Netflix

Industry Definition

Netflix is in the video entertainment industry. It therefore distributes services to consumers via movie theaters, hotels, in-home and airlines.  Netflix serves in-home customers particularly through several alternative channels. The industry makes up the distinct strategic groups of their portion of the whole industry. They include includes mortar and brick, and the DVD vending machine rentals, mail delivery, online rental, pay-per-view video, on-demand services and online buying (Walker, G., 2005).

Suppliers

In this industry, suppliers are usually concentrated. They provide ideal product differentiation.  There are six main studios which command over half of dramatic release sales.  The popular titles and mass markets are mostly provided by these six main studios. They include: Buena Vista, Sony Pictures, Warner Bros, 20^th Century Fox, Universal and Paramount Pictures. 

Consumers

Consumers in this are divided into two sections, that is, convenience consumers and needy consumers.  Needy consumers are choosy as they have a particular program or title they watch. On the other hand, convenience consumers are more common.  They do not have a specific program to watch. They do not look for comfort in the television but rather, they look for fun and entertainment.

Industry Force Analysis

Impacts of Complements

This level is generally favorable. Complements to this entertainment video industry appear in many forms such as television hardware created by large consumers’ hardware electronics organizations such as Toshiba, Sony, Samsung, Panasonic, Sharp, Vizio, LG, and Pioneer among other generics. Computers produced by HP, Sony, Dell, Lenovo, Apple and generics. Internet services are provided by the MSOs.

Impacts of Threat of Entry

These are the unfavorable effects of this threat of entry. There is no product differentiation in this industry.  Additionally, the channel in which a product is delivered to the customer distinguishes it by limiting it to particular viewing mediums.  Competitors might also distinguish themselves by extending their title assortment (Walker, G., 2005).

Impacts of Supplier Power

These are moderately unfavorable. Supplier strength is a fairly unappealing force.  The main traditional suppliers are Warner Bros., Buena Vista, Sony Pictures, Paramount Pictures, 20thCentury Fox and Universal among other big and small studios and distributors. The most significant factor in unpleasantness is the ideal product differentiation. This directly determines the industry demand for the product.  The second factor is Threat of frontward incorporation. It allows incumbents powers to set up customer base. It also creates distribution channels for the purpose of the business.

Effect of Rivalry: Neutral

This is a neutral factor. Rivalry in this entertainment and video industry is mostly affected by the great assortment of competitors.  In this industry, diversity is very high.   Each segment relies on various distribution channels.  The competitors specialize in a single one channel. This allows for bigger impacts of learning in the particular segment. 

Effect of Buyer Power

The impacts of buyer’s power are moderately favorable. The buyers pose slight threat to the industry members.  This is because there is little or no concentration in consumer group. They pose no rearward incorporation threat (Comcast 10 K Form, 2010).

Effect of Substitutes

The effects of substitutes are moderately favorable. The needy consumers unlikely to alternate because they are usually committed to movie they are watching as their basic form of entertainment.  Therefore, these consumers might also include older age groups. Thus they will be unlikely to participate in the active entertainment and other types of digital entertainment. They mostly concentrate on television.

Market Attractiveness

The overall market attractiveness in this industry is moderately attractive. The video and entertainment industry is fairly attractive.  The strongest power in this industry basically the complements. The complements are followed by the risk of entrants.  The two forces combine with the impacts of technology union between the Internet industry attractiveness and the television.

Macro Environmental Forces Analysis, Ethical Concerns and Economic Trends

Industry Trends

The industry is currently moving in this direction as a result of the ease-of-use modern technologies offered to customers. Technology Convergence provides Threats and Opportunities in the Industry. The trends in this industry offer distinct opportunities, which also act as threats.  The broadband Internet, the deliverance of Internet unswervingly to television is currently becoming more increasingly common. With easier and cheaper to use technology, growingly consumers are taking advantage of the changing technologies (Comcast 10 K Form, 2010).

Competitor Analysis

Home and Video Entertainment Industry

The companies which compete with Netflix are Apple iTunes, DirecTV, Dish Network, Blockbuster, Comcast Wal-Mart, Blockbuster, Time Warner Cable Best Buy, Wal-Mart, and Amazon.com. The largest competitors here are Blockbuster and Wal-Mart with a share of 20% and 30% respectively while Netflix holds a share of 5% in the overall industry.

Netflix’s Primary Competitors

The primary competitors of this company are Comcast and Blockbuster. The two companies have “video-on-demand” as well as online cables capabilities. This makes them threatening institutions in terms of the video rentals which can be viewed instantly.

Primary Competitors’ Business Level and Corporate Level Strategy

For its business level strategy, Netflix Company employs differentiation. This means that, Netflix attempts to exploit product exceptionality for a broader market. Initially, Netflix’s purpose was to provide customers with an old product, that is, rentable movies, in a modern format (Blockbuster, 2008).   

Corporate Level Strategy

 Netflix is a single business in terms of corporate level strategy. 100% of Netflix’s revenues come from sole business of leasing out DVDs. On the other hand, Blockbuster is a domineering business with 83.2% of the revenues coming from rentals. Additionally, 16.2% of the revenues come from product sales of games, general merchandise and movies. The Comcast Company is a single business in terms of corporate level strategy (Siegler, M., 2010).

Comparative Financial Analysis

Various ratios are selected compare financial analysis. These are: efficiency, liquidity, growth, leverage and profitability. All competitor companies’ data were taken from yearly financial statements from year 2004 to 2008. Growth: Sales for Netflix, Comcast and Blockbuster have grown at an average of rate of 40.3%, 13.42% and -2.16% respectively.

Profitability: The gross profit margins of Netflix, Comcast and Blockbuster are as follows: 53.56%, 67.72%, and 58.88% respectively. 

Leverage: in this ration, Netflix has an average debt-to-equity of 0.59. Overall, the industry’s average debt-to-equity is 1.60. Blockbuster has 4.42. 

Liquidity: the current ratio in a company measures its liquidity. The higher the liquidity the low credit is at risk. Netflix has an average current ratio of 1.92.  Comcast and Blockbuster have current ratios of 0.48 and 1.01 respectively.

Efficiency: Netflix fails to report receivables in its balance sheets. Blockbuster’s has an average collection period of 8.61 days. This is considerably lower compared to the industry’s average collection period of 24.16 days. This implies that, the Blockbuster is more efficient as compared to the other two companies. Comcast has a collection period 18.52. This is still lower the industry’s rate.

Implications of Competitor Analysis

The traditional DVD and Home Video Entertainment industry in the America is in reaching stasis. There is increasing need for streaming videos in this industry.  Speed and Convenience are two high demands of current consumer. Companies in this industry have to meet these requirements in order to continue growing and making profits.

Intra-Industry Analysis

Internally, Netflix Company is purposefully placed properly in their industry. The four main players in this market compete for customers. It is noted that, Netflix is advantageously placed well in this market because they have an exceptional rental strategy as compared to Blockbuster as well as other boutiques and video rental stores. The customers are capable of managing their rentals online and keep them for as long they wish. They can then return them to the producers at their convenient time.

Business Definition

Statistics show that Netflix is the largest online movie and Rental Company in the universe. The company is located in Los Gatos, California. Netflix has a selection of more than 100,000 titles which continually grows.  It has DVD rentals and over 17,000 titles accessible through Internet streaming. Additionally, they are available straight away through a user’s television with the use of external Netflix which is a friendly device. It is also available directly through computers. With late fees, due dates or zero shipping fees, Netflix is the most favorable movie rental services (Bradley, R., 2010).

Management Style

The founder and CEO Reed Hastings have made a sole management style which is highly notably similar to the one of George Clooney’s Danny Ocean role. Thus, Netflix has laid-back a structure that offers employees a chance to make their decisions, but highly encourages smart decisions to be made.  Some of the bonuses include offering employees to structure their compensation packages having a—hypothetical, no clothing policies, and unlimited quantities of vacation days

Organizational Structure, Controls, and Values

Organizational Structure

It has established a functional organizational model that is segmented by objectives of its functions, rather than by consumers regions. Thus, the structure is unified, as CEO Reed Hastings has the main control on the six sections, each having individual managers. 

Organizational Controls

Proceeding with management style, the panels utilized by Netflix concerning appraising and monitoring employees are anti-controls.  The motto here reads “Context, not Control” implying that, very little control is offered to employees, rather than, employees being held accountable for their doings and are predictable to function efficiently independently (Blockbuster, 2008).   

Organizational Values

There exist a big emphasis on the worth of stunning colleagues,” and their own importance in a big workplace. Big workplaces are not daycare or espresso and big compensation. They are only those with efficient at appealing to stunning colleagues. This indicates that, the priority at Netflix is concentrating a phenomenal team of work.  There are nine values in every stunning colleague, which Netflix observes.  They include judgment, curiosity, impact, innovation, passion, courage, selflessness and honesty.

Business Portfolio

The key areas to concentrate on, Netflix Inc. is an online DVD rentals and rentals through online streaming.  Whilst the tangible payments of Blu-ray discs and DVDs are where Netflix presently earns the most profits, they expect to expand their collections of titles that are available for online flowing, and therefore, continue into Internet focused industry

Rumelt’s Classifications

With respect to Richard Rumelts categorization of multi-business firms and businesses, Netflix can be categorized as a dominant business.  Whilst it has corporations with other organizations and is associated with other businesses that allows it to offer titles and provide numerous selections as to how they are offered to consumers. Netflix still produces more than seventy five percent of profits and has not contributed in acquisitions.

Partnerships

Netflix has partnered with Warner Bros., and the companies have strike great miles in new deals regarding current releases. The main purpose of this deal is to bolster the number of current releases that are offered in that 28-day time, rather than borrowed.

BCG Matrix

The BCG (Boston Consulting Group Matrix), shows the location of three of Netflix’s characteristics relative to market share and market growth. Given the contemporary information, the company has features in locations of “stars,” “cash cows,” and “question marks.”

Business Level

The generic firms’ level plans for Netflix is in the DVD letting market. More current Netflix has been made strides into online flooding of movies, which can be observed on the computer directly or in gaming consol.

Resources and Capability Level

Value minus Cost Profile

Cost for $9.99 model   9.99-0.54= $9.45

Cost for $13.99 model 12.99-0.85= $12.14

Cost for $14.99 model 14.99-1.03= $14.96

Cost for $2.99 model   2.99-0.30= $2.69

Netflix’s contemporary strategic change will upsurge the worth on the online gushing content that it offers.  The customer will be acquiring access to more movie titles through online streaming.

VRIO Analysis

Netflix is contemporary positioned in abstemiously sustainable location.  They have functioned hard to establish a distribution classical that is beyond what all their competitors can achieve.  The two aspects, which are provisional for Netflix are their Blu-ray discs and hard copy DVDs. For this purpose, the main of their firm’s model is in the distribution of movies.

Customer Retention Analysis

Netflix has retained customers with its numerous means of linking its consumers with products.  The overlying comparison with all different means of distribution is that, they are easy for the customers to operate and use.  This is a main driving issue behind the reason why Netflix has prospered, and why Blockbuster has done everything trying to copy the business classical that it has been established. 

Promotion

Netflix starts with widespread advertising campaign in various different avenues.  They have assumed advantage of magazine/ newspaper advertising, online advertising and TV commercial advertising.  Web banners, “pop-under” ads and ads on various websites are their key prominent forms.

Place

Netflix is basically a US business.  Recently, it has announced that, they will be moving into European markets as streaming services only, PC’s, Blu-ray discs and DVD and Internet streaming.

Product Life Cycle

Netflix has established a product life cycle, which has thrived in the growth phases ever since.  They have recently captured ten million subscribers who are subject to pay monthly fees for any access to the library of over hundred thousand labels.

Netflix Financial Performance Analysis

Netflix has devised some slant of the financial rations for Netflix over the past five years. There are some equations that are used when determining their industry rivals in Exhibit 3 to persist consistent across entire companies.

Valuation Technique

Netflix is best valued by the use of a NPV (Net Present Value valuation). This tool is most responsive to development in firms that is generally good indicators of a organization’s true value.

Key Assumptions

The valuation tool is based carefully on the forecasted forecasts of Netflix executives. This classical follows the estimated predictions listed before. The basic forecasting prediction is based on the growth of the organization. Netflix executive predicts that, their changeover from physical DVD as well as Blu-ray titles to purely coursing systems is their prioritized goal. As this comparatively current technology goes, high growth in numbers are estimated for several decades into the future Netflix Value

Valuation Technique

To key concurrent with the estimation technique of Netflix, the scenario determination also utilizes a NPV assessment for similar purposes.

Key Assumptions

To add on assumptions stated above, the deal with Warner Bros. has numerous important implications. Their growth prospect is stretched somewhat under the current agreement. Netflix acquires various titles and admittance to streaming video and growth can be predicted to remain.

Netflix Value

The deal results into a total enterprise worth that is expected to be or close to $4,249,000,000. The basic reason for the key increase stalks from these deals heading the main strategic plans into streaming videos (Siegler, M., 2010).

Implication of the Warner Bros. Deal

This case means that, the potential effect of industries becomes completely reinvented. However, instead of customer leaving their dwellings, going to the adjacent video letting store and leasing a title, Netflix suggests the industry is controlled toward admittance from computers directly and wireless enabled sets of TV.

Analysis of the Effectiveness of the Strategy

Following a discussed analysis, Netflix is controlled in the most appropriate direction to acquire their capitalization on growth and strategic goals. Market analysis indicates that, the DVD rental firm is moving toward streaming.

Recommendations

Short-Term Recommendations

Partnerships with Content Providers

Netflix has partnered with the key premium movie broadcast network Starz to raise its collections of streaming title.  Netflix instigated to prude Starz title to its consumers through Starz Play which is an online streaming library with more than 3,500 of current releases, older titles and concerts. This assisted Netflix improve its collections of streaming title. 

Smartphones

Smartphones introduces new market for Netflix to possibly grow the streaming markets.   With respect to Dilanchian.com, law articles website, news, smartphone auctions in 2010 were 178 million and in 2011 they are predicted to be at about 233 million.  This statistic indicates that, they are trending into a current area.

Long-Term Recommendations

Partnering with Airlines

The video entertainments industry is broken down into 4 main markets as indicated in the industry overviews.  Airline makes a major of four markets and in-home is another.  Key airlines have commenced installation of Wi-Fi broadband routers into aircrafts. 

Greater Title Selection

This notion has been highlighted in a number of means throughout the report, and draws in with numbers of the main industry moves.  With technological convergence, the growing amounts of savvy customers are expecting full selections of titles at the fingertips (Pepitone, J., 2010). 

International Growth

Nowadays, Netflix had tried to make a deal that could introduce flowing online gratified overseas into the United Kingdom.  The main distribution means of physical conveyance of Blu-ray discs and DVD could not be bear to transfer into the UK in a price effective manner

Strategy Implementation

Short-Term Strategy Implementation: Video Game Industry

Netflix is positioned to make a great push into the current markets, which has historically well blended into the video letting industry.   In Netflix’s new business classical, they have maneuvered entire of the required arrangements to earn the capabilities to move movies directly into the three main gaming systems, Xbox 360, the Wii and the PlayStation 3.

Long-Term Strategy Implementation: Streaming

In the long run, Netflix’s key focus must be to fully dominate and implement online flowing. The industries superficial are just being brushed on. However, but with the raising popularity of online in all facets of everyday, it is certainly going to enlarge massively.  Netflix is in ideal location, as they have invested much in streaming technologies, so the next main step is to raise the number of labels.  Management must not have more problems establishing this recommendation, since they are in the procedure. However, they require acting more quickly in order to ensure that, they control the industry.  Brand equity and gratitude have been big for Netflix, and by reacting in a more quick to step fast as they did with internet DVD lettings, they owns the chance to have customers link internet streaming to Netflix directly (Pepitone, J., 2010).

Corporate Social Responsibility and Ethical Decision-Making

Short Term

Netflix, initiated in California, it has assisted the California University school system through streaming video to most classes free of charge. If student requires watching movies concerning class and if an instructor requires showing movies in class, Netflix must assist the California’s University new budget deficit and flow video free for free

Long Term

In the long run, Netflix can recycle its Blu-ray discs and DVD when deleting parts of its inventory. The firm could achieve this in various ways. It can donate some of its old titles to university libraries, which can lead to possible tax praise. Netflix can also provide the DVDs it requires to dispose to the Operation Showtime, services that offers you to offer your unwanted or old DVDs to crowds overseas. Netflix can also offer some of old DVDs to universities or schools. All of the mentioned options will reduce waste, boost Netflix’s reputation and save people money.

Conclusions

With the new strategic agreement that results from Warner Bros. deal, the Netflix sets in appropriate position provided technology will successfully aid in the formation of these market evolutions. The assessment in this document demonstrates that, market moves are clearly aiming toward spilling markets. Executives are preparing the firm for a whole move into spilling and are certain that, this is the most appropriate plan for Netflix. Thus, Netflix is poised as industry frontrunner, and will endure to achieve so in the appearance of a whole streaming location. The assessment in this Netflix shows an important value raise as a result of Warner Bros. deals. Stocks price are predicted to increase about 30%, which is a strong sign of the possibility of the company as they completely move into the streaming business.  As a financier, Netflix can be closely watched as a sturdy buy in the future as they continue to persist on the cutting advantage of the videos rental industry.