Netflix: SWOT analysis
Netflix History
1997
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Reed Hastings and software executive Marc Randolph co-found Netflix to offer online movie rentals.
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1998
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Netflix launches the first DVD rental and sales site, netflix.com.
1999
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Netflix debuts a subscription service, offering unlimited DVD rentals for one low monthly price.
2000
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Netflix introduces a personalized movie recommendation system, which uses Netflix members’ ratings to accurately predict choices for all Netflix members.
2002
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Netflix makes its initial public offering (IPO on Nasdaq under the ticker “NFLX” with 600,000 members in the US.)
2005
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The number of Netflix members rises to 4.2 million.
2007
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Netflix introduces streaming, which allows members to instantly watch television shows and movies on their personal computers.
2008
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Netflix partners with consumer electronics companies to stream on the Xbox 360, Blu-ray disc players and TV set-top boxes.
2009
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Netflix partners with consumer electronics companies to stream on the PS3, Internet-connected TVs and other Internet-connected devices.
2010
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Netflix is available on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, and other Internet-connected devices. Netflix launches its service in Canada.
2011
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Netflix launches throughout Latin America and the Caribbean.
2012
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Netflix became available in Europe including the United Kingdom, Ireland and in the Nordic Countries. Netflix wins its first Primetime Emmy Engineering Award
2013
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Netflix expanded to the Netherlands. Netflix garners 31 Primetime Emmy nominations including outstanding drama series, comedy series and documentary or nonfiction special for “House of Cards”, “Orange is the new black”, and “The Square” respectively. House of Cards won three Primetime Emmy Awards. Netflix was the first internet TV network nominated for the Primetime Emmy.
2014
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In 2014 Netflix launched in 6 new countries in Europe (Austria, Belgium, France, Germany, Luxembourg and Switzerland). Netflix wins 7 creative Emmy Awards for House of Cards and Orange is the New Black. Netflix now has over 50 million members globally.
2015
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Netflix launches in Australia, New Zealand and Japan, with continued expansion across Europe in Italy, Spain and Portugal. The first Netflix original feature film "Beasts of No Nation" is released.
2016
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Netflix is available worldwide.
Netflix on Forbes Lists
- #111 Growth Champions
- #15 Top Regarded Companies
- #76 World's Best Employers
- #5 Innovative Companies
- #996 Global 2000
- #1 016 in Sales
- #1 564 in Assets
- #148 in Market value
- #71 World's Most Valuable Brands
- #276 America's Top Public Companies
- #298 in Sales
- #619 in Profit
- #396 in Assets
- #74 in Market value
- #372 America's Best Employers (2015)
Netflix, Inc. operates as an Internet subscription service company, which provides subscription service streaming movies and TV episodes over the Internet and sending DVDs by mail. The company operates its business through the following segments: Domestic streaming, International streaming and Domestic DVD. Netflix obtains content from various studios and other content providers through fixed-fee licenses, revenue sharing agreements and direct purchases. It markets its service through various channels, including online advertising, broad-based media, such as television and radio, as well as various partnerships. Netflix was founded by Marc Randolph and Wilmot Reed Hastings Jr., on August 29, 1997 and is headquartered in Los Gatos, CA.
Netflix is the world’s leading internet television network with over 100 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films. Clients can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. They also can play, pause and resume watching, all without commercials or commitments.
The market of TV series is growing very fast for several years now. Netflix is the world’s leading Internet subscription service for enjoying movies and televisions show. During the fourth quarter of 2016, the company added 7.05 million users, which was twice the amount of users they added in the in the third quarter. Of these new users, 73% came from international markets – the focus of the company’s user growth strategy. Netflix strategy is to continue to build a platform that allows for consumers to obtain the best streaming subscription business both domestically and internationally.
Here is a SWOT analysis of Netflix.
Strengths
Netflix has set itself apart as an industry leader in streaming entertainment services. By being the first significantly competitive company to provide streaming movie services, they have significantly leveraged their first-mover advantage in this market segment.
With more than 98 million subscribers globally, Netflix is one of the largest providers of subscription-based streaming movies and TV shows in the world. Its Internet-based subscription model enables it to offer a wide portfolio of services in a more user-friendly way than traditional outlets. In January 2016, Netflix launched its services to 130 countries, taking the total number of countries in which it offers streaming services to 190. This expansion is expected to help it hedge the effects of slow growth in the US.
Netflix has been broadcasting exclusive content for several years now. The notable series are award-winning series House of Cards or Hemlock Grove. Later on, the company produced many other shows including high ranked productions such as Orange is the New Black, Marco Polo, Bloodline, Daredevil or The Narcos. Moreover, Netflix has signed contracts with big movie distributors such as Walt Disney Studios Motion Pictures (including Walt Disney Pictures, Walt Disney Animation Studios, Disneynature, Pixar, Lucasfilm and Marvel Studios).
Weaknesses
Netflix reported disappointing earnings today (as of this writing the stock was down 11% for the day). One particular area of concern was the huge forecast slowdown in international subscriber adds. Despite expanding into over 130 countries Netflix management guided for international subscriber growth to slow from 4.5M adds in the current quarter to only 2M for the next quarter.
Cable TV service and bundle packages are very expensive in the US. It's not uncommon for a household to pay over $100 per month for broadband internet and cable TV with the bills for some bundles reaching over $200. Overseas, due to more competition and tighter regulations, pay TV is much less expensive.
Netflix will also have to face more competitors in the over-the-top (OTT) TV space, or TV service that is not reliant on cable or satellite services. Google is launching its YouTube TV service this year, and Hulu will also have an OTT service out this year. Dish Network and AT;T, through DirecTV, are also bolstering their offerings. Meanwhile, Amazon has also increased its original content. And, increasing premium programming also means that Netflix will have to spend more on content.
Opportunities
RBC analyst Mark Mahaney believes that Netflix could generate sales of more than $1 billion annually from sales of merchandise for its wildly popular original programs such as nostalgic '80s sci-fi thriller Stranger Things, perplexing mystery series The OA, and adult animated comedy BoJack Horseman. In a recently released note to clients, Mahaney said, "We view this as a highly reasonable step by Netflix to further promote and market its original content and other offerings." He further observed that while this will be years in the making, "We see this as a development that signifies the coming of a scale of an increasingly ubiquitous global entertainment company."
Netflix merchandising ambitions are still in the nascent stages. In early December 2016, merchandise for pop-culture phenomenon Stranger Things debuted at Hot Topic and its charitable spin-off BoxLunch. After a seemingly successful trial run, Netflix posted a job listing earlier this year for a merchandising and promotion manager to administer licensing of "books, comics, gaming toys, collectibles, soundtrack and apparel" to "establish a licensing and merchandising approach to help amplify fervor around key titles by developing new channels for consumers and communities to interact with Netflix."
One of the markets which Netflix can look to increase its subscribers is India and other neighboring countries like Pakistan, Bangladesh and South-East Asian countries. One of the biggest benefits of this region is that English is used as a second language in many of these countries. Also, there is a greater prevalence of Hollywood movies within the local market which can reduce the need to produce customized content. (Although customized content would still be needed).
Threats
Increasing competition is the most formidable threat the company faces. The market for online entertainment services remains subject to rapid technological change, and fewer barriers to entry in the streaming business mean greater competition from rivals. A large number of consumers use multiple entertainment providers, and can easily shift their spending depending on a variety of factors. Amazon.com is one such competitor. Its service Amazon Prime is an annual membership program that, in addition to offering free shipping on millions of physical items for purchase, also allows customers access to its instant streaming platform, with thousands of movies and television episodes. Cable channel HBO has announced its HBOGO will be made available without a television subscription in 2015. Its large catalog of original titles ought to be tough competition for Netflix’s own streaming offerings. CBS network has also announced a subscription streaming service. We expect competition will continue to increase in the coming years.
Netflix faces a big threat from video piracy, especially from peer-to-peer networks such as torrents. Its successful series such as House of Cards and Orange is the New Black have been illegally downloaded by millions all over the world, causing it huge losses. The black market around the world in the form of downloading is a potential threat for Netflix. Increasingly high numbers of young people between the ages of 20 and 30 download content for free. These customers don’t need a subscription service at all, and most content is available to them for free.
Conclusion
Netflix already has a history of being the first to embrace the changing habits of consumers by successfully switching from DVDs to online streaming. However, the company is not resting on its laurels. Netflix was the first company to resign from making money off streaming ads between its movies and proved that the satisfaction and convenience of its users, who were tired of watching time-consuming ads, is once again more important than higher income. We foresee significant growth in revenues and share earnings for Netflix over the coming years. Its growing original content portfolio should also continue to attract new clients. Still, increasing competitive pressure will probably remain the biggest concern.
References
- Netflix's International Weakness Shouldn't Be A Surprise [https://seekingalpha.com/article/3966339-netflixs-international-weakness-surprise]
- Lower subscriber growth could hurt Netflix's first quarter earnings, analysts warn
- Netflix's Next Billion-Dollar Opportunity Is Not What You Might Think [https://www.fool.com/investing/2017/04/21/netflixs-next-billion-dollar-opportunity-is-not-wh.aspx]
- Netflix: A Short SWOT Analysis
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Netflix: SWOT analysis. (2018, Feb 09). Retrieved from https://phdessay.com/netflix-swot-analysis/
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