Essay Sample on Netflix's Business Model and Competitive Advantage: A SWOT Analysis

Introduction

The founding of Netflix disrupted the movie rental industry, where most films were viewed through DVDs. Reed Hastings, Netflix’s founding partner, was charged $40 as late-return-fee for a DVD he had rented to watch a movie (Morgan, 2018). Infuriated by this charge, Hastings and his friend, Marc Randolph, formed an ‘amazon’ of some kind where movie enthusiasts would request for movies and watch them at their convenience. The ‘Netflix’ idea was that viewers could watch unlimited amounts of movies at no extra charges. The founders utilized technology to revolutionize the movie industry from DVD based sales to online streaming and subscriptions. This paper evaluates Netflix’s case analysis and presents it against Blockbuster as one of the major competitors in the movie industry. The paper also includes a SWOT analysis to clearly illustrate the strengths and weaknesses of Netflix’s business model as well as the resultant opportunities and threats in this industry.

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SWOT Analysis

Founded in 1997 by two individuals, Marc Randolph and Reed Hastings, Netflix has weathered stiff competition to become the most favorite destination for movie enthusiasts (Morgan, 2018). In 2002 the company went public for $15 per share, a transaction that saw Randolph leaving the company by liquidating all of his stake in Netflix (Noam, 2019). The company continued to flourish, and by 2005 it reported 4.2 million subscribers (Wayne, 2018). By 2007, Wayne (2018) further reported that Netflix had marked its billionth DVD delivery and had over 130 million subscribers across the globe. The company utilizes multiple data analytics mechanisms to understand and predict customer movie preferences. With over 79000 movie categories, Netflix utilizes artificial intelligence to create an intuitive movie interface that predicts consumers’ movie choices (Ghawi & Pfeffer, 2019). The following is a SWOT analysis for Netflix analyzing how the company has survived to remain relevant in the highly competitive movie industry.

Strengths

Netflix was early to realize that technology was transitioning the movie industry. The company, therefore, adopted online streaming technology that allowed subscribers to watch unlimited content within their subscription package at no extra cost. Though the rent-by-mail DVD service is still one of Netflix’s revenue stream, the company’s big break came with it initiated the transition to online movie streaming (Noam, 2019). The ‘Watch-only-service’ that Netflix introduced in 2007 saw the company outshine the competition, and Gabrielli (2017) further reported that in 2018 Netflix had gross revenue of about $15.794 billion with a net income of about $1.605 billion. The company also has a large number of content producers who create remarkable content that suits customers’ movie preferences.

Weaknesses

Netflix has a duplicable business model that is easy to replicate and execute by another company. The online on-demand video streaming is a service that is easily replicable and can be duplicated by new competitors who will then compete for the same audience. As such, Netflix has a weakness emanating from on-demand video streaming, a feature that other companies utilize to reduce the market share presently enjoyed by Netflix.

Opportunities

The product mix is one of the most exceptional business opportunities for Netflix. Product diversification ensures a company gets a more significant market portion by offering a different product to consumers (Haider et al. 2017). Penetration to new markets also presents a credible opportunity for Netflix. The company can venture into untapped markets and spread its product portfolio.

Threats

Competition in the movie industry is relatively high. Due to the aggressive competition, most companies resolve to imitation to try and convince movie enthusiasts that their movies are as good as what the audience gets from Netflix. Coupled with its weakness of imitability of the business model, the threat to Netflix comes from imitation from other movie companies. Also, pirating is a significant concern for the sustainability of on-demand online streaming. Most movie sellers pirate Netflix movies and present duplicate copies for consumers at a lower price. This practice threatens the business survival of Netflix and other movie companies such as Blockbuster and Disney.

The competitive advantage that Netflix has over its industry rival emanates from the diverse collection of movie content the company has. Netflix has over 79000 movie categories (Ghawi & Pfeffer, 2019). In comparison to Netflix, Blockbuster was founded in the year 1985 by Wayne Huzeinga, and it now holds over 40% market shareholding in the movie industry (Isidore, 2018). The company presents an extensive and aggressive marketing strategy that sees the company running about 10,000 stores across the world. The competitive advantage that Netflix has is that the company has a broad spectrum of content producers who ensure that the company is on top of the game when it comes to movie selection.

Summary and Conclusion

Netflix needs to grow while continuing to protect the business against all internal and external threats. The online entertainment industry keeps improving its viewership with the influx of more people into the online space. Therefore, an improved online presence is of vital survival to Netflix and all other movie companies such as Blockbuster, Amazon, Hulu, and HBO. Netflix should make use of strategic business modeling to position itself much better than the competitors. With the evolution of technological advancement, the company should also transform to capture the upcoming generation. Also, with the downfall of on-demand online streaming of movies, Netflix can utilize video downloads as the next alternative stream of revenue. Extensive use of data analytics will help the company to position itself in readiness for upcoming challenges in the movie industry.

References

Gabrielli, G. (2017). Netflix inc. valuation (Doctoral dissertation). [PDF] https://run.unl.pt/bitstream/10362/23690/1/Gabrielli_2017.pdf

Ghawi, R., & Pfeffer, J. (2019, December). Movie Genres Classification using Collaborative Filtering. In Proceedings of the 21st International Conference on Information Integration and Web-based Applications & Services (pp. 35-44). https://doi.org/10.1145/3366030.3366034

Haider, A. A., Zafar, A., Khalid, A., Majid, A., Abdullah, M. A., & Sarwar, M. B. (2017). Marketing Management. Head, B, 22.

Isidore, C. (2018). Blockbuster founder Wayne Huizenga has died. CNNMoney. https://money.cnn.com/2018/03/23/news/companies/huizenga-obituary/index.html.

Morgan, J. (2018). Netflix: Reed Hastings. [PDF] https://scholarworks.bgsu.edu/cgi/viewcontent.cgi?article=1011&context=mclp

Noam, E. M. (2019). Financing media, information, and communication. In Managing media and digital organizations (pp. 175-233). Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-71288-8_6

Rataul, P., Tisch, D. G., & Zámborský, P. (2018). Netflix: Dynamic capabilities for global success. SAGE Publications: SAGE Business Cases Originals.

Wayne, M. L. (2018). Netflix, Amazon, and branded television content in subscription video-on-demand portals. Media, Culture & Society, 40(5), 725-741. https://doi.org/10.1177/0163443717736118