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Netflix, Inc.:

Market Entry Plan - Taiwan

Student Name Course Details: Name, Number, and Section

Dr. Ziad Swaidan

Date of the assignment

Market Entry Plan Netflix, Inc. 1

Table of Contents 1.2 Executive Summary ........................................................................................................ 2

1.3 Taiwan: An Introduction ................................................................................................ 3

1.4 Netflix, Inc.: Company Background ............................................................................... 3

2.0 Global Macro Environmental Analysis: Online Video Streaming..................................... 4

2.1 PEST Analysis: Taiwan .................................................................................................. 4

2.2 Political Environment, Rules & Regulations .................................................................. 4

2.3 Economic Environment .................................................................................................. 5

2.4 Society and Culture ........................................................................................................ 6

2.5 Technological Environment ........................................................................................... 7

2.6 Opportunities and Threats .............................................................................................. 7

3.0 Global Competitive Analysis: Online Video Streaming .................................................... 9

3.1 Competitive Analysis: Taiwan ....................................................................................... 9

3.2 Identification of Primary Competitive Threat .............................................................. 10

3.3 Identification of Additional Competitive Threats ........................................................ 11

4.0 Entry Strategies: Options for Taiwanese Market ............................................................. 12

4.1 Identification of Market Entry Options ........................................................................ 12

4.2 Recommendation of Market Entry Strategy ................................................................. 13

5.0 Market Analysis and Segmentation: Netflix, Inc. in Taiwan ........................................... 13

6.0 Marketing Mix Strategies: Taiwanese Market ................................................................. 13

6.1 Product Strategy ........................................................................................................... 13

6.2 Price Strategy ................................................................................................................ 13

6.3 Promotion Strategy ....................................................................................................... 14

6.4 Place Strategy ............................................................................................................... 14

7.0 References ........................................................................................................................ 15


1.2 Executive Summary Taiwan is an island nation in Southeast Asia located off the coast of China, which also

goes by the name Republic of China (ROC). The territory itself has a rich history dating back to inhabitation by Taiwanese aborigines, but the most recent century has found the country

caught up in numerous bouts of wartime drama and challenges to sovereignty that have

ultimately led to differentiated answers when asking, who exactly governs Taiwan?. A great deal of campaigning has been done during the past decade to bring new MNC

activity to the multiple technology parks that Taiwan has erected across the country. Taiwans government is supportive of private industry, and many government-owned entities have recently

undergone privatization. The numerous typhoons and seismic events that take place here could

potentially pose threat to companies with a great deal of physical assets, or those that depend on

an extensive supply chain network. Despite this fact, many US-based companies have turned to

Taiwan for expansion; among them being such recognizable global names as Corning, Microsoft,

IBM, DuPont, 3M, Intel, and Hewlett-Packard.

Netflix, Inc. was founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph as

a digital video disk rent-by-mail subscription service for movies (FundingUniverse). In the years

since, the company has fundamentally transitioned its core business model to focus on digitally

streaming content such as movies and television shows to its over 38 million subscribers

spanning over 40 international markets. This service permits subscribers to view its over one

billion hours of movies and television shows on-demand, streamed over the internet to devices

such as PCs, Macs, and other electronics such as televisions and Blu-ray players, mobile devices,

game consoles, and digital video players.

The country of Taiwan is an entirely greenfield market, as no firm has introduced a viable

product to Taiwanese consumers. As such, market entry for a firm such as Netflix will be

relatively unencumbered by competitive threats.

Netflix, Inc. should adopt an outright investment strategy in Taiwan by acquiring the

content rights and equipment necessary to duplicate their US operations in the market. The

firms liquidity situation affords them the ability the flexibility of capital expense necessary to undertake the investment, and doing so will ensure that the firm reaps the maximum benefits of

profitable success in the new venture.


1.3 Taiwan: An Introduction Taiwan is an island nation in Southeast Asia located off the coast of China, which also

goes by the name Republic of China (ROC). The territory itself has a rich history dating back to inhabitation by Taiwanese aborigines, but the most recent century has found the country

caught up in numerous bouts of wartime drama and challenges to sovereignty that have

ultimately led to differentiated answers when asking, who exactly governs Taiwan?. From a geographic perspective, the population is concentrated on the northern and

western portions of the island, as the eastern half of the island is composed of rough,

mountainous terrain. Taiwan and the small number of surrounding islands in its territory have a

combined total of 35,980 sq. km., which is slightly smaller than the states of New Jersey and

Connecticut combined. It is surrounded by 4 major bodies of water; the East China Sea to the

north, the Luzon Straight to the south, the Philippine Sea to the east, and the South China Sea to

the west-southwest. Taiwans climate is mostly tropical and somewhat similar to the Gulf Coast of Texas, with much if the island experiencing frequent rain and hot, humid weather during the

summer months.

A great deal of campaigning has been done during the past decade to bring new MNC

activity to the multiple technology parks that Taiwan has erected across the country. Taiwans government is supportive of private industry, and many government-owned entities have recently

undergone privatization. The numerous typhoons and seismic events that take place here could

potentially pose threat to companies with a great deal of physical assets, or those that depend on

an extensive supply chain network. Despite this fact, many US-based companies have turned to

Taiwan for expansion; among them being such recognizable global names as Corning, Microsoft,

IBM, DuPont, 3M, Intel, and Hewlett-Packard.

With a prime location among the outer rim of Asia Pacific region, liberal views towards

multinational investment, and a well-educated workforce, Taiwan is an exceptional host country

for companies looking to internationalize.

1.4 Netflix, Inc.: Company Background Netflix, Inc. was founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph as

a digital video disk rent-by-mail subscription service for movies (FundingUniverse). In the years

since, the company has fundamentally transitioned its core business model to focus on digitally

streaming content such as movies and television shows to its over 38 million subscribers

spanning over 40 international markets. This service permits subscribers to view its over one

billion hours of movies and television shows on-demand, streamed over the internet to devices

such as PCs, Macs, and other electronics such as televisions and Blu-ray players, mobile devices,

game consoles, and digital video players (GlobalData, 2013).

Netflix operates under three unique business segments: domestic streaming, international

streaming, and domestic DVD. Content is obtained through licensing agreements, revenue

sharing agreements, and direct purchases with and from studios and other production companies.

The company markets its services through a number of channels such as broad-based media

(radio and television), online advertising, and strategic partnerships (GlobalData, 2013).

Strategically, Netflix has identified exclusive original shows as the means of acquiring new

customers, and it intends to begin distributing episodes of these popular offerings in the near

future (BusinessWeek, 2013).

The company reported $3.61billion of revenue at the close of FY2012, but while earnings

increased 12% over 2011 its profits sank dramatically (SEC, 2013). The company is publicly

traded on the NASDAQ exchange under the symbol NFLX, and as of October 2013 reports a


market cap of $17.9billion. It employs over 2,000 full-time workers and is headquartered in Los

Gatos, CA.

2.0 Global Macro Environmental Analysis: Online Video Streaming After domestic sales began to flatten in 2010, Netflix began setting its sights on

international expansion and has since rolled out operations in Canada, Latin America, the United

Kingdom, Ireland, and the Nordic countries of Finland, Denmark, Sweden, and Norway (SEC,

2013). An area of particularly attractive growth potential is the Asia Pacific region, as its

economic expansion, favorable demographics, and proliferation of internet service offerings

make it an ideal candidate for Netflix' offering should they be capable of proper market

segmentation (Seeking Alpha, 2013). With over 23 major countries of divergent tastes, however,

the company should choose to enter the region with a "land and expand" strategy by first

familiarizing themselves with customer needs and expectations in a nation of specific targeted

culture, and growing their business outward as opportunity presents itself.

2.1 PEST Analysis: Taiwan A PEST analysis will be used to observe the Taiwanese macro-environment in an effort

to properly identify and account for factors which the MNC must consider prior to committing to

market entry. Through this process of due diligence, the firm may reduce their exposure to

components of risk as related to governance, economics, culture, and technology. Such research

allows the strategic manager to more accurately form their marketing mix for the country of

interest.

2.2 Political Environment, Rules & Regulations Whereas a PEST analysis does not typically cover a particular countrys political history

in great depth, the situation in Taiwan warrants addressing these factors due to the ongoing

nature of their influence. The course of the past century has witnessed Taiwan come under the

control of both Japan and China (PRC). When the communist party led by Chairman Mao took

control of China during the 1949 Chinese Revolution, Nationalist party leader Chiang Kai-shek

withdrew to Taiwan with several million refugees (CIA, 2013). Since that time, the island has

recognized itself independently as the Republic of China; a fact that is disputed by mainland

China and its allies (including the United States). Taiwan claims to have full sovereignty over

PRC in addition to Taiwan, whereas PRC denies the independence of Taiwan and instead claims

it as its 23rd province. Although tensions remain high in the region, neither PRC nor ROC has

made significant militaristic threat against the other in recent years. The active government of

Taiwan is a democratic republic, whose current president Ma Ying-jeou was elected by popular

vote in May of 2008 (CIA, 2013).

The Taiwanese government has undertaken several initiatives to spur investment activity

in the nation, including the alignment of foreign investor rights and privileges with those of

domestic investors, as well as tax breaks intended to encourage investors to contribute funds to

R&D and human resource cultivation (HSBC & PWC, 2010). The country has been a member

of the World Trade Organization since 2002, and as of 2009 the WTO ranked The Separate Customs Territory of Taiwan as the worlds 18th largest trading entity (HSBC & PWC, 2010). The World Banks Ease of Doing Business 2014 report ranks Taiwan 16th overall out of 189 world economies observed. This relatively high ranking puts Taiwan in a strategically

sound position relative to their East Asia & Pacific peers, as only Singapore (1st), Hong Kong


(2nd

), Malaysia (6th

), and South Korea (7th

) achieved higher results on the scale. The 10

dimensions of the World Banks DB analysis as measured against conditions in Taiwan are reflected in Table 1 below. As shown, Taiwan has made improvements in all but 3 categories

versus 2013 rankings.

Table1: Ease of Doing Business 2014: Topical Ranking Data for Taiwan

Topic DB 2014 Rank DB 2013 Rank Change in Rank

Starting a Business 17 15 -2

Dealing with Construction Permits 7 6 -1

Getting Electricity 7 6 -1

Registering Property 31 31 No change

Getting Credit 73 71 -2

Protecting Investors 34 32 -2

Paying Taxes 58 56 -2

Trading Across Borders 18 18 No change

Enforcing Contracts 84 85 +1

Resolving Insolvency 16 15 -1

(Source: World Bank, 2013)

Opportunity: Strong trade relationship with the United States. The United States is Taiwans third largest trading partner. As of 2011, the country exported 10.8% of its net outgoing goods and services to the United States and accepted

10.1% of their total imports from same (U.S. Commercial Service, 2011).

Threat: Delicate political relationship with China. The fact that China lays claim to Taiwanese territory, coupled with the knowledge that not all nations

recognize Taiwans sovereignty is possible cause for concern. Should a firm invest in ROC operations, the arrangements made with the government of Taiwan

could feasibly be nullified following a concerted effort made by PRC to reclaim

direct control over the territory. The possibility of PRC expropriation of

organizations erected without their influence and oversight should remain top of

mind for those wishing to conduct FDI in Taiwan.

2.3 Economic Environment Taiwan has a dynamic capitalist economy primarily steered by robust capabilities around

machinery and technology manufacturing and export. The enormous growth undertaken in the

country during the latter half of the 20th century has been referred to as the Taiwan Miracle, as it has catapulted its GDP to USD901.9 billion (2012; USD38,500 per-capita) making it ranked

20th

among all world economies (CIA, 2013). Although it has demonstrated its ability to create

and maintain industries capable of growing its economy, the fact that such a large portion of its

GDP depends on exports leaves Taiwan vulnerable to soft markets in international demand.

While the country has averaged 8% real GDP growth over the past 30 years, expansion slowed to

a mere 1.8% in 2012 due to lagging exports (CIA, 2013). Worth noting is the fact that Taiwans trade surplus is enormous, and the country suffers from a low unemployment rate of 4.3% as of

2012.

As depicted in Figure 1 below, Taiwans percent change in annual GDP growth over the past 3 years has remained for the most part positive. The countrys strong performance in GDP


growth puts the nation in a competitive position as an outlet for foreign direct investment, as

their ability to demonstrate consistency in economic expansion is reflective of the fortitude of

Taiwans economy.

Figure 1: Percent Change, Taiwan Annual GDP Growth Rate

(Source: tradingeconomics.com, 2013)

The country has long been a destination for contract and component manufacturing

processes, but some time ago global organizations began shifting many such activities to

mainland China to take advantage of comparatively lower labor costs. Fortunately for Taiwan,

however, rising costs in China in tandem with a recognizable supply of skilled workers has found

many operations moving back to the island. This year alone, the country planned to garner

USD5 billion of additional investment capital from organizations moving back to Taiwan

(BusinessWeek, 2013).

Opportunity: Admirable GDP per capita. Although Taiwan globally ranks 30th in the GDP per capita comparison, the only three Asia-Pacific nations outranking

the country are Hong Kong, Brunei and Singapore (CIA, 2013). This puts Taiwan

in a strategically sound position for the introduction of consumer goods to the

Asian market(s), as the disposable income enjoyed by its inhabitants likens the

degree of product sampling.

Threat: Dependence upon PRC for economic solvency. The Peoples Republic of China represents Taiwans top ranked target for FDI activities. This fact, coupled with the idea that China is ROCs number one trading partner (29% of total trade as of 2010) makes the country susceptible to severe economic

disruption should political relations with mainland China dissolve.

2.4 Society and Culture The majority of Taiwanese citizens are of Han (Chinese) descent, andalthough several

regional variations existStandard (or Traditional Mandarin) Chinese is the nationally recognized language. Most practitioners of religion in the country follow Buddhism or Taoism

(68.1%), with the remainder of the country made up of I-Kuan Tao, Protestantism, and/or

Catholicism. The Taiwanese people are almost completely opposite from United States citizens

when analyzed using Hofstedes Five Dimensions of Culture. They score high on the scale of power distance, uncertainty avoidance, and long-term orientation, taking low marks for


individualism and masculinity. Their collectivistic culture finds them forging strong, life-long

bonds with both family and peers.

Opportunity: Societal appreciation for American goods. Having visited the country in 2012, I was fortunate enough to witness the general appreciation for

goods from the United States and Americanism first-hand. A 2012 Boston Consulting Group study concluded that Chinese consumers are willing to pay

premium prices of between 10 and 80% to consume American goods andalthough the observations were made of PRC consumptionsimilarities between the two cultures allow researchers to draw similar conclusions for the ROC

market (Forbes, 2012).

Threat: Comparatively laggard adoption of new products. The collectivistic nature of Taiwans people finds that early adopters are few, and aggregate adoption of products newly introduced in the market requires proliferation of

recognized quality. This attitude typically originates with respected persons

within social circles (in-country early adopters) and propagates slowly. Market

entrants must accordingly remain patient with measurements of attach rate, which

can lead to sluggish return on investment.

2.5 Technological Environment Taiwan is a recognized global leader in integrated circuit manufacturing, including

components and final products related to PCs, LCDs, LEDs, mobile phones, solar cells,

motherboards, and more. From a consumer perspective, their advanced telecommunications

networks and high proliferation of connected devices makes the country adequately situated for

targeting by technology firms whose service offerings depend on these platforms for

deployment.

Opportunity: High saturation of connectivity. The United Nations Telecommunication Development Sector estimated that the percentage of

Taiwanese people with internet access was 75.99% as of 2012 (ITU). For

comparison, the same research concluded that usage in the United States of

America sat at 81.03% for the same period (ITU, 2012). This widespread internet

accessibility permits the copious number of firms utilizing web connectivity to

deliver services a well-established audience of consumers in Taiwan.

Threat: Proliferation of copyright infringement. According to the U.S. Commercial Service, American firms have remained cognizant of infringement of

intellectual property rights by Taiwan and its citizens for some time now, and

internet-based piracy by individuals, corporations, and educational institutions

alike continues to be problematic (2011). Although the situation continues to

improve, companies with electronic products that is easily replicated (e.g.

software and electronic books) should take the necessary steps to protect their IP.

The U.S. Commercial Service has outlined recommended procedures in their

publication Doing Business in Taiwan.

2.6 Opportunities and Threats A PEST analysis has uncovered several factors that Netflix should take into consideration

both before considering expansion into Taiwan, and as they form their go-to-market plan moving

forward. These findings are summarized below.


2.6.1 Opportunities

Three circumstances stand out as being the most advantageous opportunities for a

Netflix, Inc. expansion into Taiwan.

1. Admirable GDP per capita. Although Taiwan globally ranks 30th in the GDP per capita comparison, the only three Asia-Pacific nations outranking the country are Hong

Kong, Brunei and Singapore (CIA, 2013). This puts Taiwan in a strategically sound

position for the introduction of consumer goods to the Asian market(s), as the disposable

income enjoyed by its inhabitants likens the degree of product sampling.

2. Societal appreciation for American goods. Having visited the country in 2012, I was fortunate enough to witness the general appreciation for goods from the United States and

Americanism first-hand. A 2012 Boston Consulting Group study concluded that Chinese consumers are willing to pay premium prices of between 10 and 80% to

consume American goods andalthough the observations were made of PRC consumptionsimilarities between the two cultures allow researchers to draw similar conclusions for the ROC market (Forbes, 2012).

3. High saturation of connectivity. The United Nations Telecommunication Development Sector estimated that the percentage of Taiwanese people with internet access was

75.99% as of 2012 (ITU). For comparison, the same research concluded that usage in the

United States of America sat at 81.03% for the same period (ITU, 2012). This

widespread internet accessibility permits the copious number of firms utilizing web

connectivity to deliver services a well-established audience of consumers in Taiwan.

2.6.2 Threats

No entry into a foreign market is a leisurely experience, and as such should take into full

consideration the existence of several threats discovered using a PEST analysis. The three most

influential threats to a Netflix, Inc. expansion into Taiwan are summarized below.

1. Delicate political relationship with China. The fact that China lays claim to Taiwanese territory, coupled with the knowledge that only a handful of nations recognize Taiwans sovereignty is possible cause for concern. Should a firm invest in ROC operations, the

arrangements made with the government of Taiwan could feasibly be nullified following

a concerted effort made by PRC to reclaim direct control over the territory. The

possibility of PRC expropriation of organizations erected without their influence and

oversight should remain top of mind for those wishing to conduct FDI in Taiwan.

2. Proliferation of copyright infringement. According to the U.S. Commercial Service, American firms have remained cognizant of infringement of intellectual property rights

by Taiwan and its citizens for some time now, and internet-based piracy by individuals,

corporations, and educational institutions alike continues to be problematic (2011).

Although the situation continues to improve, companies with electronic products that is

easily replicated (e.g. software and electronic books) should take the necessary steps to

protect their IP. The U.S. Commercial Service has outlined recommended procedures in

their publication Doing Business in Taiwan. 3. Dependence upon PRC for economic solvency. The Peoples Republic of China

represents Taiwans top ranked target for FDI activities. This fact, coupled with the idea that China is ROCs number one trading partner (29% of total trade as of 2010) makes the country susceptible to severe economic disruption should political relations with

mainland China dissolve.


3.0 Global Competitive Analysis: Online Video Streaming The global competitive environment for online video streaming is extremely young, and

proliferation of service offerings is still emerging. Having originated in the United States of

America, the technology is gradually undergoing global expansion as firms such as Netflix

extend their businesses to foreign shores. While many smaller competitive firms exist around

the world, the lack of technological and service-specific marketing expertise, the need to address

content targeting by regional tastes, as well as capital-intense operational requirements

surrounding legal content acquisition and licensing have prevented widespread market entry.

3.1 Competitive Analysis: Taiwan

Further to our analysis of the global competitive environment for online video streaming,

the country of Taiwan is an entirely greenfield market, as no firm has introduced a viable product

to Taiwanese consumers. As such, market entry for a firm such as Netflix will be relatively

unencumbered by competitive threats. However, the prospective rollout is not without its

drawbacks, and weve accordingly chosen to analyze the market through the lens of 5 competitive forces.

The model of Five Competitive Forces was developed by Michael E. Porter and has

become one of the most relevant methods for analyzing an organizations industry structure in

strategic processes (Porter, 1980). Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment.

Bargaining Power of Suppliers: Moderate: Content is king when it comes to streaming video services, as providers must have access to the media they wish to provide to

consumers. While suppliers of these materials may wish to make the most profitable

contractual arrangements for streaming of their content, they do not have competitive

firms to play a market entrant against for the time being. However, the premier market

entrant must gain access to this content, so suppliers do wield a certain degree of power.

Bargaining Power of Customers: Weak: Without competitive conditions in the market, end-customers have no one else to turn to for streaming video content. That being the

case, the bargaining power of these customers is extremely weak.

Threat of New Entrants: Strong: Netflix is assuredly not the only firm to recognize the greenfield conditions of online video streaming in the Taiwanese market. Other firms are

equally as likely to throw their hat(s) in the ring either at this juncture or in the near

future should the first to act show demonstrable success.

Threat of Substitute Products: Strong: Although the profitable video streaming service market in Taiwan is virtually non-existent, the countrys people have plenty of options for accessing video content; including piracy. Given that specific numbers

regarding Taiwanese video piracy may be hard to come by due to the illegal nature of the

action, should piracy be extremely widespread it may be extremely difficult to begin

asking consumers to pay for such services.

Competitive Rivalry within Industry: Weak: In stark contrast to the extremely competitive environment for entertainment video in the United States of America, the

industry in Taiwan is almost non-existent. This presents an attractive situation for

companies with existing expertise in video streaming such as Netflix, but although

competition doesnt exist at the moment any demonstrable success in the market is virtually guaranteed to be met with new market entrants within due time.


3.2 Identification of Primary Competitive Threat

Whereas no one competitive threat exists in the Taiwanese market, Netflix must not rest

on their laurels while forming their entry strategy. The formation of a marketing plan should

include an analysis of possible competitive threats the firm may face in the near future. For the

purposes of this market entry plan, weve chosen to assess Amazon.com as the primary competitive threat due to their status as the most recognizable threat to Netflix in their home

country of operations. In consuming these materials, however, the strategic marketing manager

should assign limited weight to the impact of these analyses, as the competitive threat does not

realistically exist as described due to the greenfield status of internet video streaming in Taiwan.

Netflix: Strengths Amazon.com: Strengths

1. Core Competence in Content Selection and Delivery

The company has committed over $5billion towards

their streaming library, which boasts TV show and

movie content exceeding 1 billion viewing hours and

60,000 titles. They have created a strategic advantage

with their proprietary user interface, which serves

content browsers with recommendations based on

ratings and viewing history analytics performed on

historical data gleaned from their subscriber base.

2. Proven Capability in Subscriber Attraction and Retention

Netflix faculty in content and selection is key to their ability to attract and retain subscribers. Although

interdependent, the fact that they have demonstrated

perpetual growth in their subscriber base represents a

unique strength in and of itself. Netflix subscribers

jumped by 5 million users in 2012 to over 38 million

total, which the company attributes to compelling

content, outstanding member experience, and brand

clarity.

3. Inherent Focus on Core Business The Netflix model finds particular strength in the market

due to the fact they have not diversified beyond their

core business. The company adheres to their

commitment to focus on streaming video, and sees their

competence in doing so key to rapid innovation resulting

in increased customer satisfaction.

1. Strong Customer Base Although Amazon remains the weaker of the two

competitors in the video streaming sector, it benefits

from a highly trafficked website and loyal following of

retail consumers. With up to 138 million monthly

visitors to its website, their Total Addressable Market

for introduction to existing and/or new video content

services shows great potential, and a concerted effort to

cannibalize the customer base of Netflix could prove

successful (compete.com, 2013).

2. Growing Selection of Content Amazons Instant Video service currently offers over 150,000 movie and television show titles, and the

companys continuous expansion in additional licensing is evidence of its commitment to content growth.

3. Bilateral Instant Video Strategy Amazon offers its full library of streaming video content

for sale or rent via its online marketplace. Alternatively,

the company also devotes a segment of these materials

as a complementary value-add to its Amazon Prime

service, in which customers pay lump sum annual fee for

access to free two-day shipping on the majority of

Amazon-sold products through its electronic retail

storefront. This strategy incentivizes potential

customers to upgrade their Amazon accounts to the

Prime offering, and in turn exposes them to the

streaming ecosystem it has developed.


Netflix: Weaknesses Amazon.com: Weaknesses

1. Burdensome Debt and Limited Cash Flow Early in 2013, Standard & Poors altered its outlook on Netflix speculative BB-minus level debt to negative, citing declining cash flow levels between this year and

next, the firms increased propensity to leverage debt, and risks associated with original programming. The companys stated intention to increase a debt-backed commitment to their streaming footprint is cause for

concern, as decreasing cash reserves reported in 2012

are actually reflective of an inability to obtain additional

debt to finance acquisitions, capture business

opportunities, and meet capital expenditure or other

capital requirements in the future.

2. Weakening Firm Profitability Despite its ability to outpace analyst forecasts for share

prices, Netflix has recently exhibited declining

profitability. Fiscal year 2012 saw a decrease of 86.71%

in operating profit from 2011, mainly due to increases in

operating costs as a percentage of sales. Further, the firm

reported operating margin of 1.39% in 2012 compared

with 11.74% in 2011. Should Netflix be ineffective in

demonstrating success with its growth forecasts

profitability may further wane, resulting in displeased

investors and declining company value.

3. Decline of the Domestic DVD Segment Although the Domestic DVD segment vaulted Netflix to

common recognition as the major player in subscription-

based television and movie content delivery,

subscriptions to the physical disc distribution service

have continued to decline in recent years. The firms commitment to investing in new content creates an

additional financial commitment by default, as they must

acquire additional assets as quickly as new movies are

released.

1. Burdensome Debt Hampers Ability to Strategically Target Competitors

Amazon.com is not exempt from the issues with debt

obligations that have plagued its competitor Netflix in

recent years. During fiscal year 2012, the company

recorded total debt of $3.8 billion, which came as a

170% increase over the same performance in 2011

(GlobalData, 2013). This fact could limit their ability to

expand their streaming video content and infrastructure

to put it on par with Netflix offering.

2. Broadly Diversified Business Amazon began in 1994 as an online retailer of consumer

goods and has since diversified its business into a

number of product and services, including the

facilitation of 3rd

party seller accounts, streaming video

content, marketing and promotional activities, web

services, and co-branded credit card agreements

(GlobalData, 2013). While all of their offerings are

web-based, the lack of focus on any one business in

particular may prevent them from developing

competencies related to streaming video.

3. Lack of Physical Disc Options The physical disc rent-by-mail is a weakness for Netflix

due to the fact the company has experienced a decline in

users utilizing the service, yet its business model is still

partially based on the offering. This puts Amazon at a

disadvantage because although not as many consumers

wish to rent videos on physical disc when given

streaming capability, at least it represents flexibility of

options. Amazon does not distribute physical disc

rentals, therefore they cannot compete on this front.

3.3 Identification of Additional Competitive Threats As was the case for the primary competitive threat, existing secondary and/or tertiary

competitive threats do not exist in the Taiwanese market. For the purposes of this study we have

assigned additional competitors based on the current situation in Netflix home market of the United States of America, butjust as beforethe strategic marketing manager should assign limited weight to the impact of these analyses, as the competitive threat does not realistically

exist as described due to the greenfield status of internet video streaming in Taiwan.

Hulu Hulu is a joint venture between several TV networks for subscription-based delivery of popular television shows. Similar to Netflix, Hulu subscribers pay a monthly

access fee to view streaming content, which may be downloaded to a multitude of digital

devices. From a competitive standpoint this service leaves a lot to be desired in terms of

breadth of content, and unlike Netflix their offering is not exclusive of advertising. In the

event our strategic recommendations selected a secondary competitor, Hulu would be

chosen.


Vudu Vudu offers users the ability to purchase or rent movies and television shows starting at 99 cents each, and was recently acquired by Wal-Mart. They tout competitive

advantage in their claim to deliver streaming content the very day its released to DVD; a marked difference in the turnaround time of up to one year typically seen by Netflix

subscribers. As was the case with both Amazon and Hulu, who would fill a primary and

secondary competitor role, respectively, if our analyses rendered such a decision Vudu

would fill the tertiary spot.

HBO GO HBO developed its GO service to stream their in-house television series, as well as licensed movies. As of now they only offer 244 movie titles in addition to 47

series and a handful of comedy and sports recordings, so their content lineup is paltry

compared to the Netflix library.

Apple iTunes Apple began offering movies and television shows for purchase and download to compatible devices in 2005, and capitalizes on the broad user base the

company enjoys for their mobile devices.

Google Play Much like Apple iTunes, the Google Play store allows its users to purchase or rent movies and television shows. The service should be viewed as a direct

competitor to Netflix due to overlap of content offering, but thus far Google appears to

have fleshed out their library as more of a fringe value-add to their Google Play

marketplace rather than assemble a concerted effort to cannibalize Netflix viewership.

YouTube This behemoth of online video content is primarily driven by user-supplied uploads, but some full-length films are also legally available for streaming. Although

this does not parallel the service offering of Netflix, their existence cannot be ignored;

particularly in the event they choose to modify their business model to take advantage of

their large-scale delivery infrastructure and offer services that compete with Netflix in the

future.

4.0 Entry Strategies: Options for Taiwanese Market

4.1 Identification of Market Entry Options Netflix must recognize that correctly choosing their market entry strategy is imperative to

sustainable success in Taiwan. Several options for market entry exist for Netflix to take into

consideration, each of which has varying degrees of feasibility.

Joint Venture An entry strategy where two businesses join together and share ownership over a newly created third firm. This strategy is moderately attractive to a company

considering entry into an intensely competitive market, but with shared risk comes shared

reward. Considering the Taiwanese streaming video market is greenfield, there are no existing

firms in the market with competencies that would bolster Netflix offering. Partnering with a production studio with rights to a large library of content desired by the firm may be attractive,

but the Netflix value proposition is in the delivery of said content; something that the firm has historically demonstrated significant independent success with.

Acquisition Although an existing online video streaming firm does not exist in the Taiwanese market for the purposes of acquiring a veteran organization, Netflix may acquire

companies which represent a significant portion of their overall cash outlays in an effort to ease

the burden of market entry. Large internet infrastructure and/or web hosting companies, or

holders of large content libraries may be targets for this manner of acquisition.


Outright Investment This strategy would find Netflix performing direct foreign investment in the Taiwanese market by acquiring the content rights and equipment necessary to

duplicate their US operations overseas.

4.2 Recommendation of Market Entry Strategy Netflix, Inc. should adopt an outright investment strategy in Taiwan by acquiring the

content rights and equipment necessary to duplicate their US operations in the market. The

firms liquidity situation affords them the ability the flexibility of capital expense necessary to undertake the investment, and doing so will ensure that the firm reaps the maximum benefits of

profitable success in the new venture.

5.0 Market Analysis and Segmentation: Netflix, Inc. in Taiwan The target consumer market for Netflix is adults over the age of 17 who enjoy watching

movies and television shows, and who have internet access via a device capable of viewing

streaming content. The companys delivery model is such that pervasive internet connectivity and broad selection of content permit them to target just about every consumer in their markets

of operation, with the only additional determination of eligibility being the offset amount of

disposable income necessary to subscribe to their services. Furthermore, their business is largely

hinged on factors of convenience, as consumers need not leave the comfort of their home to

utilize their services. Internationally, this market largely consists of mobile users, as many

consumers in emerging markets find larger, more expensive devices for streaming content access

such as PCs and Macs to be cost restrictive.

6.0 Marketing Mix Strategies: Taiwanese Market The marketing mix for Netflix expansion into Taiwan will take on a somewhat similar

approach to the service rollout in the United States of America, with certain considerations being

given for local taste in content. Of considerable interest to the determination of marketing

investment is the fact that the firm does not manufacture and/or distribute a tangible product,

therefore inventory build-up and/or scrap to redress product specifications per ongoing

marketing research is entirely unnecessary. Modification of service delivery can be dynamically

performed with very little expense through acquisition of new content and/or redesign of the

customer-facing user interface.

6.1 Product Strategy As previously addressed, Netflix will not be offering a tangible product to consumers;

rather a service-based internet streaming video on demand offering. The firm should negotiate

and acquire the distribution rights for a solid base of content based on initial and ongoing market

research, the scope of which should mirror their original offering during expansion into Latin

America. Consideration should primarily be given to video content in Mandarin Chinese, or

films which have the ability to enable subtitles in same.

6.2 Price Strategy Considering that Netflix will only be offering web-based streaming video, the firm need

not account for variable pricing seen in the US market, which continues to offer DVD and/or


Blu-Ray disc-by-mail services. Netflix should adopt a flat-fee offering wherein their customers

may gain access to unlimited streaming video for a reasonable fee as determined by market

research. To set their price and determine the scope of necessary content acquisition, the

company should conduct public surveys to inquire as to what price consumers would pay to obtain the following services, followed by a selection of predetermined options.

6.3 Promotion Strategy A solid promotional strategy will be of pivotal importance to Netflix ability to increase

consumer awareness quickly. Netflix should consider taking out advertisement space offered by

providers of public transportation, as well as in and around the oft-traveled urban roadways used

by motorcyclists. The firm should offer complementary one month trials of their service for new

subscribers responding to their initial marketing push, and bundle the same offering through

partnerships with hardware manufacturers who retail new tablets, PCs, and mobile phones. As is

the case in similar such marketing efforts in other countries, the company will collect billing

information from consumers who sign up for the promotional offer; the terms and conditions of

which will indicate that the subscription will automatically renew at the prevailing rate using the

credit card information provided. This method of subscriber growth must be vetted with local

law, but should the strategy be permitted the exposure to Netflix service offering will increase consumer trials and minimize attrition.

6.4 Place Strategy As a web-based service offering, Netflix need not be overly preoccupied with the Place

Strategy of the marketing mix. Distribution of product is performed wholly over the internet,

thus acquisition of the Netflix.tw and/or Netflix.com.tw top-level domain(s) is of primary

concern. Purchase and/or service lease of the physical equipment necessary for the delivery of

services may also fall under place strategy, as geophysical location of servers may impact quality

of service (QOS). The island of Taiwan is small enough, however, that centrally positioning the

equipment in


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sample

Documents

market analysis

taiwanese market

entry strategies

global competitive analysis

executive summary taiwan

pest analysis

product strategy

price strategy