Saving Netflix: Planning to Turn

Around a Steep Decline

Joel Samen – IS 714: Mastering IT Strategies – Fall, 2011

Netflix Took a Hit…

On July 12, 2011, Netflix announced a price increase for its users. Not only wereprices jumping 60% for all services, but streaming and DVD-by-mail were separated.

Stock prices dropped 35% over the next 42 days.

…And Then it Fell Over a Cliff

On September 18, 2011, Netflix announced that it would be spinning off its streaming video service into another company: Qwikster

Even after a retraction, Netflix’s stock has dropped more than 60% since

Failures Adding Up

With other strong, diversified competition in the streaming video market, like Amazon and Apple, Netflix can’t afford missteps. Otherwise, five years from now it might not be around…

How Netflix Can Save Itself

Subscription or À La Carte?

Subscription Subscription À La CarteSubscription and À La Carte

New Releases Streaming?

No Only TV Yes Yes

Right now, Netflix’s streaming services only cover non-recent releases under a subscription service.

By expanding into recent releases and À la carte streaming, it can access new markets.

The Five Year Plan

Sign exclusive contracts with contentproviders, including access to streaming new releases.

Create À la carte streaming options with different prices for new releases and older options.

Continue to allow access to Netflix streaming on a variety of platforms, also expanding into new areas to reach the consumer on all screens.

The End Result

Exclusive content for subscribers that Apple, Amazon, and Hulu won’t have.

Access to new releases via Netflix pay-per-view for an additional charge over monthly subscription fees and capture of non-subscribers as À la carte customersUbiquity of Netflix streaming acrossall entertainment platforms, givingusers access to their content anywhere, anytime they have internet connectivity.

What it Will Take to Get There

People: Netflix will need technology visionaries with foresight to see trendsand get Netflix in on the ground floor with emerging hardware.

In order to be successful moving forward, Netflix streaming must be easilyaccessible on smartphones, tablets, web enabled televisions, video gameconsoles, web-connected television hardware (ex. Boxee) and whatever else comes next.

What it Will Take to Get There

Technology: In order to capture this new market of people who want to eitherpurchase video rentals individually (rather than via subscription) or spend on top of their monthly subscriptions to view new releases, different payment andcharging options need to be implemented.

Subscription

Members

Subscription

Content

Extra Pay Content

À La Carte

Customers

Pay Per View

$$ $

What it Will Take to Get There

Governance: Developing exclusive contracts with content providers will be tough.

Why would content providers want to sell exclusive rights to content rather than selling content to everyone?

Because Netflix is willing to pay a premium to have exclusive access to content.

Why will Netflix pay more than market value in order to get exclusive rights to content?

Because then customers who want to view that content will need to come to Netflix.

What will stop Amazon and Apple from also arranging exclusive contracts for content, outbidding Netflix with their resources?

Nothing, which is why Netflix needs to get there first. Once content licensing contracts are up, Netflix needs to initiate its strategy.

Content is King“Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting.”

- Bill Gates, “Content is King”

Each of the content streaming sites has the processes in place and abilityto get content to its consumer. The real questions are where will that content come from and how will it be delivered.

By signing exclusive contracts for valuable content—as it already has done for the eagerly anticipated new season of Arrested Development in 2013—Netflix has necessitated that people use their site to watch the content they want to see. Continuing to build these relationships and cutting the competition’s access to content will strengthen Netflix’s position.

Additionally, by assuring that any member with internet connectivity canaccess Netflix on any device, the company will remain dominant.