1) Competitor Analysis The video entertainment industry can be divided into four strategic groups: paid streaming services with cable/broadcast TV complement, paid streaming services for sports, paid streaming services with no live option, and free ad-supported streaming services. Netflix competes in the paid streaming services with no specific sport/live focus and no cable/broadcast complement group. Competitors like Hulu compete in the cable/broadcast TV complement group, ESPN+ and MLB.TV in the paid streaming services for sports, and NBC Universal for free ad-supported streaming. Some of Netflix’s key competitors are listed below, including Hulu, Disney+, Amazon Prime Video, and Apple TV. Future competitors are likely including a greater threat from HBO and other current broadcast networks such as Paramount. Strengths Weaknesses Hulu - Tiered pricing options - Access to live TV without cable - Partnerships with TV networks - Offline streaming unavailable - Limited international presence Disney+ - Extensive owned content - Brand recognition - Exclusive content of beloved franchises (Marvel, Star Wars, etc.) - Content production infrastructure - Partnerships - Lack of new, unique content - Limited content variety Amazon Prime Video - Built-in consumer market - Extensive access to user preference data - Non-media company - Rental payments for options not included in subscription Apple TV - Seamless integration with Apple products - Top-talent in original series - Relatively inexpensive - Non-media company - Limited content library - Weekly release of shows vs “bingeable” shows To compete with rivals, Netflix should focus on its strengths, such as the quality of its content library, experienced development and enhancement of its user experience, and the technology behind its recommendation system. The company has a repository of Emmy award-nominated content to highlight compared to its rivals. Revamping marketing to build more consumer engagement with new content and high-rated shows and utilizing partnerships with recognized talent within their production will also help Netflix engage various networks with content. Netflix’s competitors are not streaming-first companies, so they will all have to learn how to build a streaming infrastructure and pricing that works for their business while still producing new content. This presents an opportunity for Netflix to position itself as the superior service. 2) Resource-Based View Analysis Factors Valuable Rare Non-Imitable Non-Substitutable Brand Recognition Y N N N Original Content Y Y N Y Existing Subscriber Base Y Y Y N Streaming Technology Y N N N Global Presence Y Y Y Y Film & Television Rights Y N N N Talent Deals Y Y N N Production Studios and Technology Y N N N For Netflix to have a potential sustainable competitive advantage from any of its resources, the resource must be valuable, rare compared to competitors, difficult to imitate, and have no strategically equivalent alternatives. Several of the most critical resources to delve more deeply into are listed in the table above, most importantly, Netflix’s existing subscriber base, original content, global presence, and creative talent deals. Additional resources and capabilities not listed in the table could include physical locations/land for filming, standstill agreements, sizeable contract budgets, or user interface. While these resources are not potential sources of a sustainable competitive advantage, they still serve as an edge over specific competitors and are essential to the industry. Netflix’s large global presence is a potential source of sustainable competitive advantage; it is rare and valuable, as it is in 190 countries, offering content in almost 30 languages, and international subscribers outnumbered domestic subscribers and Netflix has a massive global presence with 140 million subscribers, including 58 million in the US, making it hard for competitors to imitate. Its closest rival, Amazon Prime Video, has 40 million US subscribers. It is also without substitutes as a global presence as large as Netflix’s cannot be substituted, and it allows the company to draw from original ideas from across the world, giving it an edge in creating popular originals that stand out from the content on other platforms. Additional important resources to Netflix lie in its existing subscriber base and focus on original content creation, which comprises up to 85% of its $8 billion content budget. This original content creation budget sets it apart from other streaming services that rely heavily on licensing agreements and is rare. While some of the original series produced by Netflix have gained a loyal audience, resulting in paying subscribers being committed to the show’s multiple seasons that cannot be substituted by other firms, original content is imitable by other firms, with other streaming services coming out with original content with large followings, including Hulu with The Handmaids Tale, Amazon Prime Video with Fleabag, and HBO with Game of Thrones. Netflix’s rise to a strong player in the streaming space was not only because of tangible resources, but also because of the intangible creativity of its talent pool, which includes writers and producers like Shonda Rhimes, Jenji Kohan, Shawn Levy, Ryan Murphy, Kenya Barris, and Harlan Coben. Thanks to their expertise and lengthy contracts (a tangible resource), Netflix boasts award-winning series and numerous top 20 shows with talent that is not easily poached. Additionally, Netflix’s existing subscriber base is rare and valuable, with almost 140 million subscribers by 2019. Netflix’s user base growth has led to increased revenue and operating margins. The company has higher user engagement and retention rates than its competitors, allowing it to use data on its existing subscriber base to create more relevant content to retain its current subscribers and attract new ones. 3) Recommendations Netflix should take a multi-pronged approach to respond to the entry of Disney. First, Netflix could diversify the platform and create partnerships with movie theaters, fitness centers, and personal fitness equipment brands to increase visibility and accessibility for users to stream original content. Working out is a habit and part of one’s routine, so introducing Netflix and its available series at local gyms, especially, could result in individuals purchasing subscriptions to watch the shows at home that they are exposed to at the gym. Partnering with fitness centers and equipment brands can also help users stay connected to their content while working out. Additionally, Netflix should focus on obtaining exclusive rights to popular broadcast sports like the Olympics, FIFA World Cup, NBA, NFL, and other international sports to potentially attract a new audience to its platform, especially in international markets where there is a growing interest in sports. This move could also help Netflix create a competitive advantage over its rivals. At the time of the case, most of Netflix’s competitors, such as Disney+ and Amazon Prime Video, did not offer live sports, and securing the rights to broadcast popular sports events could set Netflix apart from its rivals. This would make it harder for its competitors to imitate or substitute its offering, giving Netflix a valuable and rare asset. Additionally, live sports events offer a unique advertising and brand promotion opportunity. By partnering with sports leagues, Netflix could increase its visibility and awareness among potential subscribers. The platform could also benefit from cross-promotion opportunities between sports and entertainment, for example, by promoting a new movie or TV show during a live sporting event. Thirdly, Netflix could create a tiered pricing model that caters to three different customer segments, including students, seniors, and customers who are more frugal or conservative, with an added option for advertisements and a premium subscription that includes streaming and access to sports as well as new shows or movies. This would help Netflix maximize its revenues and ensure they have the budget to continue creating original content. Additionally, a tiered pricing model is a part of several competitors’ business models, most notably Hulu, which has seen great success. Introducing a pricing model could potentially attract customers who prefer Netflix’s content but could not afford the subscription in the past.
