ISDS 705 Chapter 4

What is one of the biggest inefficiencies in the movie industry?

"audience finding," that is, matching content with customers. To do this, Netflix leverages some of the industry's most sophisticated technology, a proprietary recommendation system that the firm calls Cinematch.

How is this concept of atoms to bits realigning nearly every media industry?

1. Newspapers: struggle as readership migrates online and once-lucrative classified ads and job listings shift to the bits-based businesses of Craigslist, Monster.com, and LinkedIn. 2. Apple: dominates music sales, selling not a single "atom" of physical CDs, while most of the atom-selling "record store" chains of a decade ago are bankrupt. 3. Amazon: has even begun delivering digital books, developing the Kindle digital reader. 4. Netflix: Physical dvd's to online streaming. share price swing

What does technology reinforce?

A competitive advantage

What were Netflix's competitors doing to one up Netflix? Were Netflix's competitors successful?

Blockbuster and Walmart were making their prices cheaper. This new competition forced Netflix to cut prices even lower than where they had been before the price increase. To keep pace, Netflix also upped advertising at a time when online ad rates were increasing. Walmart tookk a massive hit and Blockbuster became extinct and Netflix was the underdog that was successful.

Who were Netflix's competitors and did they have a competitive edge against them

Blockbuster, Walmart were Netflix's competitors. Netflix had a great firm, but it was an Internet pure play without a storefront and with an overall customer base that seemed microscopic in comparison

What is a churn rate?

Churn is a marketing term referring to the rate at which customers leave a product or service.

How has Netflix used the longtail to its advantage?

Crafting a business model that creates close ties with film studios. In most cases, studios earn a percentage of the subscription revenue for every disk sent out to a Netflix customer. In exchange, Netflix gets DVDs at a very low cost.

Collaborative filtering technology has been continually refined, but even if this technology is copied what is the true exploitable resource created and leveraged through this technology?

Data asset.

The strategically aligned use of technology by Netflix allowed it to do what?

Gain competitive advantage through the powerful resources of brand, data and switching costs, and scale.

What is the key for Netflix to be the next big player in a bits only world?

If the firm can grab long-tail content, grow its customer base, and lock them in with the switching costs created by Cinematch

Why do pay television channels negotiate exclusive access to content? What does this mean?

In order to differentiate themselves from one another. This exclusivity means that even when a title becomes available for streaming by Netflix, it may disappear when a pay TV window opens up. If HBO or Showtime has an exclusive for a film, it's pulled from the Netflix streaming service until the exclusive pay TV time window closes.

Are internet retailers more scalable and if so, why?

Internet retailers serve a larger geographic area with comparably smaller infrastructure and staff. This fact suggests that Internet businesses are more scalable. Firms providing digital products and services are potentially far more scalable, since physical inventory costs go away.

What is the magic of Cinematch and what is the associated term?

It develops a map of user ratings and steers you toward titles preferred by people with tastes that are most like yours. aka collaborative filtering

What type of advantage does Netflix have over its competitors?

It has a data advantage that is valuable, results yielding, and impossible for rivals to match.

For Netflix is the cost to stock and ship an obscure foreign film the same as sending out the latest blockbuster?

It is the same cost

What is windowing?

It is the system in which film studios release their work. Content is available to a given distribution channel (in theaters, through hospitality channels like hotels and airlines, on DVD, via pay-per-view, via pay cable, then broadcast commercial TV) for a specified time window, usually under a different revenue model (ticket sales, disc sales, license fees for broadcast).

When a firm goes public, it has to disclose its data information and what typically happens?

It may bring larger rivals to the firm's market.

What is crucial for building a great brand?

It starts with offering exceptional value to the customer.

For Netflix, what delivered the triple scale advantage of the largest selection; the largest network of distribution centers; the largest customer base; and the firm's industry-leading strength in brand and data assets?

Moving first. Timing and technology don't always yield sustainable competitive advantage, but in this case, Netflix leveraged both

How does Netflix operate?

Netflix operates via a DVD subscription and video streaming model. Although sometimes referred to as "rental," the model is really a substitute good for conventional use-based media rental.

Explain the atoms to bits concept

Nicholas Negroponte, the former head of MIT's Media Lab and founder of the One Laptop per Child effort, wrote a now-classic essay on the shift from atoms to bits. Negroponte pointed out that most media products are created as bits—digital files of ones and zeros that begin their life on a computer.

Do Netflix warehouse processes exist in a vacuum?

No they don't exist in a vacuum; they are linked to Cinematch to offer the firm additional operational advantages. The software recommends movies that are likely to be in stock so users aren't frustrated by a wait.

Has Netflix had to increase the number or customer representatives as subscriptions increased?

No, by paying attention to process improvements and designing technology to smooth operations, Netflix has slashed the number of customer representatives even as subscriptions ballooned.

Will the shift from atoms to bits happen over night?

No, it will be a hybrid transition that takes place over several years.

What are the benefits of disintermediation?

Offers two potential benefits: •Eliminates the need to share revenues with a third party. •Provides exclusive access to valuable consumer data assets.

Why did Netflix have so few titles when it began streaming?

Only 17,000 videos were offered, just 17 percent of the firm's long tail. And not the best 17 percent. It's not just studio reluctance or fear of piracy. There are often complicated legal issues involved in securing the digital distribution rights for all of the content that makes up a movie.

Who was the founder/CEO of Netflix?

Reed Hastings was the CEO and considered to be "100 most influential global citizens."

What are physical retailers limited by?

Shelf space and geography. This limitation means that expansion requires building, stocking, and staffing operations in a new location.

If firms rely on one channel partner for a large portion of sales what happens?

That partner has an upper hand in negotiations. For

What is disintermediation?

The process of eliminating steps between a buyer and a seller. newspapers

Are the results satisfactory from collaborative filtering in systems like Cinematch?

The results are considered the industry gold standard.

What is collaborative filtering?

The term refers to a classification of software that monitors trends among customers and uses this data to personalize an individual customer's experience

What is the long tail?

The term was coined by Chris Anderson and it is the phenomenon whereby firms can make money by selling a near-limitless selection of less-popular products

What is interesting about offering unlimited selection of movies, books, music in a store?

There's actually more money to be made selling the obscure stuff than the hits. Each item under the right part of the curve may experience less demand than the most popular products, but someone somewhere likely wants it. (1) selection attracts customers and... (2) the Internet allows large-selection inventory efficiencies that offline firms can't match.

While studios embrace the audience-finding and revenue-sharing advantages of Netflix, what do they want to not undercut?

They don't want to undercut higher-revenue early windows. Fox, Universal, and Warner have all demanded that Netflix delay sending DVDs to customers until twenty-eight days after titles go on sale. In exchange, Netflix has received guarantees that these studios will offer more content for digital streaming.

What type of geographic area do internet firms serve? Does Netflix have low or high cost inventory and why

They serve a large geographic areas through lower-cost inventory which means Internet firms can provide access to the long tail of products, potentially earning profits from less popular titles that are unprofitable for physical retailers to offer. Netflix has a low cost of inventory.

Technology leveraged across the Netflix's extensive distribution network offers an operational advantage that allows the firm to reach nearly all of its customers with one-day turnaround. True or false?

True

initial public stock offering (IPO)

When a firm sells stock for the first time, the company gains a ton of cash to fuel expansion and its founders get rich.

What is coopetition and what companies demonstrate this behavior?

When individual firms who are sort of competitors come together in a partnership? i.e. Amazon and Microsoft online movie rentals and services

Can a dotcome startup create a sustainable competitive advantage, beating back challenges?

Yes and Netflix is our prime example

Can the technology and procedures at Netflix that make up their model be copied?

Yes, but it's not going to be easy. It's going to take a lot of time and a lot of money.

Has Netflix utilized latent studio assets?

Yes, revenue sharing allows Netflix to provide studios with a costless opportunity to earn money from back catalog titles: content that would otherwise not justify further marketing expense or retailer shelf space.

Advertising can build awareness, but brands are...?

built through customer experience