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NETFLIX MGMT 5005 – Supply Chain Risk Management

Submitted to Prof. Amy Vuong

Submitted by Ramandeep Singh, Harpreet Kaur, Natarajan Sundaresh, Kanwaljit Singh November 21, 2014

NETFLIX Contents EXECUTIVE SUMMARY................................................................................................................................... 2 ISSUE IDENTIFICATION .................................................................................................................................. 3 ENVIORNMENTAL AND ROOT CAUSE ANALYSIS ........................................................................................... 3 SWOT ANALYSIS ............................................................................................................................................ 4 Strengths: ............................................................................................................................................. 4 Weakness: ........................................................................................................................................... 5 Opportunities: ...................................................................................................................................... 5 Threats: ................................................................................................................................................ 5 PEST ANALYSIS ............................................................................................................................................... 6 ALTERNATIVES/OPINIONS ............................................................................................................................. 6 RECOMMENDATIONS .................................................................................................................................... 7 IMPLEMENTATION ........................................................................................................................................ 7 MONITOR & CONTROL: THE BALANCED SCORECARD ................................................................................... 7 REFERENCES .................................................................................................................................................. 9

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NETFLIX EXECUTIVE SUMMARY “Netflix, Inc. is the world's largest online movie rental service, with more than 10 million subscribers (Netflix Media Center, 2009).” Netflix exhibits dominant economic characteristics in the online movie rental business. They enjoy strong market size and growth rate when compared to rivalry competition. The number of rivalries are increasing, and the market remains dominated by only a few sizeable rivalries like Blockbuster Video, Wal-Mart, Walt Disney Movies and Movielink’s able Movies. Netflix is determined to offer new and innovative technology to sustain their competitive advantage. “Netflix growth strategy entails making the best product and the best consumer experience even better. Lead the expansion of internet delivery content by offering subscribers both mail delivery and a continuously improving internet delivery option (Netflix Overview, 2009).” Netflix’s vision is “to change the way people access and view the movies they love. To accomplish that, on a large scale, we have to set a long term goal to acquire 5 million subscribers in the U.S., or 5 percent of the U.S. TV households over the next four to seven years (Thompson C-41).” This vision is well devised and crafted setting short term and long term performance targets. Current analysis shows less than 4 million subscribers in 2004, and in less than six years their subscriber base has more than doubled to more than 10 million subscribers. Their intent is to leverage their online DVD rental leadership to grow both subscribers and net income, thereby using a balanced scorecard approach relating to financial performance and those related to strategic performance.

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NETFLIX

ISSUE IDENTIFICATION 

MARKET RISK - Ever expanding market size and threat to be left out in a market. They should focus on increasing their focus in different markets like India instead of only focusing on U.S

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BARGANING POWER – customers have higher bargaining power due to available different option.

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SUPPLIER STRENGTH- Cost of content is increasing as they need to buy in from different supplier and producers as they have copyright, so the cost is increasing for Netflix.

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COMPETITORS – HBO, AMAZONE, GOOGLE, HULU etc.

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FINANCIAL RISK – High debt and increasing working capital cost.

ENVIORNMENTAL AND ROOT CAUSE ANALYSIS DVD rental outlets and kiosk services, such as Blockbuster, Movie Gallery and Redbox (Source: Netflix Annual Reports 2010) Video package providers with pay-per-view and VOD content including cable providers, such as Time Warner and Comcast; direct broadcast satellite providers, such as DIRECTV and Echostar; and telecommunication providers such as AT&T and Verizon (Source: Netflix Annual Reports 2010) Online DVD subscription rental web sites, such as Blockbuster Online (Source: Netflix Annual Reports 2010) Entertainment video retail stores, such as Best Buy, Wal-Mart and Amazon.com (Source: Netflix Annual Reports 2010) Internet movie and TV content providers, such as Apple’s iTunes, Amazon.com, Hulu.com and Google’s YouTube. (Source: Netflix Annual Reports 2010) Popularity of alternative entertainment mediums which can be distributed using a similar business model like Netflix (Example – Gaming CD and DVDs) Currently the time for distribution in DVD format is shorter than release to other mediums (VOD, TV etc) after a theatrical release of a movie. This gives a competitive advantage to the DVD market. However this competitive advantage may go if the distribution to these multiple formats happens simultaneously. St Lawrence

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NETFLIX The proprietary technology and information systems are also based on a certain historic scale of operations which has increased substantially and this could lead to systemic disruptions and negatively impact operations. The DVD format would probably give way to Internet movie and TV content providers and Netflix would be left stranded with its warehouse and sophisticated mail handling systems. However the one thing which will continue to survive is CINEMATCH and its database of billions of movie ratings which will give a competitive edge to Netflix when it decides to switch over to other formats of movie distribution.

SWOT ANALYSIS Strengths:   

     

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Brand Recognition: The Netflix brand is very well known and has become a verb among many internet s. Accessibility: The Netflix App has enabled their subscribers the ability to stream media on nearly all internet enabled devices. Original Content: Award winning original content for series House of Cards and Hemlock Grove and other critically acclaimed titles. Brand Recognition: The Netflix brand is very well known and has become a verb among many internet s. Accessibility: The Netflix App has enabled their subscribers the ability to stream media on nearly all internet enabled devices. Original Content: Award winning original content for series House of Cards and Hemlock Grove and other critically acclaimed titles. Cost of Content: The cost of mass licensing packages and the in-house original content production has the company undertaking a large amount of debt. DVD Subscribers: DVD and Blu-ray subscribers have dramatically declined in 2013. Raising Subscription Prices: Netflix has a difficult time raising subscription prices. The last attempt to raise monthly subscription prices left currently subscribers upset and Netflix stock tumbling. International Expansion: The ability to create original content will enhance international growth. Original In-House Programming: With many house-hold entertainment devices connected to the internet, there is an opening for internet tv and Netflix’s exclusive inhouse content poises the company for that demand.

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NETFLIX   

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Word-of-Mouth Campaigns: Marketing expenses have steadily decreased due to word-of-mouth campaigns based on original content. ISPs: Netflix s for about 30% of daily internet traffic. With net neutrality laws struck down, Netflix may have to assume more debt or cut content. Competition (Amazon Prime, YouTube): Both, Amazon Prime and YouTube has announced their own original content productions and aim to be a direct competitor to Netflix. Content Price: The price of licensing and renewing those license agreements remain to be the largest threat to the company’s ability to operate at a profit.

Weakness:   

Cost of Content: The cost of mass licensing packages and the in-house original content production has the company undertaking a large amount of debt. DVD Subscribers: DVD and Blu-ray subscribers have dramatically declined in 2013. Raising Subscription Prices: Netflix has a difficult time raising subscription prices. The last attempt to raise monthly subscription prices left currently subscribers upset and Netflix stock tumbling.

Opportunities:  

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International Expansion: The ability to create original content will enhance international growth. Original In-House Programming: With many house-hold entertainment devices connected to the internet, there is an opening for internet tv and Netflix’s exclusive inhouse content poises the company for that demand. Word-of-Mouth Campaigns: Marketing expenses have steadily decreased due to word-of-mouth campaigns based on original content.

Threats:  

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ISPs: Netflix s for about 30% of daily internet traffic. With net neutrality laws struck down, Netflix may have to assume more debt or cut content. Competition (Amazon Prime, YouTube): Both, Amazon Prime and YouTube has announced their own original content productions and aim to be a direct competitor to Netflix. Content Price: The price of licensing and renewing those license agreements remain to be the largest threat to the company’s ability to operate at a profit.

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NETFLIX PEST ANALYSIS

ALTERNATIVES/OPINIONS 

Focus on original content publishing like ‘Orange is the new Black’ – increased revenues and lower costs

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Pursue market penetration by excellent service and low prices

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Capitalize on their award winning ‘Customer preference’ software – differentiation factors

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Create more partnership to create perfect hardware

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Invest in innovation

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NETFLIX RECOMMENDATIONS •

Production of in house serials, movies and content would be a major game changer for Netflix

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Increased revenues at lower costs

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Capture the loyalty of customers through copyrighted content

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Price rises should be done with caution – recent hike led to loss of 6 M customers

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Netflix should start broadcasting ULTRA HD Contents

IMPLEMENTATION This strategy can be implemented by following many key factors, few of which are listed below: 1. Strong human resource team 2. Continuous and consistent representation of the company 3. Develop more distribution centres to accommodate the growing economies of scale 4. Focus on Marketing through social media 5. Investing in R&D to improve efficiencies 6. Improve the MIS (Management information system) to achieve supply chain efficiencies.

MONITOR & CONTROL: THE BALANCED SCORECARD This method of analysis will allow firms to evaluate strategies from four perspectives: Financial performance, customer knowledge, internal business processes, and learning and Growth. The following table is Netflix’s Balanced Scorecard:

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NETFLIX Area of Objectives

Measure or Target

Time

Primary

Expectation

Responsibility

Customers 1. Number of

Increase customer

2018

customers

base to 100 M in 3

Aggressive

years

expansion

Managers/Employees 1. Employee welfare

Employee Turnover

4 years

decreased by 20%

Enhance communication.

Operations/Processes 1. Lowering the Cost of software

Marginal Cost

2018

decreased by 4%

Outsource more types of content.

implementation Business Ethics/Natural Environment 1. Eco friendly company

E waste to reduce by 40

2016

%

ISO 14001 standard

Financial 1. Financial sustainability

Net Profit increased to 6% (currently 3%)

2019



TQM practice

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Optimize global expansion

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NETFLIX

REFERENCES •

www. Netflix.com

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http://www.ibtimes.com/hbo-challenges-netflix-streaming-announcement-questionsloom-about-price-quality-cable-tvs-1705777

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http://qz.com/299989/netflix-now-s-for-35-of-bandwidth-usage-in-the-us-andcanada/

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