Sunday, February 3, 2013

Netflix Environmental Scan /SWOT Analysis

By Lisa Bauman, Nina Deal, Peter Ishak, and Steven Johnson

      In this document we will discuss in detail the threats, weakness, opportunities, and strengths that will affect Netflix within the next 18 months. We will examine Netflix's competition and discover who its strongest competitors are. We will also look at how Netflix is responding to this information in the market.

Environmental Scan
The environmental scan has shown three main opportunities for Netflix's continued success both demographically and technologically (Fig. 1).  Analysts suggest that the greatest opportunity Netflix possesses is its ability to expand into in-house, Netflix-owned, original programming.  Netflix's second opportunity goes hand-in-hand with the first: in-house content gives way to potential expansion into international markets (Stelter). And lastly, as Bob Cringely predicted in 2011, crossover from broadcast TV to internet TV is increasing due to cost and widespread availability. All of these opportunities, when acted on, will create a competitive edge that will differentiate Netflix from competitors and allow expansion both locally and internationally.
International Growth
Greater Competition
Original In-House Programming
Discrimination From ISP's

Fig. 1: By Nina Deal and Lisa Bauman
Demand for Internet TV

The legal and economic environment that the firm operates in shows its greatest threats. Netflix may face discriminatory restrictions from Internet Service Providers (ISPs). In 2012 Marcia Clemmitt explained that "ISPs might consider it their financial interest to slow content traffic to ... competitors [like Netflix] to gain an edge over them." The second threat is strong competition from competitors such as Coinstar and Dish Network. Analysts believe that to gain independence from pre-existing, licensed material, Netflix may need to begin diversification of their own content quickly. Since most major studios and television networks are owned by overarching companies, competitors such as Hulu and Amazon may have the opportunity to license the same content and offer services more competitively to price-savvy customers (Weinman).

Strengths and Weaknesses
Netflix enjoys a very well known national brand name; servicing more than 30 million patrons (Company Timeline). Its combination of loyal subscribers and diversity of streaming programs represent Netflix's greatest strength.  Competitors are either less widespread, like Hulu, who is only available in the United States and Japan or limited by a smaller selection of programming, such as Redbox Instant, that launches less than a tenth of the titles that Netflix offers on fewer devices (Will Redbox Instant, International).
      Netflix's  physical media delivery service is its greatest weakness. More than two years ago Hastings predicted that the market for DVD and Blu-ray Discs would decline and he was right (Roettgers). Since that announcement Netflix has focused entirely on it streaming service, value adding features, and partnerships (Nakashima).
SWOT Summary (Fig. 2)
Netflix has a critical combination of membership, brand awareness, and accessibility that allows them to be competitive with similar streaming content providers.  To cope with the threats they face, Netflix must redirect resources from its delivery services to enhance strengths.  Providing ever-expanding streaming content will enable Netflix to serve and attract an even wider base of customers.

Competitive Landscape
      Since its first start on 1997, Netflix has been the leader of the video streaming business. The company gained more than 25% of market share within its first ten years and it now enjoys more than 32% of the current market (Thomas, Netflix Revenue). Netflix's success has motivated big competitors to get in the game by providing similar services. These direct competitors (Fig. 3) have lead to the decline in Netflix's market share since the beginning of 2012.
      In addition, aggressive growth in communication technology has lead to an increase in indirect competitors. The two main indirect competitors are Youtube and video piracy file-sharing websites like BitTorrent and BearShare. Consumers turn to these services because video streaming is available without subscription fees; an attractive option in a struggling economy where consumers continue to seek cheap and free sources of home entertainment (Thomas).
Direct Competitors
Indirect Competitors
Coin Star
Dish Network
Video Piracy File-Sharing
Amazon's Amazon Prime


Comcast's Xfinity

Fig. 3 by Peter Ishak and Lisa Bauman

Gauging Competition
There is little or at least level threat across the board for restrictions on data streaming in the entertainment streaming industry. Public and private positions both agree that restrictions are a bad idea. Netflix's general counsel David Hyman explains that "bandwidth is cheap and plentiful and will only grow more so with time, there is no good reason for bandwidth caps and fees to take root (Dampier)."
      It is true that pirating cites take customers away from Netflix, but they do not pose as great of a threat as Amazon and Comcast. Because of Netflix's "wide selection, relatively low monthly price compared to cable-TV subscriptions, and speed of delivery, few people opt to wrestle with the complexity and delay of [pirated] file downloads (Thomas)."
      Amazon has posed the largest threat since 2011 when it began offering streaming as a part of its Amazon Prime service designed to provide free shipping to its subscribers. Although Amazon appears to stay committed to offer this streaming service mainly as a way to attract new customers, its deep pockets and base of loyal customers should have Netflix concerned. In 2012 content growth increased by 70% and Amazon prime had between 3 to 5 million subscribers. Additionally the company plans to attract 5 million additional subscribers by mid 2013 (The U.S. Netflix Story).
      Although Comcast's Xfinity service offers less content than its competitor Netflix, it is priced much lower and is more motivated to compete directly with Netflix. Worst of all, Comcast possesses established relationships with media companies that will soon gain the leverage needed to gain access to licensing rights that allow content to mimic its competitor (The U.S. Netflix Story).

Netflix is taking its competitors and SWOT analysis seriously. The company plans to capitalize on internet TV popularity both internationally and within US by focusing on internet streaming services and especially expanding and producing its own content. This strategy will slowly phase out its weak performing physical media delivery service and keep Netflix ahead of competition. 

Clemmitt, Marcia. “Internet Regulation.” CQ Researcher 13 Apr. 2012: 325-48. Web. 30 Jan. 2013.
Cringely, Bob X. "Internet Television Will Replace Cable Television." Popular Culture. Ed. David Haugen and Susan Musser. Detroit: Greenhaven Press, 2011. Opposing Viewpoints. Rpt. from "The Future of Television (Part II)." I, Cringely: Cringely on Technology. 2009. Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.
Dampier, Phillip. "Netflix: “Cost of Providing 1GB of Data is Less Than One Cent, and Falling"." Stop the Cap!: Promoting Better Broadband, Fighting Data Caps, Usage-Based Billing, & Other Internet Overcharging Schemes. STOP THE CAP!, 8 Mar 2012. Web. 1 Feb 2013. .
"Netflix Revenue." Macro Axis: Simple Personalized Investing. Macroaxis.Inc. Web. 26 Jan 2013. .
Stelter, Brian. "A Resurgent Netflix Beats Projections, Even Its Own." New York Times 23 Jan. 2013: B1(L). Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.
"The U.S. Netflix Story: Evolving Competition Threatens Growth." Trefis: What's Driving the Stock. Trefis, 16 Oct 2012. Web. 1 Feb 2013. .
Thomas, Owen. "Online Video Piracy Is Fading Away, Thanks To Netflix." Business Insider. Business Insider Inc., 07 Nov 2012. Web. 1 Feb 2013. .
Weinman, Jaime J. "A fix for Netflix: its subscriber base is unrivalled, but without its own hit shows, can the video-streaming service survive?" Maclean's 26 Nov. 2012: 54. Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.
Yu, Roger. "New customers boost Netflix." USA Today 24 Jan. 2013: 01B. Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.

** For BA311, Marketing Management, Portland State University, Winter Term, 2013

1 comment:

  1. "There is little or at least level threat across the board for restrictions on data streaming in the entertainment streaming industry." That is quite true, as the basis of swot report a competitive environment grow rapidly every year. And so it is necessary to introduce new and advanced technology to monitor customer demand.