and release more than 2.2 million tons of carbon dioxide emissions annually.



Netflix Facts


Situation Analysis

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Netflix’s Growth

2004 2005 2006 2007

7,479

6,316

4,179

2,610

subscribers(in thousands)

2004 2005 2006 2007

1,205

997

682

501

Revenue(in millions)

2004 2005 2006 2007

67

49

42

22

Net Income(in millions)


Netflix.com : 2007 Annual Report


Situation Analysis

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3. VOD Market Situation(1)

During Netflix’s rise, industry observers anointed video-on-demand(VOD) as the “next big thing” in home video.

Video-on-Demand


Situation Analysis

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3. VOD Market Situation(2) Online Video Alternatives


Situation Analysis

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Stand-alone Online VOD Service Set-Top Box bypass VOD Service Traditional Cable and Satellite Provider

VOD Competition


Situation Analysis

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Technology Limitation :With the increasing adoption of big-screen, HDTV, consumers were unwilling to pay equivalent prices for movies that could only be viewed on their computers.

Content Availability Limitation :Concern about pirated downloads and a lack of urgency to supplant their profitable DVD sales made studios reluctant to offer much content to VOD websites.

Limitations of VOD Service


Situation Analysis

Issue Definition



Conclusion

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Situation Analysis

Issue Definition



Conclusion

Issue Definition

14


Issue Definition

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Many industry observers believed that VOD, would quickly impact the large user base for Netflix’s core business.


Issue Definition

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Issue Definition

13

1. Licensing with Cable Provider

2. To integrate a streaming online video feature into their core offering

3. Building a Stand-alone Online Video Business


Issue Definition

13

What is the most reasonable strategy in long-term view?

How can Netflix resolve two large impediments, the connectivity between user’s PC and TV and the current limitations in available content?

1. Licensing with Cable Provider

2. To integrate a streaming online video feature into their core offering

3. Building a Stand-alone Online Video Business


Situation Analysis

Issue Definition



Conclusion

17



14

1. Industry Analysis(1) Porter’s 5 Forces Model



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1. Industry Analysis(1)

Strong => Stronger

Rapidly Growth MarketOnline based Services

Porter’s 5 Forces Model



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14


Strong => Medium

M&A among Major Players




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14


Medium => Strong

Demand < SupplyNo Switching Cost




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14


Weak => Stronger

Increasing Contents Provider’sForward IntegrationFlexibility in Licensing Contents




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14


Strong => Stronger

New TechnologyIPTV, Download ServiceTraditional Cable and Satellite TV




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Strong => Stronger

New TechnologyIPTV, Download ServiceTraditional Cable and Satellite TV


Home Video Entertainment Industry

DVD Rental ➫ Online VOD ServiceMajor Home Video Entertainment Company NetworkContents의 중요성⇧ ⇒ Contents Provider 의 교섭력⇧소비자의 Switching Cost⇩ ⇒ 소비자의 교섭력⇧또 다른 New Technology의 위협 존재



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Market Growth

Market Share

Question Mark Stars

Dogs Cash Cow

BCG Matrix Analysis1. Industry Analysis(2)



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Market Growth

Market Share

VOD Streaming on PC

Online DVD Rental Service

Question Mark Stars

Dogs Cash Cow

VOD Streaming on TV

VOD Streaming on Portable Player

Offline DVD Rental

VOD Download

BCG Matrix Analysis1. Industry Analysis(2)



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5B

10B

15B

20B

2007 2008 2009 2010 2011

12.8B

9.2B

6.5B

4.5B

3.0B

VOD Worldwide Revenues 2007~2011 (in Billion)

Ovum : www.ovum.com

2. Market Analysis(1) VOD Market

http://www.ovum.com

http://www.ovum.com


20.28M

40.56M

60.84M

81.12M

101.40M

2003 2004 2005 2006 2007

64.3M 68.8M 71.7M 71.9M 75.0M

23.6M31.7M

41.7M51.7M

60.8M68.6M

82.8M90.4M

95.7M101.4M

Household Growth - Internet vs. Broadband vs. DVD(in Million)


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2. Market Analysis(2)

MPAA : Adams Media Research

Opportunity in Online

Consumer Internet Broadband Home Video


20.28M

40.56M

60.84M

81.12M

101.40M

2003 2004 2005 2006 2007

64.3M 68.8M 71.7M 71.9M 75.0M

23.6M31.7M

41.7M51.7M

60.8M68.6M

82.8M90.4M

95.7M101.4M

Household Growth - Internet vs. Broadband vs. DVD(in Million)


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MPAA : Adams Media Research


Broadband access continues to rise

With over 60 million American households using broadband to access the Internet, broadband penetration rose to 79% of households with a computer and 53% of all households. Broadband penetration is still outpacing DVD and Internet household penetration.

Consumer Internet Broadband Home Video



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www.eMarketer.com, Februry 2008

25%

50%

75%

100%

2006 2007 2008E 2009E 2010E 2011E 2012E

62.4%60.6%58.9%56.5%52.5%

47.3%39.7%

87.6%86.4%85.4%83.7%79.5%

73.1%

62.8%

U.S Online Video Viewers(% of Internet Users and Total Population)

Internet Users Total Population


http://www.eMarketer.com

http://www.eMarketer.com



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40

80

120

160

200

2003 2004 2005 2006 2007

60.0 67.0 63.0 62.0 64.0

153.0164.0 169.0

177.0 181.0

Media Consumption based on Hours per Person per Year

MPAA : Veronis Suhler Stevenson

Consumer Internet Home Video




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Screen Digest, September 2007

Online Movie Market



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Screen Digest, September 2007

The movie downloading market will be worth $1.3 billion in 2011 in the US and Western Europe combined, of which $720 million will be generated in the US and $572 million in Western Europe, Screen Digest predicts.

Online Movie Market



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3. Competitor Analysis(1) Competitors Map



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3. Competitor Analysis(1)

BroadTarget

NarrowTarget

PC based TV based

Competitors Map



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BroadTarget

NarrowTarget

PC based TV based

Ad-supported Video :

Competitors Map



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BroadTarget

NarrowTarget

PC based TV based

Ad-supported Video : Cable and Satellite TV :

Competitors Map



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BroadTarget

NarrowTarget

PC based TV based


Stand-alone online VOD :

Competitors Map



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BroadTarget

NarrowTarget

PC based TV based

Set-top Box bypass VOD/IPTV :


Stand-alone online VOD :

Competitors Map



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3. Competitor Analysis(2) Comparison of VOD Services

Wikipedia : Comparison of VOD Services/ ExtremeTech : Which Movie Download Site is Best?

850Feature FilmTV ProgramYouTube

Buy/Rental Worldwide PC/TV/Potable Player

$2.99 ~ 3.99$9.99 ~ 14.99

Apple TV/iPod

5,000 Feature FilmTV Program Buy/Rental USA PC/TV

$.99 ~ 3.99$7.99~$19.99

TiVo

1,800 Feature FilmTV Program Buy/Rental USA PC

$0.99 ~ 4.99$8.99 ~ 19.99

BlockbusterDVD Rental

2,000 Feature Film Subscription USA PC/TV/Potable Player

$9,95/month

Starz CATV/Gigabeat S/Samsung P2

3,000 Feature FilmBuy/Rental/DVD Burning/Subscription

Worldwide PC/TV/Potable Player

$2.99 ~ 3.99$9.99 ~ 19.99$8.99~14.99$29.95~99.95

HP MediaSmart TV/

EchoStar/Samsung P2

6,000 Feature FilmTV Program Buy/Rental USA TV based

Set-top Box$.99~5.99$4.99~19.99

Vudu Box/Vudu XL

Number of Title Contents Payment

Type Availability Service Type

Pricing Model Connectivity



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4. Customer Analysis(1)

Convenience

Lower Cost Personal Service

Presence

Download Mania

VOD Service Mania

Home Theater ManiaMoviegoer

CATV Mania

Customer Map



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Convenience


Presence

Download Mania

VOD Service Mania

Home Theater Mania

Moviegoer

CATV Mania

Customer Map



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Convenience


Presence

Download Mania VOD

Service Mania

Home Theater Mania

Moviegoer

CATV Mania

Customer Map



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4. Customer Analysis(2) Customer Value

Presence Connectivity

Content Convenience

Cost



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Content Convenience

Cost

Traditional Needs : Presence

Big Screen using DVDDislike Accessing to OnlineOff-Line Rental Store



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Content Convenience

CostHybrid Service Needs : Convenience, Contents

Inconvenience SearchingHuge Selection, Easy to AccessOn-Line Rental Store



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Content Convenience

Cost Emerging Needs : Connectivity, Cost

Hard to wait NetflixPrivate ExperienceInternet VOD Service



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Content Convenience

Cost

Unmet Needs : Presence, Connectivity, Content

Early AdoptersWatching Movie like in a TheaterAnytime,Anywhere,Anydevice,AnyvideoPotable Player, TV Set-top Box, Mobile



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5. Internal Analysis(1) Netflix in VOD Market

Compete.com : Netflix’s Watch Now Tops the Online on Demand Movie Market



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5. Internal Analysis(2)

Number of Title Over 10,000 Movies & TV episodes

Payment Type Rent(Streaming)

Availability only USA

Service Type DVD Rental/PC and TV Streaming

Pricing Model Subscription($4.99 ~ 47.99 : unlimited DVD Rental and Streaming)

Connectivity XBox 360(with Plug-in)/Roku

Contents Red Envelope Entertainment (REE)

Netflix Vod Service



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5. Internal Analysis(2)

Number of Title Over 10,000 Movies & TV episodes

Pricing Model Subscription($4.99 ~ 47.99 : unlimited DVD Rental and Streaming)

Searching CineMatch Recommendation System/2 billion movie Ratings

Core Competence



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5. Internal Analysis(3) Swot Analysis

ThreatMany CompetitorsNetwork with other CompetitorsIllegal DownloadsIncreasing Suppliers’ Power Other Substitutions from New TechnologyDVD Rental Market StagnationChanges in Traditional Time PeriodDemands on High Quality Format

StrengthHuge SelectionRecommendation and Rating(Customization)Numerous Subscriber(8.2 Million)Long-Tail “Sailing Less of More”(only 30%)High Brand SatisfactionActive Online Community(Interactive Comm.)Pricing Flexibility

WeaknessElimination some Core CompetenceSecond Mover to VOD MarketLow ConnectivityOnly USA MarketNO Device for Streaming on PortableHard to Generate New Customer(18.4%)Low Brand Identity in VOD MarketUncertain Process Technology in VOD

OpportunityGrowth of VOD MarketGrowth of Broadband PenetrationVariety oriented Customer Needs(Long-Tail)Decreasing Customer’s Switching CostPrefer and Share Private ExperienceDevice Convergence



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5. Internal Analysis(4) Swot Analysis

S W

O

T

기존의 핵심 역량(Huge Selection, CineMatch)을 이용한 차별화 된 VOD Service로 포지셔닝

가격정책 변화를 통한 신규고객 창출

기존의 RSS, FeedFlix등의 커뮤니케이션 창구를 통합하여 개인 추천, 경험의 공유, 상호 커뮤니케이션 강화

다양한 Device에 적합한 형태의 콘텐츠 제공

VOD 마켓을 통한 세계진출

VOD 시장에서의 확고한 Brand Identity 구축

제조회사와의 Partnership을 통한 기술적 보완

전략적 제휴를 통한 Device 확보

➠ Connectivity 향상

Long-Tail 강화하여 New Release에 대한 의존↓

전략적 제휴를 통한 Network 효과

다양한 고객 Needs에 적합한 콘텐츠 제공

높은 트래픽을 이용한 광고모델 제시

➠ 공급자와의 교섭력↑

관련 기업들과의 Network 형성으로 유통채널 다양화

Netflix Prize등 Open Source Application 개발 장려

Sony와의 Blue-Ray기술 제휴를 통해 HD Format 개발



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6. Environment Summary



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뚜렷한 선두 기업이 존재하지 않고 다양한 경쟁자들간의 경쟁

경쟁자들간의 뚜렷한 원가 우위 부재(Strong Contents Providers’ Power)소비자들의 Switching Cost가 낮으므로 확고한 Brand Identity 구축 필요Connectivity와 Contents에 대한 소비자의 니즈경쟁자들과 차별화된 핵심역량을 이용하여 신규 고객의 창출

Differentiation Strategy



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Situation Analysis

Issue Definition



Conclusion

34



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1. Strategic Goal

Short-Term Strategy

Long-Term Strategy

Generating New

Customer

Satisfying Customer Needs

Enhancing Customer Loyalty

어떻게 VOD Service를 통해 새로운 고객을 창출할 것인가?

어떻게 변화하는 고객의 Needs에 부합할 수 있을 것인가?

시장의 변화 속에서 어떻게 고객의 Loyalty를 강화하고 지속가능한 경영을 할 수 있을 것인가?



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2. Short-Term Strategy Generating New Customer Pricing Model



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2. Short-Term Strategy Generating New Customer Pricing Model

+

Pay-per-view ModelRent Movie : $2.99Older Movie : $1.99New Release : $3.99

Rent TV Episodes : $0.99New Release TV Episodes: $1.99

Subscription ModelUnlimited Subscription :$9.95/monthNew Release TV Episodes: $1.99



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2. Short-Term Strategy

Cooperation with Google.comGenerating New Customer



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Google을 통한 영화 검색 서비스

Movie



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Google을 통한 영화 검색 서비스

Movie

영화 정보 및 Netflix.com의 Review 및 Ratings 제공

영화 전문 검색 능력, 영화 검색 광고

Google 검색을 통한 Netflix 트래픽의 증가Netflix의 잠재적 신규 고객에게 노출(광고효과)



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AD on Netflix.comContents Availability3. Long-Term Strategy



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Netflix PreviewNetflix의 Browser Page에 Preview 메뉴추가개봉 예정작의 Preview 및 정보 수록

Preview



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Preview

Netflix BannerNetflix의 Browser Page 상단에 배너광고 삽입



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Preview

Netflix BannerNetflix의 Browser Page 상단에 배너광고 삽입

8.2 Million Subscribers who interested in Movies

Contentʼs Provider들의 광고매체로 활용공급자들과의 교섭력 확보경쟁사들과 공급자들의 독점적 거래에 대한 위협 감소=> Available Contents의 확보 용이



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Content Availability - High Quality Video Format

3. Long-Term Strategy Contents Availability



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3. Long-Term Strategy

Roku can make watching High Quality Movie on Streaming by TV

Netflix의 Browser Page에 Preview 메뉴추가개봉 예정작의 Preview 및 정보 수록

Contents Availability



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3. Long-Term Strategy

Customer NeedsConvenience > Presence(Quality) : Normal RentConvenience < Presence(Quality) : HD Rent

고객의 Needs에 따라 가격 차별화

Connectivity

Content Convenience

Cost

Presence

Roku can make watching High Quality Movie on Streaming by TV

Netflix의 Browser Page에 Preview 메뉴추가개봉 예정작의 Preview 및 정보 수록

Contents Availability



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Connectivity - Develop Plug-in ProgramConnectivity3. Long-Term Strategy

Plug-in Programs



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Cooperate with Sony Playstation

3. Long-Term Strategy Connectivity



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Cooperate with Sony Playstation

3. Long-Term Strategy Connectivity

Sony Playstation 3 & PSPConnectivity with Game Console & Portable Media PlayerEnhancing Connectivity other Devices



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3. Long-Term Strategy Enhancing Customer Loyalty 통합적 SNS 구축(1)



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Social Network in Feedflix and Netflix: FriendsShare the Queue, Find Friends who have similar tastebut Itʼs Just Community not SNS



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Situation Analysis

Issue Definition



Conclusion


Situation Analysis

Issue Definition



Conclusion Conclusion


Conclusion

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1. Executive Summary

What is the most reasonable strategy in long-term view?

How can Netflix resolve two large impediments, the connectivity between user’s PC and TV and the current

limitations in available content?

Issue Definition

Short-Term Strategy : Generating New Customer

- Pricing Model

- Cooperation with Google.com

Online VOD Market Environment

뚜렷한 선두 기업이 존재하지 않고 다양한 경쟁자들간의 경쟁

경쟁자들간의 뚜렷한 원가 우위 부재(Strong Contents Providers’ Power)소비자들의 Switching Cost가 낮으므로 확고한 Brand Identity 구축 필요Connectivity와 Contents에 대한 소비자의 니즈경쟁자들과 차별화된 핵심역량을 이용하여 신규 고객의 창출

Strategy

Long-Term Strategy :

Satisfying Customer Needs, Enhancing Customer Loyalty- Content Availability(adON, HD Video Format)

- Connectivity(Plug-in Program, Cooperation with Sony Playstation)

- 통합적 SNS 구축


Conclusion

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2. Reference

참고자료Netflix : Harvard Business School Case(9-607-138)Netflix 2007 Annual ReportNetflix 2007 Facts SheetNetflix : Transforming the DVD Rental Business : E-Business Strategies, Inc.미국 VOD 서비스의 전송 플랫폼별 현황Entertainment Industry Market Statistics 2007 : MPAATheatrical Market Statistics 2007 : MPAA

WebsiteNetflix Official Homepage : www.netflix.comNetflix Community : community.netflix.comHackingNetflix Blog : www.hakingnetwork.comWikipedia : wikipedia.orgGoogle : www.google.comeMarketer : www.emarketer.comCompete : www.compete.comVideobusiness : www.videobusiness.com

http://www.netflix.com

http://www.netflix.com

http://www.hakingnetwork.com

http://www.hakingnetwork.com

http://www.google.com

http://www.google.com

http://www.emarketer.com

http://www.emarketer.com

http://www.compete.com

http://www.compete.com




Thank You

Netflix 2.0

Business

Transcript of Netflix 2.0