Recently the Netflix claims about 117.5 million users in over 190 countries, thanks to 8.3 million new subscribers in the last quarter of 2017, this subscriber gain is the largest over recorded by Netflix in a quarter. Throughout 2017, Netflix has attracted 24 million new users and hopes to attract another 6.35 million in the first quarter of 2018.
Some highlights include growing its streaming revenue 36% to over $11.3 billion, adding 24 million new memberships (compare to 19 million in 2016), achieving for the first time a full-year positive international contribution profit and more than doubling its global operating income.
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Netflix had more subscribers than expected in the first quarter, confirming its ramp-up, and announced plans to invest up to $8 billion in series and movies in 2018. So, this confirm that the company is in its growth stage, characterized by a strong growth in sales and profit, and because the company can start to benefit from economies of scale in production, the profit margins, as well as the overall amount of the profit, will increase.
The VOD market, in general, is very complex and many actors evolve there. However, it is necessary to distinguish the market of the VOD (purchase/rent) and the SVOD (subscription). The VOD market is drawn by Netflix, which enjoys a monopoly form, and which is estimated to have about two-thirds of the market in 2019. In the global market, the main competitors are Amazon Prime, Hulu Plus and streaming service of HBO. On the French market, canal Play is trying to compete.
Beyond the financial success signed by a market capitalization, support has become a cultural phenomenon: on the one hand by its growing presence in connection with the rise of customers, on the very nature of what Netflix is a producer/broadcaster of content. But al is not necessarily obvious or rosy for the company, as shown by a study of the Porter’s five forces.
Netflix Threat of Substitution
Very important element from the beginning of the reflection. VOD is a novelty that upsets video consumer habits, which in itself means that it is itself a substitute for the other possibilities. Illegal streaming is one, as are physical media (DVD, Blu-Ray…), television, and movies theaters.
Given the number of substitute products, we can say that the bargaining power of customers is certain, not in the sense that it can affect the price, already very low, of the Netflix subscription (no more than $11 per month for the most expensive package), but in the one where he can turn to other ways to consume audiovisual products.
The advantage of Netflix is to be your own supplier when the company produces its original content. Which does not mean that the platform is free, because to produce requires large investments that Netflix assumes for the moment only through very large loans. Debt to the financial “provider” is important.
In additional, for non-original content, negotiation may be difficult with production studios, broadcasting, which can sell expensive broadcast rights or even require exclusivities.
Netflix has a pioneering posture: it is the one who has launched the VOD market to a great extent, well beyond the more confidential attempts. The platform is therefore a leader and almost a monopoly, with no particularly formidable competitive pressure at the moment.
Threats of New Entrants
However, the success of Netflix puts the VOD market into a real hen with golden eggs. If it can turn out for a potential generalist actor to shake the brand with red typography, a blow is to play for everything related to niche culture. Especially, web behemoths like Amazon, Apple or Youtube do not expect to leave the market to Netflix for a very long time.
As we have previously mentioned it, Netflix benefits from a situation leading market position, with a value proposition that seems to be the most interesting. Indeed, it seems that his offer manages to satisfy the three market characteristics such as diversity, cost and customization.
For this which diversity, even if Netflix offers fewer titles than amazon Videos, the company nevertheless remains one of the platforms offering most complete content.
In terms of cost, despite recent increase in monthly subscriptions, the amounts remain low and still considered as cheap by users.
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