netflix

Abhinav Ankit Chiren Sumeet

Agenda

• Origins• Disrupting the Business Model• Backward Integration – Reinventing the Business• Saturating Markets• Challenges• Recommendations

Netflix

“Netflix in the beginning was a new technology company, but based on the oldest technology possible: the US post office”

- Robert Thompson

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Origin • Founded by Reed Hastings and Mitch

Lowe

• Launched as a DVD-by-mail service in 1999

• Subscription model - No Shipping Fees & No Late Charges


ENTERTAINMENT, CONVENIENCE, SELECTION, AND VALUE

• Value Proposition : Customers order from the comfort of home and the DVD comes in the mailbox. Single subscription fees covers all costs.

• Profit Proposition: No Retail store or overhead costs due to staff.

• Technology: Internet and Transition from VHS to DVD

• Competition: Blockbuster


Extending The Competitive Advantage

• Online Recommendation Engine – Improved Customer Experience

• Customer Wish list – Accurate forecast of Demand & Customer Preferences

• Partnership with USPS


Disrupting the Industry

2002 2003 2004 2005 2006

150.8

270.4

500.6

682.2

996.7

Reve

nue

in m

illio

n U.

S. d

olla

rs

6.3 Million

1.5 Million


DestroyYourBusiness.com(streaming)

“Kill your business model before it kills you”

• Evolution of Business Model:• From mailing DVDs to online

streaming• Free for DVD service

subscribers

• Evolving role of technology:• From Customer Service to

Product Distribution

• 24/7 Customer support


Changing Industry Definition

• Industry in transition• From DVD rental to content

distributer

• Competition:• Blockbuster – Still focused on DVD

rentals• New competitors in online-only

space• Hulu• Amazon Instant Video

Blockbuster

Netflix


Source: Neilsen Online

Netflix: Coasting Along

#1E-Commerce

Customer SatisfactionAnnual Revenue : US$3.2 billion33% Annual Growth

2007 2008 2009 2010 20110

500

1000

1500

2000

2500

3000

3500

1,205.31,364.7

1,670.3

2,162.6

3,204.6

Rev

enue

in m

illion

U.S

. dol

lars

No. of Subscribers : 20 Million 62% Annual Growth

Source: Netflix; ID 272545


http://www.statista.com/statistics/272545/annual-revenue-of-netflix/

Backward Integration(Content creation)

Netflix comes up with a new BHAG

“Our goal is to become HBO faster than HBO can become us”

- Ted Sarandos

Chief Content Officer Netflix


Content is King


Impact of Original content strategy


Dealing with failure

September 18, 2011 Separate spinout for DVD-by-mail service

October 10, 2011Netflix rolled back Qwikster to restore same subscription plans


Impact on the industry

Partners Competitors?


Impact on the industry(contd.)

• Industry attractiveness increased• Rise of niche market players• Decreasing margin due to industry fragmentation


Seeking New Markets(Internationalization)

Live in 190+ countries

Current scenario


Reasons for going forgoingabroad

• Slowing growth in USA• Better than expected growth

outside USA• New customer acquisition

880,0001,150,000

2,740,0002,400,000


Challenges ahead• Content

• Need locally relevant content• High licensing costs

• Technology• Piracy• Less favorable foreign IP laws

• Pricing Issues


Recommendation: Invest and develop local content

Strategic Significance

Need for Adaptation

Low High

High

Low


• Government Collaboration“Believe it or not, the government really wants to help you succeed” – Michael Etinson• Work with governments to ensure IP

law implementation

• Purchasing Power Parity(PPP) Based Pricing

• A dollar is not worth a dollar in every country

Recommendations (contd.)


“Your success in life isn’t based on your ability to simply change. It is based on your ability to change

faster than your competition, customers and business” – Mark Sanborn