Case 6: Netflix in 2019: Striving to Solidify Its Position as the Global Leader

What factors are acting to intensify/weaken rivalry in the subscription video-on-demand industry? Select "yes" for those statements below that are accurate and choose "no" for those that are not. a. Amazon Prime, YouTube, and Hulu are exerting tremendous competitive pressure on Netflix to maintain its pace as the creator of "must-watch" on-demand content. b. Local providers in both developed and emerging markets are also rivals with possibly lower cost structures and more localized content. c. Rivalry is centered on two main factors: price and breadth of selection; providers with the largest content library will most likely have the most subscribers. d. The competitive pressures associated with rivalry among providers of subscription video on demand is intense due to price competition and price wars. e. Rivalry among subscription-based providers of streamed video content is a moderate competitive force that is likely to intensify in the years ahead. f. Deep-pocketed newer entrants such as Apple, Disney, and Warner Media will ratchet up that pressure.

a. Amazon Prime, YouTube, and Hulu are exerting tremendous competitive pressure on Netflix to maintain its pace as the creator of "must-watch" on-demand content. YES b. Local providers in both developed and emerging markets are also rivals with possibly lower cost structures and more localized content. YES c. Rivalry is centered on two main factors: price and breadth of selection; providers with the largest content library will most likely have the most subscribers. NO d. The competitive pressures associated with rivalry among providers of subscription video on demand is intense due to price competition and price wars. YES e. Rivalry among subscription-based providers of streamed video content is a moderate competitive force that is likely to intensify in the years ahead. NO f. Deep-pocketed newer entrants such as Apple, Disney, and Warner Media will ratchet up that pressure. YES

Exhibit 2

Selected balance sheet and cash flow data for Netflix, 2005-2018 (in millions of $).

Considering all four SWOT lists, which of the following accurately characterize the attractiveness of Netflix's overall situation?Select the best response from the options provided. A. Netflix's situation is threatened by movie studios with high licensing fees, adding to Netflix's financial burden. B. Netflix should address its weaknesses very closely as it continues to lose subscribers to Amazon. C. Netflix's overall situation is strong and its long-term outlook is promising.

C. Netflix's overall situation is strong and its long-term outlook is promising.

Netflix's swift growth to 60 million paid subscribers in the United States and its promising potential for rapidly growing its base of international subscribers past 90 million pushed the company's stock price to $360 per share in mid-May 2019 (and an all-time high of $423 in July 2018). Already solidly entrenched as the world's biggest and best-known Internet subscription service for watching TV shows and movies, the only two questions for Netflix in 2019 seemed to be how big Netflix's service might one day become in the world market for on-demand streaming of movies and TV episodes and whether the company had the competitive and financial strength to combat the efforts of larger, resource-rich rivals looking to steal subscribers away from Netflix.

Financial statement data for Netflix for 2005 through 2018 are shown in Exhibit 1 and 2. Netflix had never paid a dividend to its shareholders and the company had declared it had no present intention of paying any cash dividends in the foreseeable future.

New Content Acquisition Over the years, Netflix had spent considerable time and energy establishing strong ties with various entertainment video providers to both expand its content library and gain access to new releases as soon as possible after they were released for first-run showing in movie theaters. Prior to the recent push by Amazon Prime and Hulu to attract streaming subscribers, Netflix had successfully negotiated exclusive rights to show titles produced by a few studios. In August 2011, Netflix introduced a new "Just for Kids" section on its website that contained a large selection of kid-friendly movies and TV shows. By March 2012, over one billion hours of Just for Kids programming had been streamed to Netflix members. New content was acquired from movie studios and distributors through direct purchases, revenue-sharing agreements, and licensing agreements to stream content. Netflix acquired many of its new-release movie DVDs from studios for a low upfront fee in exchange for a commitment for a defined period of time either to share a percentage of subscription revenues or to pay a fee based on content utilization. After the revenue-sharing period expired for a title, Netflix generally had the option of returning the title to the studio, purchasing the title, or destroying its copies of the title. On occasion, Netflix also purchased DVDs for a fixed fee per disc from various studios, distributors, and other suppliers. In the case of movie titles and TV episodes that were streamed to subscribers via the Internet for instant viewing, Netflix generally paid a fee to license the content for a defined period of time, with the total fees spread out over the term of the license agreement (so as to better match up content payments with the stream of subscription revenues coming in for that content). Following the expiration of the license term, Netflix either removed the content from its library of streamed offerings or negotiated an extension or renewal of the license agreement when management believed there was still enough subscriber interest in the content to justify the renewal fees. Over the past five years, Netflix's rapidly growing subscriber base (as well as the streaming subscriber growth at Amazon Prime Video, Hulu, and other providers) gave movie studios and the network broadcasters of popular TV shows considerably more bargaining power to command higher prices for their content. Netflix management was acutely aware of its diminishing bargaining power in acquiring content that would be especially appealing to subscribers, and the substantial negative impact of that paying higher prices for streaming content had on the company's current and future profit margins. Nonetheless, Netflix executives believed there was still room for the company to earn attractive profits on streaming if it could grow its subscriber base fast enough to more than cover the rising costs of content acquisition. As indicated earlier, Netflix had recently begun devoting the majority of its new content acquisition budget to producing its own original movies and TV series in-house. Several of these shows were being launched in local languages with local producers to appeal directly, if not exclusively, to subscribers in a particular country or region. A new 2017 Brazilian science-fiction show had scored well with audiences around the world, even though it had been produced in Portuguese for Brazil-Netflix's first instance of a local-language program working well in locations where other languages dominated. In the second half of 2018, Netflix introduced a new original series produced in Denmark, called The Rain, that Netflix executives believed would have broad global appeal, along with the second season of the Brazilian program (called 3%). Other new original content scheduled for 2018 included the second season of 13 Reasons Why (one of Netflix's most watched television shows around the world in 2017), returning seasons of hits like Luke Cage, GLOW, Dear White People, Unbreakable Kimmy Schmidt, Santa Clarita Diet, Series of Unfortunate Events, and a comedy feature film with Adam Sandler and Chris Rock, called The Week Of.

Marketing and Advertising Netflix used multiple marketing approaches to attract subscribers, but especially online advertising (paid search listings, banner ads on social media sites, and permission-based emails) and ads on regional and national television. To spur subscriber growth, Netflix had boosted marketing expenditures of all kinds from $25.7 million in 2000 (16.8 percent of revenues) to $142.0 million in 2005 (20.8 percent of revenues) to $298.8 million in 2010 (13.8 percent of revenues) to $1.1 billion in 2016 (12.4 percent of revenues) to $1.44 billion in 2017 (12.3 percent of revenues) and to 2.37 billion in 2018 (15.0 percent of revenues). These Expenditures Related To: * Online and television advertising in the United States and newly entered countries. Advertising campaigns of one type or another were under way more or less continuously, with the lure of one-month free trials and announcements of new and forthcoming original titles usually being the prominent ad features. Netflix's expenditures for digital and television advertising were $1.8 billion in 2018, $1.09 in 2017, $842.4 million in 2016, and $714.3 million in 2015. * Costs pertaining to free trial subscriptions. * Payments to the company's partners. These partners consisted of mainly of: 1. Consumer products manufacturers who produced and distributed devices (particularly remote controls) that facilitated connecting TVs and other media equipment to Netflix. 2. Certain cable providers and other multichannel video programming distributors, mobile operators, and Internet service providers who had begun collaborating with Netflix to make it easy for their customers to connect to Netflix. For example, most all brands of Internet-connected TVs now came with a preinstalled Netflix app that was easily accessed via the TV remote; some TV remotes even had Netflix buttons that provided Netflix subscribers with a a one-click connection to their watchlist. In 2018, multi-channel TV providers like Comcast and Sky were offering customers the option to bundel a subscription to Netflix in with their preferred channel packages. Netflix believed collaboration with a host of cable and moble phone operators across all geographic markets would likely become common practice very quaickly. Management was particularly interested in partnering with mobile operators to create quick and easy-to-use procedures for mobile phone users across the world to access Netflix streamed or downloadable programming. Netflix believed it was particularly important to make mobile streaming from Netflix instantly accessible to those people who basically only wanted to have their relationship with Netflix on a mobile device. In 2019, Netflix expected its growth in marketing expenditures to outpace revenue growth, partly because it had started investing in more extensive marketing campaigns for new original titles to create more density of viewing and conversation around each title. Netflix CEO Reed Hastings explained the logic behind trying to make certain new titles a bigger hit in a particular nation or among a particular demographic segment" "We believe this density off viewing helps on both retention and acquisition, because it makes our original titles even less substitutable. Because we operate in so many countries, we are able to try different [marketing] approaches in different markets and continue to learn [how best to market Netflix's original content and differentiate Netflix from rival streaming providers].

The Fast-Changing Market for Entertainment Video In 2018, the world market for entertainment video (movies, TV episodes, and live-streamed events) was undergoing rapid and disruptive change being driven by: 1. Increasingly pervasive consumer access to high-speed Internet connections, 2. The variety of devices and downloadable apps that consumers could use to access both broadcast and streamed entertainment programs. 3. The mounting intensity with which well-known, resource-rich companies were competing for viewers of entertainment programs. As of March 31, 2019, almost 4.4 billion of the world's population of 7.7 billion people (56.8 percent) used the Internet; the number of people with broadband Internet access was moving rapidly toward 1 billion - a number that Netflix viewed as its near-term market opportunity. YouTube and Facebook already had 2 billion monthly active users, a number that Netflix viewed as its long-term market opportunity for accessing and attracting more subscribers. Surveys conducted in December 2018 indicated that the average amount of time individuals spent using the Internet on any device was 6 hours and 42 minutes, equal to more than 100 days of online time per year. The worldwide average fixed Internet connection speed was 54.3 million bits per second (mbps) and the worldwide average mobile Internet connection speed was 25.1 mbps. These speeds were expected to climb steadily toward 75 mbps (or more) by 2025.

People could watch streamed entertainment on smartphones, all types of computers (tablets, laptops, and desktops), in-home TVs with either built-in Internet access, and recent versions of video game consoles. During the past, five to eight years, most households with high-speed Internet service and/or Internet-connected TVs or DVD players had shifted from renting or buying physical DVDs with the desired content to almost exclusively watching streaming movies and TV episodes. This was because streaming had the advantage of allowing household members to order and instantly watch the movies and TV programs they wanted to see and was much more convenient than patronizing a nearby rent-or-purchase location. This shift had permanently undercut the once-thriving businesses selling movie and music DVDs and/or renting DVDs at local brick-and-mortar locations and standalone rental kiosks (like Redbox in the United States) or delivering/returning DVDs by mail (as at Netflix) and unleashed a fierce battle among the providers of streamed content in countries across the world to become the preferred streamed content provider (or, at worst, a frequently used content provider).

What does a SWOT analysis reveal about the overall attractiveness of Netflix's situation? The next several questions will walk you through this analysis.

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QUESTION TIME: Netflix in 2019: Striving to Solidify Its Position as the Global Leader We feel that the Netflix in 2019: Striving to Solidify Its Position as the Global Leader case pairs particularly well with the material covered in Chapter 7, in which the five primary reasons that companies choose to enter foreign markets are identified: To gain access to new customers. To achieve lower costs through economies of scale, experience, and increased purchasing power. To gain access to low-cost inputs of production. To further exploit its core competencies. To gain access to resources and capabilities located in foreign markets. Before beginning this exercise, you will need to read the Netflix case. How strong are the competitive forces confronting Netflix in the market for subscription video on demand? The next several questions will walk you through a five-forces analysis to support your answer.

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Netflix's Title Selection Software and Efforts to Enhance Its Interface With Users. Netflix had developed proprietary software technology that allowed members to easily scan a movie's length, appropriateness for various types of audiences (G, PG, or R), Primary cast members, genre, and an average of the ratings submitted by other subscribers (based on 1 to 5 stars). With one click, members could watch a short preview of a movie or TV show if they wished. Most importantly, perhaps, were algorithms that created a personalized 1- to 5-star recommendation for each title that was a composite of a subscribers' own ratings of movies/TV shows previously viewed, movies/TV shows that the member had placed on a "watchlist" for future viewing and/or mail delivery, and the overall or average rating of all subscribers (several billion ratings had been provided by subscribers over the years). Subscribers often began their search for titles by viewing a list of several hundred personalized movie/TV show recommendations that Netflix's software automatically generated for each member. Each member's list of recommended movie was the product of Netflix-created algorithms that organized the company's entire content library into clusters of similar movies/TV shows and then sorted the titles in each cluster from most liked to least liked based on subscriber ratings. Those subscribers who favorably or unfavorably rated similar movies/TV shows in similar clusters were categorized as like-minded viewers. When a subscriber was online and browsing through the selections, the software was programmed to check the clusters the subscribers had previously viewed, determine which selections in each cluster the customer had yet to view or place on watchlist, and then display those titles in each cluster in an order that started with the title that Netflix's algorithms predicted the subscriber was most likely to enjoy down to the title the subscriber was predicted to least enjoy. In other words, the subscriber's ratings of titles viewed, the titles on the subscriber's watchlist, and the title ratings of all Netflix subscribers determined the order in which the available titles in each cluster or genre were displayed to a subscriber-with one click, subscribers could see a brief profile of each title and Netflix's predicted rating (from 1 to 5 stars) for the subscriber. When subscribers came upon a title they wanted to view, that title could be watch-listed for future viewing with a single click. A member's complete watchlist of titles was immediately viewable with one click whenever the member went to Netflix's website. With one additional click, any title on a member's watchlist could be activated for immediate viewing. Netflix management saw its title recommendation software as a quick and personalized means of helping subscribers identify and then watch titles they were likely to enjoy. In 2018, Netflix's strategic initiatives in the user interface arena were focused on enahncing the accessibility of Netflix content for subscribers by: 1. Offering more programs in local languages. 2. Improving the streaming and download speeds for subscribers with suboptimal Internet connections-by making program encoding much more efficient so content selections would load more quickly and provide mobile users with a "really incredible video experience." More efficient encoding also enabled subscribers with spotty Internet connections to quickly download some programs for later viewing when offline.

The Financial Strain of Netflix's Growing Expenditures for Original Content and Other Content Acquisitions The company's heightened strategic emphasis on original content produced in-house had resulted in multi-billion-dollar annual increases in Netflix's financial obligations to pay for streaming content and sharply higher negative cash flows from operations (see exhibit 6). Netflix was covering these obligations with new issues of common stock and new issues of senior notes (Exhibit 6); details of Netflix's outstanding senior notes are shown in exhibit 7

* HULU Hulu had 28 million subscribers as of May 2019, up from 12 million in May 2017. The subscription fee for Hulu was $6 per month for regular streaming (interspersed with ads) and $12 per month for commercial-free streaming, and new subscribers got a one-month free trial. The regular streaming option included advertisements as a means of helping keep the monthly subscription price low. Hulu also offered plans that included not only its video streaming service, but also packages that included 60+ live TV and cable channels (that included sports, news, and entertainment) for a monthly fee of $44.95 and options to add on HBO, Showtime, Starz, and Cinemax. The Hulu library of offerings included all current season episodes of popular TV shows (available for next-day airing of network TV shows from ABC, NBC, and Fox), over 15,000 back season episodes of 380+ TV shows, over 2,300 movies, most in high-definition, and a growing selection of Hulu-produced original content. Going into 2018, Hulu was a joint venture co-owned by Walt Disney (30 percent), Fox (30 percent), Comcast (30 percent), and Time Warner (10 percent), but in late 2018 Disney put a deal in place to buy Fox's 30 percent share of Hulu and then, months later, AT&T sold its 10 percent of Hulu to the Disney-Comcast owners of the Hulu joint benture for $1.43 billion. In May 2019, Comcast and Disney announced an agreement whereby Disney would have full 100-percent control of Hulu, starting immediately; the agreement also specified that Comcast would continue to allow Hulu to carry all NBCUniversal content as well as live-stream NBCUniversal channels for Hulu's live TV service until late 2024 (Comcast was the 100-percent owner of NBCUniversal). The deal called for Comcast's ownership stake in Hulu to be officially sold to Disney starting in January 2024.

* HBO NOW and HBO GO-HBO NOW was an option to receive unlimited streaming of content in HBO's library that included movies, documentaries, sports programs, and original series (Game of Thrones, Westworld, Silicon Valley, True Detective, Big Little Lies, Sharp Objects) for a cancel-anytime monthly subscription price of $14.99 (as of 2019). HBO NOW content was viewable on mobile phones, tablets, computers, and Internet-connected TVs. HBO NOW, offered only in the United States and a few territories, had a reported 8 million subscribers as of February 2019, but it was expected to be hit with thousands of cancellations when its flagship Game of Thrones series ended in May 2019. A 2019 study found that HBO subscribers were far less loyal than those subscribing to other streaming services; only 26 percent of HBO subscribers who made their first payment during season 7 of Game of Thrones was still subscribers six months later. HBO GO was a bonus offering only for people who subscribed to HBO through a cable or satellite provider; such subscribers used a downloadable app to access the HBO GO website, entered their user name and password of their cable provider to authenticate their subscription, and then clicked on the desired HBO content that was viewable on mobile phones, laptops, and computers. HBO had no interest in offering its HBO GO option to people who were not cable subscribers because its principal revenue source was a percentage of the monthly fees that some 142 million cable subscribers across the world paid their cable company for HBO as part of their cable package-HBO was typically the most expensive of the premium cable channels offered by cable/satellite providers. However, as of 2018, HBO was offering a direct streaming service akin to HBO NOW in several countries that had low cable subscriber rates (namely Spain, Colombia, and four Nordic countries- Norway, Denmark, Sweden, and Finland). HBO was a division of Time Warner, which had recently merged with AT&T.

Consumers could view streamed entertainment from growing numbers and types of providers, and the options include: * Using a TV remote to order movies and popular TV shows instantly streamed directly to a TV (or other connected devices) on a pay-per-view basis (generally referred to as "video-on-demand" or VOD). Most all traditional cable and satellite providers of multichannel TV packages were promoting a library of several hundred movie titles (and often prior episodes of top TV shows, as well as other content, most recently including live sports) available on-demand to regular subscribers have a cable or satellite box; the rental prices for pay-per-view and VOD movies from such providers ranged from $1 to $6, but the rental price for popular recently released movies was usually $3.99 to $5.99. However, most every traditional cable and satellite provider had recently begun offering a growing variety of content-viewing options that were streamed directly to a single location (and viewable simultaneously on up to as many as eight compatible WiFi-enabled devices) via a special downloadable streaming application that eliminated the need for a cable/satellite box. These streaming options allowed subscribers to customize their own service package (number of channels, Internet speed, telephone service, and home security service). Recently, in the United States, wireless phone providers like AT&T and Verizon had also begun installing thousands of miles of fiber-optic cable annually in their service areas that enabled them to simultaneously provide residences and apartments with multiple content-viewing options (including VOID), perhaps bundled with telephone service, ultra-high-speed Internet service, and/or home security at an attractive monthly price (for a specified period, usually one or two years). * There were many subscription-based providers of streamed video content across the world in 2019, and more new entrants were expected in upcoming years. In the United States, in early 2019, the clear market leader was Netflix, followed by Amazon Prime and Hulu; others included Vudu, Sling TV, HBO NOW, Starz, MAX GO (Cinemax), Showtime, Direct TV Now, and Play Station Vue. Disney had announced it would initiate streaming serve in late 2019. An estimated 37 percent of TV viewers in the United States used subscription-based streaming services in 2017 to watch digital video content on their TVs. However, YouTube videos could be accessed for free, and many were videos uploaded by people or brands. The number of video viewers using mobile devices, such as smartphones and tablets, was exploding all across the world. In the United States alone, the number using mobile devices to watch videos was projected to reach 179 million by 2020, and an additional 57 million were expected to watch videos on computers and Internet-connected TVs. Exhibit 4 shows the percentage of Internet users, by country, who wanted online video content on any device as of January 2018.

Competitors offering pay-per-view and VOD rentals were popular options for households and individuals who rented movies occasionally (once or maybe twice per month), since the rental costs tended to be less than the monthly subscription prices for unlimited streaming from the various streaming providers. However, competitors offering unlimited Internet streaming plans tended to be the most economical and convenient choice for individuals and households who watched an average of three or more titles per month and for individuals who wanted to be able to watch movies or TV shows or special live events streaming on mobile devices. Netflix was by far the global leader in Internet streaming. It faced numerous competitors of varying competitive strength, geographic coverage, and content offerings; currently, none could match Netflix's global scope or the size of its content library. In North America, Netflix's four biggest Internet streaming competitors in 2019 were Amazon Prime, Hulu, HBO (with its HBO NOW and HBO GO service options), and Walt Disney (beginning in late 2019 and going forward): * Amazon Prime Video: Amazon competed with Netflix via its Amazon Prime membership service. Individuals and households could become an Amazon Prime member for a fee of $119 per year or $11.99 per month (after a one-month free trial); there was a discounted price for students. In April 2018, Amazon announced that it had over 100 million Amazon Prime members globally. In January 2019, Amazon announced that it had over 100 million members in the United States alone. While Amazon had originally created its Amazon Prime membership program as a means of providing unlimited two-day shipping to customers who frequently ordered merchandise from Amazon and liked to receive their orders quickly, 2012 Amazon began including movie and music streaming as a standard benefit of Prime membership - Amazon's video streaming service was called "Prime Video." Amazon's Prime Video content library contained thousands of movies that could be streamed to members, over 40 original series and movies, and some two million songs. In 2017 and 2018, Amazon made Prime Video more attractive to Prime members by 1. adding Prime Originals to its offerings, like The Marvelous Mrs. Maisel and the Oscar-nominated movie The Big Stick 2. Debuting NFL Thursday Night Football on Prime Video (which attracted more than 18 million total viewers over 11 games) 3. Expanding its slate of programming across the globe - launching new seasons of Bosch, Sneaky Pete, and The Man in the High Castle from the United States, The Grand Tour from the United Kingdom, You Are Wanted from Germany, while adding new Sentosha shows from Japan, along with Breathe and the award-winning Inside Edge from India. In April 2018, Amazon announced it had agreed to pay the National Football League $65 million a year to stream NFL Thursday Night Football globally to its Amazon Prime members in 2018 and 2019. Also in 2018, Prime Channels offerings were expanded to include CBS All Access in the United States and newly launched channels in the United Kingdom and Germany. In 2017, Prime Video Direct secured subscription video rights for more than 3,000 feature films and committed over $18 million in royalties to independent filmmakers and other rights holders. Going forward, the Prime original series pipeline include Tom Clancy's Jack Ryan starring John Krasinski; The Romanoffs, starring Aaron Ekhart and Diane Lane; Carnival Row starring Orlando Bloom and Cara Delevingne; Good Omens starring Jon Hamm; and Homecoming, starring Julia Roberts in her first television series. In addition, Prime Video had acquired the global television rights for a multi-season production of The Lord of the Rings, as well as Cortes, a miniseries based on the epic saga of Hernan Cortes from executive producer Steven Spielberg and Starring Javier Bardem. Amazon's budget for Prime Video original content additions and enhancement was reportedly $5 billion in 2018 and $7 billion in 2019. Other 2019 benefits of becoming an Amazon Prime member included discounted prices on Kindle eBooks, free reading of designated digital editions of books and magazines, special deals/coups on purchases of selected products that Amazon sold, one-click ordering via a "dash button," shopping with Alexa, cloud storage and sharing of personal photos and videos, and an opt-in DVD rental service (for an extra fee). In addition, Amazon competed with Netflix's DVDs-by-mail subscription service by allowing people to rent any streamed or downloadable movie, TV program, or other digital content for a limited time (for viewing on a personal computer, portable media player, or other compatible devices), or to purchase such content in the form of a downloadable file.

Netflix's Subscription-Based Business Model Netflix employed a subscription-based business model. Members could choose from a variety of subscription plans whose prices and terms had varied over the years. Originally, all of the subscription plans were based on obtaining and returning DVDs by mail, with monthly prices dependent on the number of titles out at a time. But as more and more households began to have high-speed Internet connections, Netflix began bundling unlimited streaming with each of its DVD-by-mail subscription options, with the long-term intent of encouraging subscribers to switch to watching instantly streamed content rather than using DVD discs delivered and returned by mail. The DVDs-by-mail part of the business had order fulfillment costs and postage costs that were bypassed when members opted for an instant streaming membership subscription. In 2018, Netflix offered three types of streaming membership plans. Its basic plan, currently priced at $8.99 per month in the United States, Included access to standard definition quality streaming on a single screen at a time. Its standard plan, currently priced at $12.99 per month, was the most popular streaming plan and included access to high-definition quality streaming on two screens concurrently. The company's premium plan, currently priced at $15.99 per month, included access to high-definition and ultra-high-definition quality content on four screens concurrently (subject to Internet service and device capabilities). As of April 2019, international pricing for the three plans ranged from approximately $3 to $20 per month per U.S. dollar equivalent; in many countries, the monthly prices of popular international plans were in the range of $7 to $10 per U.S. dollar equivalent. Netflix executives expected that the prices of the various subscription plans in each country would likely rise over time, thereby helping boost the global monthly average revenue the company received per paying subscriber above the 2018 average of $10.31 ($11.40 per month in the United States and $9.43 per month internationally).

Netflix had organized its operations into three business segments: Segment 1: Domestic Streaming Segment 2: International Streaming. Segment 3: Domestic DVD The Domestic streaming segment derived revenues from monthly membership fees for services consisting solely of streaming content to members in the United States. The International streaming segment derived revenues from monthly membership fees for services consisting solely of streaming content to members outside the United States' The sizes of the title libraries (movies + episodes of TV Shows) offered in each country were typically in the 2,000 to 6,000 range, but offerings in the native languages of countries like Sweden, Norway, Poland, Italy, and most Arab-speaking countries were more limited (2,200 to 3,700). The domestic DVD segment derived revenues from monthly membership fees for services consisting solely of DVD-by-mail. Recent performance of Netflix's three business segments in sown exhibit 5.

Exhibit 7: Netflix's Outstanding Long-Term Debt as of May 2019

Netflix management forecasted that the company would have a negative free cash flow deficit of about $3.5 billion in 2019 and that the company would continue to experience negative, but progressively smaller, cash flow deficits, for several more years due to growing expenditures for original content. However, executive management was confident that the company's expected growth in subscribers, subscription revenues, and operating profit margins would in the near future result in positive and growing cash flows from operations, enabling the company to reduce borrowing and begin to pay down its long-term debt. In April 2018, CEO Reed Hastings said: "We will continue to raise debt as needed to fund our increase in original content. Our debt levels are quite modest as a percentage of our enterprise values, and we believe [issuing] debt is [a] lower cost of capital compared to equity."

* Walt Disney In early 2019, Disney announced it would initiate a streaming service on November 12, 2019, at a monthly subscription price of $6.99. The service included content from all of Disney's library of previously released Disney movies, the content of all 21st Century Fox's media library (purchased from Fox for $71.3 billion in early 2019), and the licensed content of Hulu, which Disney gained full control over in May 2019. Disney had licensing deals with AT&T and Comcast for Hulu's current content to appear on their services until the time the existing licenses for the content expired. In April 2018, Comcast, one of the largest cable operators in the United States announced it had expanded its partnership with Netflix and would begin including a Netflix subscription in new and existing packages offered to its cable subscribers. In July 2018, The Wall Street Journal reported that Walmart was likely to enter the video streaming market and establish a subscription service with programming that targeted "Middle America" and that would likely involve a subscription price below what Netflix charged. Walmart was working with a veteran television executive with experience in pay-television on plans for the service. However, in 2019 AT&T, Apple, and Comcast announced plans for launching their own video-streaming service-WarnerMedia consisted of HBO, Turner Broadcasting (which consisted of cable channels CNN, TBS, and TNT), and Warner Bros. Studio, and came under AT&T's ownership when its $85.4 billion mergers with Time Warner was finalized in 2019 (HBO NOW was continued as a standalone service to interested consumers). In 2019 AT&T had over 153 million wireless phone subscribers and was also the owner of satellite TV service DirecTV. Disney, in preparation for launching its streaming service in late 2019, had notified Netflix of its intent to withdraw its movies and shows from Netflix as existing licenses expired. In June 2019, it was unclear what bundle of content Apple would use to underpin its streaming service.

Netflix's Business Model and Strategy Since launching the company's online movie rental service in 1999, Reed Hastings, founder and CEO of Netflix, had been the chief architect of Netflix's subscription-based business model and strategy that had transformed Netflix into the world's largest online entertainment subscription service. Hastings's goals for Netflix were simple-build the world's best Internet service for entertainment content, keep improving Netflix's content offerings and services faster than rivals, attract growing numbers of subscribers every year, and grow long-term earnings per share. Hastings was a strong believer in moving early and fast to initiate strategic changes that would help Netflix outcompete rivals, strengthen its brand image and reputation, and fortify its position as the industry leader.

Netflix's Strategy: Netflix's strategy in 2019 was focused squarely on: * Growing the number of domestic and international streaming subscribers. * Enhancing the appeal of its library of streaming content, with an increasing emphasis on exclusive original movies and TV series produced in-house. * Spending aggressively on marketing and advertising in all of the countries and geographic regions the company had recently entered to broaden awareness of the Netflix brand and service and thereby support the company's strategic objective to rapidly grow its base of streaming subscribers. * Expanding the number of titles that members could download for offline viewing. * Continuously enhancing its user interface.

Subscriber Growth Netflix executives were keenly aware that rapid subscriber growth was the key to boosting the company's profitability and justifying the company's lofty stock price of $360 (as of May 22, 2019 and as of November 11th 2020: $485.68 at 10:42 AM PST), which was 134 times the company's 2018 diluted earnings per share of $2.68 and 61 times the consensus EPS of $5.88 that Wall Street analysts and Netflix investors were anticipating the company would earn in 2019. Netflix executives expected that close to 80 percent of the gains in subscriber growth in 2019 and beyond would come in the international arena- in 2018 the growth in international subscribers was 81.2 percent of total subscriber growth (including free trials).

The DVD-by-Mail Option Subscribers who opted to receive movies and TV episode DVDs by mail went to Netflix's website, selected one or more movies from its DVD library, and received the movie DVDs by first-class mail generally within one business day. Subscribers could keep a DVD for as long as they wished, with no due dates, no late fees, no shipping fees, and no pay-per-view fees. Subscribers returned DVDs via the U.S. Postal Service in a prepaid return envelope that came with each movie order.

The Domestic and International Streaming Options Netflix launched its Internet streaming service in January 2007 with instant-watching capability for 2,000 titles on personal computers. Very quickly, Netflix invested aggressively to enable its software to instantly stream content to a growing number of "Netflix-ready" devices, including video game consoles (made by Sony, Microsoft, and Nintendo), Internet-connected DVD and Blu-ray players, Internet-connected TVs, TiVo DVRs, and special Netflix players made by Roku and several other electronics manufacturers. At the same time, it began licensing increasing amounts of digital content that could be instantly streamed to subscribers. Initially, Netflix took a "metered" approached to streaming, in essence offering an hour per month of instant watching on a PC for every dollar of a subscriber's monthly subscription plan, In 2010, Netflix switched to an unlimited streaming option on all of its monthly subscription plans. According to one source, Netflix had an estimated 6,800 movie titles and 530 TV shows available for streaming as of 2010.

Netflix's Drive to Globalize Its Operations Exhibit 3 shows the remarkably short time frame it took for Netflix to expand its operations from a U.S. only subscriber base to a global subscriber base. But in 2019, Netflix was still struggling to surmount the barriers erected by the Chinese government in allowing Netflix to enter the People's Republic of China, the world's most massive market for entertainment. The Chinese government had for several years refused to issue Netflix a license to operate in China, preferring instead to control the content its citizens were allowed to see - government censors required that an entire series of a TV show had to be approved before it could begin to be shown on an online platform. Aside from the censorship issue, most observers believed the Chinese government also wished to protect aspiring local providers of Internet-based entertainment content from foreign competitors. As a consequence of its dim prospects for getting an operating license from the Chinese government any time soon, in 2017 Netflix had negotiated a licensing arrangement to exclusively provide some of its original content to a fast-growing Chinese company named iQiyi (pronounced Q wee), the leading provider of online entertainment services in China with some 90 million subscribers (as of early 2019). Use of a licensing strategy was attractive to Netflix because it provided a means of gaining content distribution in China and building awareness of the Netflix brand and Netflix content, but the licensing arrangement was expected to generate only small revenues for some years to come.

The United States government had instituted restrictions precluding all United States based companies from having operations in North Korea, Syria, and Crimea. Netflix estimated that it usually took about two years after the initial launch in a new country or geographic region to attract sufficient subscribers to generate a positive "contribution profit" - Netflix defined "contribution profit (loss)" as revenues less cost of revenues (which consisted of amortization of content assets and expenses directly related to the acquisition, licensing, and production/delivery of such content) and marketing expenses associated with its domestic streaming and international streaming business segments (the company had ceased all marketing activities related to its domestic DVD business).

By Arthur A Thompson The University of Alabama

Throughout 2018 and the first three months of 2019 Netflix was on a roll. Movie and TV show enthusiasts across the world were flocking to become Netflix subscribers in unprecedented numbers, and shareholders were exceptionally pleased with Netflix's fast rising stock prices. Over the past eight years, the company had successfully transformed its business model from one where subscribers paid a monthly fee to receive an unlimited number of DVDs each month (delivered and returned by mail with one title out at a time) to a model where subscribers paid a monthly fee to watch an unlimited number of movies and TV episodes streamed over the Internet. In April 2019, Netflix was the world's leading Internet television network with 149 million paid streaming memberships in over 190 countries enjoying more than 165 million hours of TV shows and movies per day, including original series, documentaries, and feature films. Netflix members not only could watch as much streamed content as they wanted - anytime, anywhere, on nearly any Internet connected screen - but could also play, pause, and resume watching, all without commercials. In the United States, Netflix still had nearly 2.5 million members in May 2019 who, because of limited Internet service or just personal preference, continued to receive DVDs solely by mail (but the numbers of mail-only subscribers were declining monthly).

How have Netflix's business strategy choices strengthened or weakened its competitive position in the streaming video on-demand industry? Discuss how the company's senior management has chosen to increase the horizontal or vertical scope of the firm. a. CEO Reed Hastings has, over time, successfully transitioned Netflix from a DVD rental service to the premier streaming video on demand service. b. Netflix's internal recommendation software and large subscriber base have afforded the company an edge when deciding which content to acquire in future years. c. Netflix is not the current market leader; this increases the bargaining power of suppliers. d. Netflix has built a substantial content library that will benefit the firm over the long term. e. Rivalry has been moderate between Amazon Prime, Hulu, YouTube, and Netflix. f. Netflix incurs a cost to localize content and production of content to sustain access to global markets and grow subscriber base in those markets. g. Netflix is highly dependent on favorable reception from foreign governments and consumers' acceptance of content as well as access to high-speed Internet services for streaming that content. OPTIONS:YES OR NO

a. CEO Reed Hastings has, over time, successfully transitioned Netflix from a DVD rental service to the premier streaming video on demand service. YES b. Netflix's internal recommendation software and large subscriber base have afforded the company an edge when deciding which content to acquire in future years. YES c. Netflix is not the current market leader; this increases the bargaining power of suppliers. NO d. Netflix has built a substantial content library that will benefit the firm over the long term. YES e. Rivalry has been moderate between Amazon Prime, Hulu, YouTube, and Netflix. NO f. Netflix incurs a cost to localize content and production of content to sustain access to global markets and grow subscriber base in those markets. YES g. Netflix is highly dependent on favorable reception from foreign governments and consumers' acceptance of content as well as access to high-speed Internet services for streaming that content. YES

What factors are acting to intensify/weaken the competitive pressures associated with substitutes in the subscription video-on-demand industry? a. Competition from substitutes is a moderate to strong competitive force, depending on the extent to which consumers prefer to watch content on demand versus watching movies at movie theaters or buying movie DVDs for their own personal library. b. Other than labor-intensive work to create and stream personal videos via YouTube and other social media outlets such as Twitter, Facebook, Instagram, and Snapchat, there are few powerful substitutes for subscription video-on-demand services. c. Acceptable substitutes are readily available and competitively priced (in some cases). d. The slow demise of movie theaters as well as cable and broadcast television also exacerbate the decreasing power of substitutes. e. The competitive pressures associated with the threat of substitutes in the market for subscription video on demand is weak. OPTIONS:YES OR NO

a. Competition from substitutes is a moderate to strong competitive force, depending on the extent to which consumers prefer to watch content on-demand versus watching movies at movie theaters or buying movie DVDs for their own personal library. NO b. Other than labor-intensive work to create and stream personal videos via YouTube and other social media outlets such as Twitter, Facebook, Instagram, and Snapchat, there are few powerful substitutes for subscription video-on-demand services. YES c. Acceptable substitutes are readily available and competitively priced (in some cases). NO d. The slow demise of movie theaters as well as cable and broadcast television also exacerbate the decreasing power of substitutes. YES e. The competitive pressures associated with the threat of substitutes in the market for subscription video on demand is weak. YES

What factors are acting to intensify/weaken the bargaining power of buyers in the subscription video-on-demand industry? Select "yes" for those statements below that are accurate and choose "no" for those that are not. a. Individual subscribers/viewers may opt to switch to a different provider and negotiate for a better rate at any time. b. The competitive pressures associated with the bargaining power of buyers of subscription video on demand is moderate. c. Buyers have a variety of streaming services from which to choose (Amazon, Apple TV, Hulu, Netflix, Roku, etc.). d. Switching costs for buyers are moderately low compared to switching among cable and satellite TV providers. e. Consumers in most markets have multiple ways to view archival and new content, either via traditional broadcast TV or via rentals of DVD/Blue-Ray media. f. Most consumers already possess a tablet, mobile device, or smart TV, there is no need to purchase add-on boxes or purpose-specific viewing equipment. OPTIONS:YES OR NO

a. Individual subscribers/viewers may opt to switch to a different provider and negotiate for a better rate at any time. NO b. The competitive pressures associated with the bargaining power of buyers of subscription video on demand is moderate. YES c. Buyers have a variety of streaming services from which to choose (Amazon, Apple TV, Hulu, Netflix, Roku, etc.). YES d. Switching costs for buyers are moderately low compared to switching among cable and satellite TV providers. YES e. Consumers in most markets have multiple ways to view archival and new content, either via traditional broadcast TV or via rentals of DVD/Blue-Ray media. YES f. Most consumers already possess a tablet, mobile device, or smart TV, there is no need to purchase add-on boxes or purpose-specific viewing equipment. YES

Has Netflix's increase in scope also been a part of its international strategy? Is the international strategy best characterized as a multidomestic strategy, global strategy, or transnational strategy? Which strategy for entering international markets should be selected for China? a. It is expected that Netflix will expand further into local-language programming to offset the weakness of its relatively more modest offerings in many countries. b. Netflix's expansion outside the United States could continue to drag on cash flow due to different tastes and lower video consumption. c. It is expected that Netflix will successfully enter international markets with a multidomestic strategy. d. A transnational strategy allows Netflix the ability to exploit experience-curve effects and location economies and to customize product offerings in accordance with local response. e. It is highly probable that Netflix's international expansion will disappoint, particularly in terms of the speed of margin expansion and compounded by its current inability to enter the Chinese market. f. A global/international strategy allows Netflix the opportunity to customize product offerings and marketing in accordance with local responsiveness. g. The disadvantages of a multidomestic strategy for Netflix are the inability to realize location economies, experience-curve effects, and be able to transfer distinctive competencies to foreign markets. OPTIONS:YES OR NO

a. It is expected that Netflix will expand further into local-language programming to offset the weakness of its relatively more modest offerings in many countries. YES b. Netflix's expansion outside the United States could continue to drag on cash flow due to different tastes and lower video consumption. YES c. It is expected that Netflix will successfully enter international markets with a multidomestic strategy. NO d. A transnational strategy allows Netflix the ability to exploit experience-curve effects and location economies and to customize product offerings in accordance with local response. YES e. It is highly probable that Netflix's international expansion will disappoint, particularly in terms of the speed of margin expansion and compounded by its current inability to enter the Chinese market. YES f. A global/international strategy allows Netflix the opportunity to customize product offerings and marketing in accordance with local responsiveness. NO g. The disadvantages of a multidomestic strategy for Netflix are the inability to realize location economies, experience-curve effects, and be able to transfer distinctive competencies to foreign markets. YES

Which of the following accurately characterize Netflix's resource strengths and competitive capabilities? a. Netflix enjoys an international presence b. Netflix was not a first mover but was certainly successful in following the strategy of other streaming providers c. differentiated, cutting-edge, critically acclaimed content d. Netflix has the capability to track and query customer analytical data OPTIONS: YES OR NO

a. Netflix enjoys an international presence YES b. Netflix was not a first mover but was certainly successful in following the strategy of other streaming providers NO c. differentiated, cutting-edge, critically acclaimed content YES d. Netflix has the capability to track and query customer analytical data YES

What do the data in case Exhibits 1, 2, and 5 reveal about Netflix's financial and operating performance? a. Netflix's year-on-year and Compound Annual Growth Rates (CAGR) are extremely robust. b. Total operating expenses have remained steady between 2016 and 2018. c. Operating income declined dramatically between 2017 and 2018. d. Net income has almost doubled year after year from 2016 to 2018. e. Netflix's improved profitability and phenomenal growth rates have come at the cost of high debt leverage. OPTIONS:YES OR NO

a. Netflix's year-on-year and Compound Annual Growth Rates (CAGR) are extremely robust. YES b. Total operating expenses have remained steady between 2016 and 2018. YES c. Operating income declined dramatically between 2017 and 2018. NO d. Net income has almost doubled year after year from 2016 to 2018. YES e. Netflix's improved profitability and phenomenal growth rates have come at the cost of high debt leverage. YES

What do you see as the key drivers impacting growth and key success factors for rivals competing in the market for subscription video on demand? Select "yes" for those statements below that are accurate and choose "no" for those that are not. a. Social/Demographic—global population growth and increasing urbanization, accompanied by rising standards of living and technology adoption b. Economic—changes in per capita disposable income in emerging economies, some of which are located in the Southern Hemisphere, offsetting economic slowdowns in countries in the Northern Hemisphere c. Increased competition—low barriers to entry will increase the number of competitors d. Government/Political/Legal—absence or presence of subsidies, low-interest rates, barriers to trade, presence or absence of high-speed Internet, cellphone and tablet adoption rates, and currency exchange rates e. Technology—increasing reliance on innovation and R&D to develop new programming content, increase video streaming throughput, differentiate products, and mine or analyze customer data f. Industry growth—the mass entry of video-on-demand competitors has caused growth to slow down at least for a short period OPTIONS: YES OR NO

a. Social/Demographic—global population growth and increasing urbanization, accompanied by rising standards of living and technology adoption YES b. Economic—changes in per capita disposable income in emerging economies, some of which are located in the Southern Hemisphere, offsetting economic slowdowns in countries in the Northern Hemisphere YES c. Increased competition—low barriers to entry will increase the number of competitors NO d. Government/Political/Legal—absence or presence of subsidies, low-interest rates, barriers to trade, presence or absence of high-speed Internet, cellphone and tablet adoption rates, and currency exchange rates YES e. Technology—increasing reliance on innovation and R&D to develop new programming content, increase video streaming throughput, differentiate products, and mine or analyze customer data YES f. Industry growth—the mass entry of video-on-demand competitors has caused growth to slow down at least for a short period NO

What factors are acting to intensify/weaken the threat of new entrants into the subscription video-on-demand industry? Select "yes" for those statements below that are accurate and choose "no" for those that are not. a. The competitive pressures associated with the threat of new entry into the market for subscription video on demand is weak to moderate. b. Some markets, such as China, Crimea, North Korea, and Syria, remain closed to external providers of streaming media services (or do not allow such services to exist). c. The entry threat into the market for subscription video on demand should be viewed as moderate to strong. d. The entry into the subscription video on demand has become prohibitively high and is rising. OPTIONS:YES OR NO

a. The competitive pressures associated with the threat of new entry into the market for subscription video on demand is weak to moderate. YES b. Some markets, such as China, Crimea, North Korea, and Syria, remain closed to external providers of streaming media services (or do not allow such services to exist). YES c. The entry threat into the market for subscription video on demand should be viewed as moderate to strong. NO d. The entry into the subscription video on demand has become prohibitively high and is rising. YES

What factors are acting to intensify/weaken the bargaining power and leverage of suppliers in the subscription video-on-demand industry? Select "yes" for those statements below that are accurate and choose "no" for those that are not. a. The cost of licensing studio-produced content involving top writers, location shooting, and actors with box-office appeal will rise as competitors emerge and bid for content and talent that Netflix desires. b. The competitive pressures associated with the bargaining power of suppliers to providers of subscription video on demand is weak to moderate. c. All streaming/VOD providers will undoubtedly have to compete on the basis of having a large library of titles available for streaming. d. As technology improves and decreases in cost, more consumers will be able to create as well as download content quickly via the web and play it on their televisions or alternative devices. e. The bargaining power and leverage of suppliers is a moderate to very strong competitive force, depending on the type of supplier. f. The cost to deliver content over broadband and cellular networks provided by third parties could increase, and the need to pay for fast-lane network access could drag on margins. OPTIONS: YES OR NO

a. The cost of licensing studio-produced content involving top writers, location shooting, and actors with box-office appeal will rise as competitors emerge and bid for content and talent that Netflix desires. YES b. The competitive pressures associated with the bargaining power of suppliers to providers of subscription video on demand is weak to moderate. YES c. All streaming/VOD providers will undoubtedly have to compete on the basis of having a large library of titles available for streaming. NO d. As technology improves and decreases in cost, more consumers will be able to create as well as download content quickly via the web and play it on their televisions or alternative devices. YES e. The bargaining power and leverage of suppliers is a moderate to very strong competitive force, depending on the type of supplier. NO f. The cost to deliver content over broadband and cellular networks provided by third parties could increase, and the need to pay for fast-lane network access could drag on margins. YES

Which of the following represent external threats to Netflix's future well-being? a. hacking of consumer data and illegal reproduction of proprietary content b. continued political and legal barriers to enter China and other emerging markets c. continued jockeying for position among existing rivals plus entry of Apple, Disney, and Warner Media that will change the game for subscription services d. government regulations that can prevent them from producing their own in-house content OPTIONS:YES OR NO

a. hacking of consumer data and illegal reproduction of proprietary content YES b. continued political and legal barriers to enter China and other emerging markets YES c. continued jockeying for position among existing rivals plus entry of Apple, Disney, and Warner Media that will change the game for subscription services YES d. government regulations that can prevent them from producing their own in-house content NO

Which of the following accurately characterize Netflix's market opportunities? a. increasing global availability of broadband and high-speed cellular networks b. increasing installed base of devices capable of showing streaming content c. vast potential in world's second largest economy (China), and second most populous market (India and Southeast Asia) d. partner with smaller streaming providers such as Redbox e. partner with movie studios to negotiate lower license fees OPTIONS: YES OR NO

a. increasing global availability of broadband and high-speed cellular networks YES b. increasing installed base of devices capable of showing streaming content YES c. vast potential in world's second largest economy (China), and second most populous market (India and Southeast Asia) YES d. partner with smaller streaming providers such as Redbox NO e. partner with movie studios to negotiate lower license fees NO

Which of the following accurately characterize Netflix's resource weaknesses and competitive liabilities? a. the financial strains of producing a greater number of original, in-house produced content has left Netflix financially drained b. inability to enter Chinese market c. Netflix is vulnerable to the bargaining power of movie studios and other content suppliers to extract higher license fees from Netflix d. diversion of cash flows to service debt e. high financial leverage OPTIONS:YES OR NO

a. the financial strains of producing a greater number of original, in-house produced content has left Netflix financially drained NO b. inability to enter Chinese market YES c. Netflix is vulnerable to the bargaining power of movie studios and other content suppliers to extract higher license fees from Netflix NO d. diversion of cash flows to service debt YES e. high financial leverage YES

What three to four top priority issues do CEO Reed Hastings and Netflix management need to address? There are spaces for up to six top priority issues that should be addressed by CEO Reed Hastings and Netflix Management. Draw conclusions from your analyses of the case and the industry. Each top priority issue must be supported with convincing justifications using relevant concepts and tools and set the stage for what actions/recommendations need to be taken. To gain access to new customers. To achieve lower costs through economies of scale, experience, and increased purchasing power. To gain access to low-cost inputs of production. To further exploit its core competencies. To gain access to resources and capabilities located in foreign markets. a1. Action Recommendation: a2. Supporting Justification: b1. Action Recommendation: b2. Supporting Justification: c1. Action Recommendation: c2. Supporting Justification: d1. Action Recommendation: d2. Supporting Justification: e1. Action Recommendation: e2. Supporting Justification: f1. Action Recommendation: f2. Supporting Justification:

a1. Action Recommendation: Reduce expenses by cutting Marketing and advertising! The best recommendation to earn a larger customer base is by word of mouth. Could offer a tiered base incentive plan to recommending new customers to Netflix will reduce subscription price on x amount of time new client completes. NEVER allow Expenditures to outpace revenue growth! a2. Supporting Justification: The best recommendation to earn a larger customer base is by word of mouth. This provides trustworthy recommendations to a larger customer base. Could offer a tiered base incentive plan to recommending new customers to Netflix will reduce subscription price on x amount of time new client completes. b1. Action Recommendation: Offer better rates if signing up for 1 year, 2 years, 3 years, or whatever years. This will help reduce churn and begin a retention element. b2. Supporting Justification: Every month consumers have the ability to opt out of service with Netflix. It might be worth offering a better plan with a price reduction if signing up for a longer period of time. Offer a large library of content (which is already doing) and original content. c1. Action Recommendation: Increase package pricing! It is already one of the lowest-priced options. Let's bring up the cost just a little bit. Maybe throw in some commercials to increase profits. Keep the commercials less than cable television to continue competitive advantage over others. Make the highest-priced plans commercial-free. c2. Supporting Justification: Hulu was $6 per month for regular streaming (interspersed with ads) and $12 per month for commercial-free streaming, plans that included not only its video streaming service, but also packages that included 60+ live TV and cable channels (that included sports, news, and entertainment) for a monthly fee of $44.95 and options to add on HBO, Showtime, Starz, and Cinemax. d1. Action Recommendation: Pay off senior debts and stop with the mentality of it being okay to continue going deeper into debt to fund the increase of original content. This is ludicrous. d2. Supporting Justification: Netflix management forecasted that the company would have a negative free cash flow deficit of about $3.5 billion in 2019 and that the company would continue to experience negative, but progressively smaller, cash flow deficits, for several more years due to growing expenditures for original content. However, executive management was confident that the company's expected growth in subscribers, subscription revenues, and operating profit margins would in the near future result in positive and growing cash flows from operations, enabling the company to reduce borrowing and begin to pay down its long-term debt. In April 2018, CEO Reed Hastings said: "We will continue to raise debt as needed to fund our increase in original content. Our debt levels are quite modest as a percentage of our enterprise values, and we believe [issuing] debt is [a] lower cost of capital compared to equity." e1. Action Recommendation: Offer more options for viewers by offering HBO, Showtime, Cinemax, etc. Look at Hulu for example. e2. Supporting Justification: People want options. Hulu offers a plan for a little under $45 a month to have access to HBO, Cinemax, etc. They are doing just fine in business. Focus on appealing to international countries as the markets over there are not saturated. Find local networks that appeal to the countries audience, make a contract, build into Netflix. Use these networks to help create original content for the country in question. Allow worldwide access to content. Work on figuring out China's details later due to censorship issues. Focus on countries that do not have strict censorship. f1. Action Recommendation: Become more Green: Cut DVD distribution centers down, make them all green with renewable energy f2. Supporting Justification: People are worried about climate change, are drawn more to the green responsibility of a company. Could reduce costs of operations.

In recent years, however, Netflix had gradually shrunk the number of movie titles in its streaming library to approximately 4,000 as of early 2019 and dramatically increased its number of episodes of TV shows to approximately 4,700 in early 2019. Netflix had increased the number of new original content offerings in each of the past six years. There were two reasons for the shift in the makeup of Netflix's streaming content. One reason was internal data showing that subscribers spent only about one-third of their time on Netflix watching movies; the second reason was a conviction on the part of Netflix's content executives that if viewers were passionate about a movie, they would have already seen it in theaters by the time it ended up on Netflix. To make the company's movie library more valuable for its subscribers, Netflix had begun releasing a progressively larger number of original movies (80 movies were released in 2018-the number for 2019 had not been announced as of May 2019) and creating more multi-episode original TV series like past hits House of Cards, The Crown, Orange Is the New Black, and Stranger Things. Going forward, Netflix was expected to continue to place greater emphasis on its own original content- both movies and original TV series- chiefly as a way to more strongly differentiate itself from competitors; top management had announced its intention to spend $9.1 billion on original content in 2019, up from $6 billion in 2017. Netflix spent more than $12 billion on original content production and licenses to show content produced by outside sources; according to a report byVariety magazine, Netflix's budget for new content (original production plus licenses) was expected to hit $15 billion in 2019 and $17.8 billion in 2020. information found Outside of Case Study https://www.cheatsheet.com/entertainment/you-wont-believe-how-many-original-movies-and-shows-netflix-released-in-2019.html/ Netflix's total output for 2019 is greater than what the entire U.S. TV industry put out in 2005, according to an analysis by Variety. 371 new TV shows and movies. The nearly 400 Netflix originals released this year is a 54.6% increase over 2018, when the streamer released 240 shows and movies.

information found Outside of Case Study https://www.statista.com/statistics/882490/netflix-original-content-hours/ By Amy Waston 11/10/2020 From relatively humble beginnings as a DVD-by-mail service, Netflix has grown into one of the most influential video streaming services in the world. The company was one of the first to see the potential of video streaming technology and began to transition to a subscription video-on-demand model in 2007. Since this transition, Netflix's revenue has grown from 1.36 billion to around 15.8 billion in just ten years. The number of Netflix subscribers has followed a similar trend, growing from less than 22 million in 2011 to nearly 150 million in 2019. Total number of subscription video-on-demand households worldwide in 2018: 250 Million. Netflix Annual Revenue in 2019: 20.15 Billion USD. Number of Netflix paying subscribers worldwide as of Q3 2020: 195.15 Million DVD section has declined. At the end of 2019, there were just 2.15 million subscribers to Netflix's DVD rental service in the United States, a drop from 11.17 million in 2011. How many paid subscribers does Netflix have? Netflix had 195.15 million paid subscribers worldwide as of the third quarter of 2020. Most Netflix subscribers are based in the United States, with the U.S. accounting for over 73 million of Netflix's total global subscriber base. While the popularity of Netflix's streaming service has been increasing, the company's DVD section has declined. At the end of 2019, there were just 2.15 million subscribers to Netflix's DVD rental service in the United States, a drop from 11.17 million in 2011. Who is Netflix's audience? Netflix subscribers are a loyal bunch, with the majority reporting that they would keep Netflix even if the monthly subscription price increased, and subscribers also stated that they would continue using the service with ads. With a wealth of content spanning multiple genres and a diverse catalogue of TV shows, movies and documentaries, Netflix appeals to a wide audience and consistently impresses users with its often binge-worthy original content. Subscribers are from diverse ethnic backgrounds - data on Netflix subscribers by ethnicity found that more Hispanic and African Americans watch Netflix than their White counterparts. Netflix considers diversity important and featured almost five times the number of LGBTQ characters in its TV series than Hulu in the 2018-19 season. Additionally, openly published data on the gender of Netflix employees in early 2019 revealed that the company performs extremely well in terms of achieving an even split. Perhaps unsurprisingly, Netflix appeals to all age groups and a survey showed that the majority of adults aged 18 to 54 years old subscribed to the service. Netflix viewer habits Interestingly, a survey exploring the behavior of Netflix viewers with pets found that a total of 12 percent of respondents admitted that they had stopped viewing a show because their pet did not like it, and 22 percent had bribed their pet with treats in a bid to encourage the animal to watch the show or movie for longer. Such behavior may seem strange to some, but with Netflix available to watch on multiple devices and in any location, consumers inevitably have and will continue to tailor their viewing experience to their preferences, needs, and lifestyles. Some U.S. adults have even admitted to watching TV and movies in public restrooms, and with Netflix retaining its title as the undisputed market leader when it comes to video streaming it's safe to assume that some of these bathroom binge viewers are Netflix customers, too.