Netflix Case Study
John Reynolds, The Guardian British Journalist says: “Growing demand for streaming services such as Nettling helped the UK home entertainment sector Increase Its revenues in 2013 for the flirt time in five years to E. Bin. ” While home entertainment retailers struggle due to the strong online competition and some of them are obligated to reduce their number of stores, the TV and film streaming service Nettling grew its subscriber base in the UK and other international markets by 1.
6 million In the last quarter of 2013. A summary of the market growth can be seen In the following chart. ICC includes home delivery, digital download and streaming; represent the 60% of I-J home entertainment market. In which the fastest-growing sector was video-on- demand subscription including Nettling and Amazon-owned Lovelier / Amazon Instant Video. Kim Bayle, general director of ERA said, “The entertainment revolution has been driven by new and existing retailers taking huge gambles and investing in technology and new delivery mechanism.
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” I-J market has shaped itself on a way that consumers are privileged by choice; this is precisely what triggers all of the VOODOO players in the market to offer their most special deals.
VOODOO players now try to innovate in order to have advantages over the others. One strategy used by them is to offer consumers extra material which is only available online. This guarantees attention and add value. Another strategy is to provide exclusive releases even sooner than DVD formats, in order to surpass the competition and transform the consumer into a user. Customized and better service to the user online is the new trend that has evolved and become essential in the consumer’s purchasing choice.
Technology has a great impact on the worldwide market, but in the I-J, consumers re genuinely taking it to another level.
This market is evolving into a new revolution of G wireless high speed network across the country, which not only will have an impact on the simplicity of watching on-demand content but also on the Pod’s earnings and scope. Reed Hastings, CEO of Nettling explains how the company will expand its coverage with the new technologies and having different distribution channels in a faster and more efficient way. Since 2012, Nettling it’s been leading the UK market and currently brainstorming ideas for improving its service and customer coverage even more.
The network giant is planning to invest $3 billion on TV and film content in the middle phase of 2014 and more than $6 billion over the next three years. This quantity is Just applicable to UK market which is highly competitive.
1. 2 Competitors In the I-J market as mentioned there are many options for video-on-demand. From big players like Sky, over the player from BBC to smaller ones like Talkback TV. The 3 main competitors for Nettling in the I-J market are Bobolink, Lovelier rest. Amazon Instant Video and Sky Now TV.
Bobolink is a UK-based VOODOO service owned by Tests.
There is no monthly obstruction, you only pay for “what you want to watch, when you want to watch. ” 1 This offers also the advantage that the newest movies are sooner available as they are for subscription services (except Sky; see below). Furthermore Bobolink is the only service that offers a combination of paid-for titles and also a number of titles free to watch. Furthermore Bobolink was the first in the UK that offered the possibility to stream content through game consoles like the Sony Plantation 3 or the Oxbow 360.
The huge advantage they offer is their flexibility and freedom of choice.
As they said: Contracts are out – freedom of choice is in. ” Because there is no subscription there is no commitment. You pay only for the movies you watch. With this strategy they are really matching their customer’s needs and they are right to use this as promotion: “Let’s face it – how many of us forget to cancel our direct debit and end up paying for something we’re not even using? “2 In June 2012 Wee, a music streaming service, was acquired by Tests and in May 2013 they revealed that they will rebind it into Bobolink Music.
It’s free, but advertising supported and you can listen to over 6. Lion tracks. Bobolink is at the moment the only one with the possibility to stream music. Which is again a competitive advantage for Bobolink. But it seems that this won’t last very long. Amazon will catch up – they want to broaden their Prime service with a music streaming service too.
They are currently in negotiation with a number of music labels. But to offer a complete digital content platform, Bobolink is working on an e-book platform – Bobolink Books. On their website they say that “Bobolink books is coming soon”. The online platform is currently being tested in beta form by
Tests and it will not get its public launch until March 2014 at the earliest (as of 03/16/14). And they kept their time schedule and launched it on the 25th March 2014.
Interesting is the opportunity to read part of a book for free before you purchase it, which is kind of a copy from Amazon’s “look inside”. Consequently it is obvious that Bobolink books are the competitive answer to Amazon’s kindle eBooks. 1. 2. 2 Lovelier rest. Amazon Instant Video Lovelier, which is now called Amazon Instant Video, is also a subscription based VOODOO service.
On 26 February 2014 it merged with the Amazon Prime subscription service, which gives members the advantage of unlimited free delivery and borrowing up to 500 000 Kindle eBooks. Though the Lovelier name will be maintained for the DVD rental business. Now Amazon is “a one-stop service for digital streaming, DVD rental and books. “Consumers will be able to shop for what they want, read what they want and watch they want anywhere at any time,” said Tim Leslie, vice-president of Amazon Instant Video. “3 Amazon is getting after Nettling, who is right now Auk’s biggest movie streaming provider.
Amazon wants to offer a broader service than Nettling and s hoping to challenge them with their knockdown price. Nettling charges E. 99 a month, that’s about EYE a year. The new combined package of Amazon, which includes the video streaming service, the free next-day delivery service and the free Kindle lending library service, is charged EYE a year, which is about E. 58 a best value out there,” said the vice-president of Amazon Instant Video. “and existing Lovelier subscribers, who don’t want the whole Prime Instant service can continue to pay E.
99 per month.
Amazon changed their offer but the content is the same as available under the Lovely brand. To add additional benefits, Amazon is now working on a music streaming service as already mentioned above. 1. 2.
3 Sky NOW TV For those who are willing to pay more in return for a more up-to-date service, Now TV is the best choice. For EYE a month (E. 99 for the first three months), you get a library with far more recent releases. Now TV has deals with big Hollywood studios, so that Blockbusters are available months before they arrive on Nettling or Amazon Instant Video. But Sky offers not only the Movies month pass.
Since July 2013 you can buy the Now TV Box for E 9.
99, which turns your TV into a smart TV. Furthermore you can view content from BBC player, Demand 5 and Spottily. In addition Sky provides you with an Entertainment month pass for an introductory price of E. 99 a month. This means you also have access to the best pay TV entertainment channels like Sky Atlantic, Comedy Central or the Discovery Channel.
Beyond that Sky offers a Sports day pass. You pay E. 99 and have 24 hour access to every Sky Sports channel. Sky Now TV Sky Now TV covers the interests of everybody – Sports, Movies and Entertainment. .
Part one (B) But why is the VOODOO market booming and the competition increasing? Is the environment and the industry really that attractive? To analyze this we will first focus on the micromanagement using the SLEPT model in order to gain insights about all the factors that should be taken into consideration. Second, we will take a look at the misgovernment to find out more about the industry attractiveness and the competitive intensity using Porter’s five forces. Finally, we want to understand why it is so important for Nettling to get market coverage. 2. 1 Micromanagement: SLEPT 2.
. 1 social Tradition and values: Each country has their own culture which will affect the type of content they watch. But it could be complicated for Nettling to launch in France with only American content, because French people care about their French heritage. If French. “5 said Mathieu Souls, a strategic analyst at Atelier BIN Paris.
Is not only about offering the content they already have, which most of it it’s American, but making available productions originally from each country, so that they can have part of their heritage and motivate people to subscribe to Nettling.
Language: The language barrier is present every time that a company wants to expand into new markets, most of Nineteen’s products are in English and offer English beetles. It’s important to take into account the huge variety of languages spoken in Europe. In order to penetrate the market completely a huge investment of money and time is required. E.
G. Translating movies or making subtitles available in more languages. It will be also necessary to hire people for customer support that will be able to answer customer requests in their mother tongue.
On the other hand, taking the case of penetrating the French market, which is one of the world’s biggest broadband markets, Nettling has an advantage due to its presence in Canada where they already have their offering localized in French. .
1. 2 Legal France has a very strict way of receiving foreign companies into their markets and Nettling won’t be the exception. The American company is targeting the VOODOO industry, which is currently related to cinema, area beloved by the French.
Nettling will most probably have to wait three years before being able to stream films released in France on its platform, since some protectionist rules and barriers are being put on the copyright and cinema industry. Another legal problem is the non-regulated content of Nettling regarding the ages of its customers under 16 years old and adult intent. Plus, piracy sums up as another obstacle dealing with free content difficult to crack even with the best SHOVED service.
Nettling has opted to supply the French market from headquarters in Luxembourg to avoid French regulations 2. . 3 Economical Nettling will be depending on the customer’s willingness to spend money on movie streaming and the European recession may have affected their expansion. Nettling will have to invest 25% of revenue into Euro/French film productions, and pay almost 20% taxes. E.
G. SHOVED services that are headquartered in France and have annual revenues exceeding 10 million Euros must inject 15% of their revenues in European films and 12% in French movies; in addition they have to pay a value-added tax of 19. 6% on VOODOO sales. 2. 1. 4 political decision to enter France.
Several meetings with the government showed that France won’t welcome Nettling with open arms. French Cultural Minister Flippest said: “If they want to launch in France, they are going to have to bend to our rules… Nettling will not be a [PASSENGER]”6. Furthermore, entering the French market is a major obstacle as the economy is a government-managed oligopoly.
Additionally, regarding the serious sue arising in East Europe, government stability is also an important factor. 2. 1. 5 Technological Broadband infrastructure poses a threat to Nineteen’s ability to dominate European markets.
Nettling must enter markets in Europe with broadband penetration and speeds that will allow for high quality streaming. Southern and Eastern Europe are low priority for entry because of their lack of technological requirements for streaming.
As one Italy insider put it, “If 10 million Italians were to tune in to ‘House of Cards’ on Nettling, they would suck up too much bandwidth for the show to be able o come through on their screens. “7 Italy only has 55% broadband penetration compared to 72% across the ELI. 2. 2 Micromanagement: Porter’s 5 forces 2. 2.
Bargaining power of buyers The power of the buyers depends on different information that is giving to them. In fact, their volume, their concentration and also their price sensitivity modify their bargaining power. Nowadays, the market transparency is very high due to internet. Consumers can have an access to a lot of information which gives them even more power, there are now able to look by themselves at the different offers between interiors. Consequently, the buyers are becoming more and more price sensitive, as there are many competitors which offer roughly the same content.
Therefore, the buyers have power and this intensifies the competition of VOODOO services additionally.
2. 2. 2 Bargaining power of suppliers Factors that influence the power of suppliers are e. G. Specialized [differentiated inputs, the threat of forward integration, the strength of the distribution channel and also the supplier concentration.
The power of supplier is about the capacity of the suppliers to impose their conditions. In this case, movies studios have the capacity to control this specific market by having highly differentiated products that they are the only ones to produce.
The movie studios obviously have a lot of power. They control the rights to the movies. To get a certain movie since there is only one supplier. Therefore, the 2.
2. 3 Threat of new entrants This depends mainly on the market entry barriers and the attractiveness of the sector. The barriers of entry include patents, capital requirements, economies of scale etc. For the on-demand Internet streaming industry the high capital acquirement to enter a new market are a huge barrier. In fact, new entrants have to buy the rights to the content and there are a lot of taxes as already mentioned before.
Moreover, brand loyalty plays a major role.
If consumers are satisfied with their provider they won’t switch. Hence, switching costs also have an influence. If you have a subscription based service it’s more difficult to switch. As a conclusion the threat of new entrants is very high. This is good for Nettling when they are already in the market, but bad for their major goal to gain market coverage in Europe.
2. 2. Threat of substitutes These products represent an alternative solution to the offer. Customers could also switch to substitutes.
This is mainly influenced by the relative price performance of the substitute and the ease of substitution. Furthermore, the switching costs are also driving criteria.
In the VOODOO industry there are some substitutes: Cable / satellite, cinema, film rentals or simply every store where you can buy a film. But all of them are not as convenient as VOODOO. Moreover, the relative price performance of them is not really good. If you buy a film in a store you often pay a higher price. Cable / satellite can’t offer the latest films and in contrast in the cinema you can only watch the latest movies.
Thus there is no really substitute that is as good as VOODOO. 2. 2. 5 Competitive rivalry The competitive rivalry represents the competition within the same sector. It is defined by factors like number of competitors, industry growth and product differences. The number of competitors is increasing heavily, which is influenced by the high industry growth.
It is favorable for new competitors to enter this market. In addition, there are only slight product differences. The VOODOO services try to offer the latest and most popular movies, so they all bid huge amounts of money to get the movies first.
For all these reasons the competition is very tough. 2.
3 But why is it so important for Nettling to get market coverage? As the internet is all over the world they provide a service which can be used nearly everywhere. Why should they stop expanding when they can increase their profits with all the countries they’re not reaching yet? Furthermore it is important to act fast. If Nettling is not providing the service, someone else will do and take away the market costs. Once they find an operator which is also present in other countries they can access them more easily.
An example for this is Orange.
Nettling is currently negotiating with Orange in France for a distribution deal. When they are successful, they could easily negotiate with Orange in Poland, Austria and many more. Besides, if they get coverage, they will have access to movies from different countries, which they could also supply in other countries. E. G. When they are entering the French market, they can add French movies to the content of the US.
As everything becomes more international, people are interested in different cultures.
They want to watch movies from other countries or people who are living abroad want to watch movies from their home country. Nettling could broaden their product portfolio and thus win new customers as this is an opportunity to differentiate from other providers. 3. Part two (I) 3. 1 The concept of “born global” First of all, we need to understand what is born global: The concept “Born Global” is used to define a company which has or had a strong and quick internationalization as the firm was created that generate them a high percentage of international revenue.
A “born-global” firm is “a new venture that acts o satisfy a global niche from day one”. 8 Being a born global includes lots of benefits such as a quicker and more consequent development for the company. These companies also have the benefits to acquire a global point of view at the beginning, which offers them more opportunities and competitive advantages. In fact, they are able to deal with more business opportunities since they deal with the entire world and not only one single region.
The В« born global В» companies invest a lot and efficiently in new technologies and R&D in order to understand better consumer’s needs. To enter in a new market, “born global” companies generally use mode of entry with that requires little control.
According to Obviate and McDougall (1994), here are different types of internationalization: export/import start-up : Export is when companies sell directly to an importer or buyer located in a foreign in the foreign country. Import is the reverse. Geographically-focused startups: when the growth of a company depends on the number of areas targeted.
It is firms that “tend to pursue a growth strategy by developing their geographic presence at a global level rather than focusing on more coal geographical areas. “9 These firms tend to see the world as one entire and potential market.
Multinational trader: are companies that are operating with other countries from one country which is the home country. Most of the time, the international operations represent at list one quarter of its revenue. There are again different types of multinational corporations. First, there are multinationals with strong home country presence.
Then, we find multinationals with centralized productions that gives cost advantage, some that focus more and R and finally, the ones that choose to mix the three approaches. Lobar start-ups: “Since the late sass’s, an increasing number of new ventures, global from inception, have emerged in countries all around the world”10.
This is due to technological changes which have changed the international trade conditions. Nowadays, thanks to the new technologies, the start-ups can have a better and wilder communication.
Moreover new technologies are a way to reduce the costs and so to make economy of scales for international business so it allows small companies to become international more efficiently. 3. 2 Does the strategy of Nettling apply to the “born global” concept? Born global companies have a number of characteristics. First, they are very active in international markets from the beginning.
According to the Business Strategy Review, “a true born-global firm is a new venture that acts to satisfy a global niche from day one”al.
When examining Nineteen’s expansion over the past 17 years, it is difficult to say that Nettling began as a global aiming firm from day one. Because Nettling focused on building their online DVD subscription service in the United States for the first 10 years, the company can only be recognized as a born global starting with their rapid expansion of their streaming online video service that began in 2007. Social, political, economic, legal, and technological barriers to the streaming on demand video market have impeded Nineteen’s expansion internationally, and have both qualified and disqualified Nettling as a truly born global firm.
Nettling has definitely followed the born global strategy of exporting their product. MAD law group argues that a born global firm “begins exporting their goods within a couple of years after their founding”12.
Nettling began exporting their SHOVED product internationally 3 years after they founded heir SHOVED product in 2010, validating their born global approach. Further Nettling continued its multinational exportation of SHOVED to 41 countries and 44 million subscribers within 7 years of launching Shoved.
Moreover Erik Rumanians of Dense University suggests that born global firms “advance through subsequent stages of foreign investment”14. Nettling upholds this characteristic of born global as it expanded through international stages like Canada in 2010, Latin America and the Caribbean in 2011, the I-J and Ireland in 2012, and Scandinavia/Netherlands in 2013. The pattern of subsequent stages certainly represents a born global strategy but its relatively slow expansion into Europe suggest a possible “late global” strategy 15.
Second, limited financial resources are another characteristic.
This is neither a problem today nor was it a challenge for Nettling from the beginning. Reed Hastings, one of the founders, invested $ 2. 5 million in start up cash for Nettling. In 2002 then the PIP: In May they were selling 5.
5 million shares at a price of $15. 00 per share and in June Nettling sold an additional 825,000 shares at the same price. Therefore Nettling has a lot of capital and they also have high revenues. In the graph you can see the revenues of Nettling starting from the 2nd quarter of 2012 until the 3rd quarter of 2013.