More and more customers around the world are cutting their cable company every year. The streaming options provided by Netflix offering a wide variety of digital content has no match. Netflix has harnessed the transformational power of the internet to revolutionize the entertainment industry.
This report provides a critical analysis of Netflix and its transformative impact. The first section of the essay provides an overview of the operations of Netflix. The second section of the essay will provide the history of the development of Netflix and challenges the company face. The third section will provide an analysis of the company’s business model and internet ecosystem. The last section will focus on the disruption caused by Netflix by utilizing the internet for business transformation.
What is Netflix?
Netflix is an online video streaming service that offers a wide variety of content to the customers including movies, TV shows, documentaries, and other entertaining digital content. Netflix is operating in 190 countries around the world offering a wide variety of genres and languages.
Netflix has become a popular option for home television viewers in recent years.The company is also producing digital content and distributing the same. The company has also won various Oscars for its documentaries. The company had 137 million subscribers around the world as of October 2018. The service is offered worldwide except in Syria, China, North Korea, and Crimea.
The historical beginnings of Netflix
The company was started in 1997 in America by Reed Hastings and Marc Randolph as a subscription-based online DVD rental service. Initially, they offered 900 titles for a $4 rental for seven days and $2 for shipping. The company enhanced its DVD library on the basis of user reviews on the website. Though during those days Netflix had very few competitors but the market for DVD was also small as very few people in America had DVD players.
Netflix tied up with companies like Apple & HP to enhance the sales of DVD players and computers with DVD drives. The company closed in DVD sales in 1998 due to the strong competition from Amazon. The company solely focussed on DVD rental business. In Aashish Pahwa’s article, it mentioned the model of Netflix to make money. The company offered various value for money schemes to enhance its DVD rental business. In 2000, it introduced $19.95 a month for unlimited DVD rentals with a limit of 3 DVDs at a time. The rental business of the company picked up and by 2003 it had around 1 million subscribers.
The company evolved in 2007 to become an online streaming service offering TV shows and video on demand. The company moved away from its core business model of DVD rental to video on demand. This new business model of video on demand based on the internet helped the subscriber base to grow rapidly. In 2010 the company started its international operations and there is no looking back since then. Netflix capitalized the digital content effectively to become a 2 million dollars worth company. The company offers access too high-quality digital content for a flat fee. Netflix has effectively captured the opportunity offered by the increasing popularity of videos on the internet and gained a large number of subscribers. The company has gained a reputation as a producer of high-quality digital content. The forward-thinking and vision have helped the company to revolutionize the entertainment industry.
Challenges that Netflix faces
Netflix is hugely dependent upon the media companies for its contents. The content is becoming expensive and Netflix has to spend a huge amount on acquiring rights. These mounting costs can only be recovered by increasing the subscriber base. Netflix has been operating in America from two decades and has around 47 million subscriber base (Levy 2016). More than 50% of Americans are already watching Netflix and there is a limited scope of expansion in America. It is very hard for the company to grow further in America as the company can do a limited price increase. The company is expanding operations internationally to expand its market. However, it is not easy for Netflix to expand its operations globally. The company has expanded its operations nearly every market apart from China. But in Asian countries, the company is struggling due to regulatory and cultural issues (Levy 2016).
The company is facing various licensing restrictions in Asian countries related to its digital content (Levy 2016). The company does not hold global rights for all its contents. Furthermore, the company has failed to offer a wide variety of local content to its Asian audience. Like, in South Korea, local content offered by various local apps is more popular than Netflix as it offers very limited local content. The television channels in most of the Asian countries follow the cultural norms and don’t provide access to high violence or sexual content. However, Netflix being an internet app is largely unregulated. In Indonesia, Netflix faced legal issues by showing the violent or sexual content that the communications ministry considered inappropriate. The company has been blocked in various countries due to legal issues. The company is struggling in Asian markets due to increased local competition and regulatory issues.
Netflix revolutionary business model
Netflix has an online subscription-based business model and it has revolutionized the way media is being consumed. As Amanda noted in her article, Netflix deployed unique techniques to reach more subscribers. Netflix content can be access by purchasing its membership through its website or app. The content can be accessed through smartphones, television, laptop, and tablet. It offers three simple monthly membership plans around the world to access it unlimited high-quality digital content. It offers three subscription plans to its customers – basic, standard and premium. No matter whatever subscription the member chooses they get access to the same content (Bond 2017). The Basic plan costs around $8 offer content on 1 screen at a tie on any device. The standard plan offers content on two screens at the same time with high definition with $11. This is the most popular subscription plan as it removes the arguments between spouses or roommates. The premium is priced at $13 plan offers 4 screens at a time with ultra HD viewing experience. For the first month services are offered free of changed and from next month the subscription becomes chargeable.
For accessing the Netflix content, used requires a device and an internet connection. For watching online content one needs high-speed internet and a device. The business model of Netflix is based on offering high-quality content at the lowest possible cost by utilizing the internet. Netflix has not only offered variety to the customer but compared to traditional television it gives power to the customer to watch content on demand without any advertisements. Netflix empowers its customers to watch what entertains them. The company is offering value to its customer by investing millions of dollars on producing high-quality content (Grant 2018). The company aims at becoming profitable by reaching a large number of households around the world. The company has managed to become a multi-billion dollar by utilizing three simple monthly subscription plans.
The Internet Ecosystem refers to the rapid and continuous adoption of information technology by the broad range of actors to support and influence each other’s operations. Netflix is based on the sharing economy concept where the content developed by various media companies around the world is shared with a large number of audience and the huge license cost is shared by the viewers in form of a subscription fee.
The business model followed by Netflix aims at creating values for all its stakeholders and the complete ecosystem that helps the organization to grow. The direct competitors of the company are various local video streaming apps and global players such as Amazon Prime, Hulu, and HBO Now. The company also faces indirect completion from Youtube, TV channels and other sources of entertainment. The Netflix users are its members of DVD rentals as well as the video on demand services. The core suppliers of Netflix are the media producers that make documentaries, TV serials, movies, and other entertainment content. The company has also entered into a partnership with various media companies to produce the original content including Columbia Pictures, Sony, Paramount & many others (Grant 2018). The online content is regulated by the local government of the countries wherever Netflix operates and the community groups. Netflix is a public listed company with three major shareholders including – CEO & founder- Reed Hastings, Chief product officer- Neil D. Hunt & Chief content officer- Ted Sarandos.
Internet Ecosystem of Netflix
Netflix – Is it a transformative disruptive innovation?
Disruptive innovation has provided immense power to the smaller companies to overtake their big rivals. Clayton M. Christensen coined the term disruptive innovation in 1995 as the strategy that creates a new market and value network that displaced the market leaders (Sundararajan 2016). In recent years many companies have utilized the technological advancement for disruptive innovation.
Netflix is a clear example of internet-based technological disruption. Initially, when it launched its Internet-based DVD mail-in subscription it didn’t focus on existing DVD rental market dominated by Blockbuster (Richardson 2011). Rather it realized the needs of their customer to watch the content of their choice and that too with an easy access. The company evolved its business model to make you of opportunity in video streaming. Its biggest rival during those times Blockbuster collapsed as viewers were attracted towards Netflix due to a wide variety of high-quality content and the power to control the content. The rapid rise of disruptive company results in the collapse of their bigger competitors as they tend to overlook them. Netflix initially didn’t compete with Blockbuster for its customer but eventually overtook all of its markets.
Netflix offers cost-effective and convenient services to its users, a market that was previously overlooked. Netflix effectively utilized the power of the internet to provide users with an on-demand service to watch a wide variety of content. Furthermore, the usage of the internet has reduced the infrastructure and operations costs of the company. Netflix offers tailor-made content for all of its users. By entering into online streaming the company took a bold step to disrupt its business model. The online customer reviews have helped the company to evolve its business model and to update its content on regular basis.
The movie rental business faced a challenge from internet-based video on demand technology. Netflix was the first company to utilize this technology to disrupt not only the DVD rental business but the complete entertainment industry. Netflix business model is a disruptive innovation that originated from the internet that made the big players collapse.
A final note
Finally, it can be said that Netflix has effectively utilized the internet not only to transform its own business model but transform the way entertainment content is being watched. The company introduced a purely internet based video on demand viewing to empower the customers to control the content they wanted to view. It has utilized the power of the internet to reach customers around the globe.
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