Netflix Case Study

Table of Contents

Company Overview 4

Issues 5

Analysis

External Analysis

Dominant Economic Feature 8

Competitive Forces - Five Forces Model 10

Driving Forces 12

Key Success Factors 14

Competitor Analysis 15

Industry Attractiveness 21

Internal (Company) Analysis

Company Strategies 21

SWOT Analysis 23

Value Chain Analysis 29

Competitive Strength Assessment 30

Strategic Issues and Obstacles 31

Alternative Courses of Action for Success 31

Recommendations 31

Implementation 32

Works Cited 36

Appendices

Corporate Officers A

Online Movie Industry Market Share B

Renting Process Flow Chart C

Growth Rate Chart D

Rental Price Comparison E

Ratio Comparisons F

S.W.O.T. Analysis G

Weighted Competitive Strength Assessment H

Unweighted Competitive Strength Assessment I

Financial Analysis J

Return on Assets / Return on Equity K

COMPANY OVERVIEW

Reed Hastings founded Netflix in 1997. He noticed that there was a demand for the ability to rent movies. With a large customer base he figured there was no question that his company could fail. This began the online movie rental industry to a large scale. With one company becoming successful, it wouldn't be but a matter of time before others began to catch on and begin to reap the benefits of someone else's idea.

Reed Hastings has already been a success for beginning new companies. He first made a name for himself by going public with Pure Software in 1995 (netflix.com/PressRoom). After the development of this company he began to acquire several other companies and made Pure Software one of the 50 largest public software companies in the world by 1997; this until they sold to Rational Software in 1997. From there Hastings moved on to other projects.

The other project in mind was Netflix. Hastings and a few colleagues formed Netflix in 1997, as formerly stated. Which by 1999, they had over one million subscribers in only three and a half years. Since the beginning of Netflix in 1997, they have battled many different forms of DVD entertainment competition. The competition ranges from simply going to the local video store, or actually going out to purchase a movie. It ranges too many other levels as well as many other mediums. Through the beginning and even until today Netflix has been able to stay ahead of their competition; this mainly due to the seemingly flawless method of getting the product to the end user, and back. "No one is going to out-hare Netflix," Hasting said. (Netflix-Maddox) With this bold statement, Hastings has been able to keep his word on it. He is able to keep his word mainly because of the intricate rental system involved, also because they have until recently been what seemed to be the best deal for renting movies.

Netflix seems to have a simple statement. "Our 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 millions subscribers in the U.S., or 5 percent of the U.S. TV households over the next four to seven years." (Maddox, c-14) This statement appears to be plausible as long as they figure a way to keep the Blockbusters and the Wal-Marts of the world at bay.

"Netflix launched its movie rental service in 1999 with the goal of using the DVD format and the Internet to make it easier for people to find and get movies they will enjoy. As a result, our members can reliably discover and enjoy lesser-known titles. As we succeed, more people are watching more films, and filmmakers are reaching a larger audience. In turn, we believe they will produce more new films. Netflix strives to be the world's largest and most influential movie supplier. (netflix.com/pressroom)"

ISSUES

Primary

* The first strategic issue that Netflix will need to cover is how to gain a larger consumer base. Without more members they will have a hard time keeping up with the competition. Many of their competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than Netflix does. Some of their competitors have adopted, and may continue to adopt, aggressive pricing policies and devote substantially more resources to marketing and Web site and systems development than Netflix does. The rapid growth of their online entertainment subscription business since their beginning may attract direct competition from larger companies with significantly greater financial resources and national brand recognition. For instance in 2003 the extremely wealthy Wal-Mart used their online site to launch an online DVD subscription service, Wal-Mart DVD Rentals. With increased competition reduced operating margins may result as well as a loss of market share and reduced revenues. In addition, our competitors may form or extend strategic alliances with studios and distributors that could adversely affect our ability to obtain titles on favorable terms.

Secondary

* There are new opportunities for the industry. With the advancement of technology many companies can take advantage of the Internet. Currently Netflix expects to spend $7 million-$14 million this year on its Internet Video-On-Demand offering, which it will launch during 2005. Along with opening more distribution centers, this will cut down on delivery