Netflix is a powerhouse in the emerging streaming media landscape. As more consumers move away from the traditional cable subscription model and movies are increasingly being produced and then delivered directly to the consumer, Netflix has been on the right side of a major market shift. It helped originate the concept of “binge-watching,” and it has revolutionized the way people watch television and movies by providing instant access to an ever-growing library for every taste and preference.
By analyzing Netflix’s strengths, weaknesses, opportunities, and threats, we can see its potential for continued growth and success in the future.
1. Its business model is flexible and evolves over time.
Netflix has gone through major transformations over the lifetime of the business. It originally began as a rental service for DVDs that allowed users to rent movies without having to go to a video store. In 2007, it changed its primary business model to become a content streaming service, allowing users to watch programming from its library on-demand, rather than waiting for a disc delivery.
Netflix’s approximately 13,900-title library now includes both original and licensed movies and television shows and can be streamed on any modern tablet, smartphone, streaming box, gaming console, or smart TV. The number of titles in its library has dropped from around 15,400 titles as it shifts its budget from licensing content to producing its own content in order to cut costs.
2. It has significant brand equity.
The name, “Netflix” has become synonymous with content streaming. It was the first major platform to receive widespread acclaim and acceptance for its type of business model. Its continued investments into premium content acquisition and development, as well as an emphasis on a seamless user experience, has been continuously refined and improved on over the past few years.
Despite increased competition, it has remained one of the most popular streaming services around. It had revenue of almost $25 billion and $2.8 billion in profit. (BBC)
3. It has a large and growing global customer base.
While licensing and distribution rights change by country, Netflix is a popular choice for localized users or those traveling internationally because consumers can access their accounts and retain streaming services even in other locations.
Netflix had more than 200 million paid subscribers across 190 countries, with 80% of new sign-ups coming from outside the US and Canada. (BBC)
4. It has critically-acclaimed content and an extensive library.
Its platform broke the mold for streaming services. Netflix is a leader in content algorithms that provide recommendations based on past viewership, search history, and other personal preferences saved for each user.
It has the largest content library of any platform and is shifting its resources to invest more of its budget into original content. Original content allows Netflix to have exclusive offerings for its subscribers and to cut costs (versus licensing the third-party content).
5. It does not interrupt viewers with commercials.
One of Netflix’s major selling points to the consumer is its total lack of advertisements. Where some streaming services will remove ads and commercials for an increased fee, Netflix has never included commercials as part of its service.
While this removes a potential revenue stream for Netflix, its advocacy for the desires of the viewer has created a great deal of goodwill and made it a premium choice in the eyes of a prospective customer. This seemingly minor feature creates a much more enjoyable viewing experience.
6. It is priced reasonably.
Despite its longevity in the market and some price increases over time, Netflix remains an affordable option when choosing a streaming service. It offers several tiers, and even the lowest tier at $8.99 offers unlimited movies and TV shows on your laptop, TV, phone, or tablet.
Also, Netflix does not lock subscribers into a contract term. Steering clear of a long-term contract commitment makes subscriptions seem more user-friendly and less financially binding than with other services.
1. It distributes third-party content instead of offering exclusive material.
Netflix’s business model currently relies on third-party existing content. It buys the rights to add the content to its library for subscribers, which is expensive. When the rights expire, Netflix needs to either buy the rights again or lose the ability to offer the content to subscribers. What’s more, the third-party content is not exclusive to Netflix, so people can get the same content from other platforms.
Netflix is working on the problem by shifting its budget to focus more on generating exclusive original content and less on third-party content.
2. Its revenue is largely derived from the mature U.S. market.
About 37%, or 73 million out of 200 million paid subscribers, are based in the United States. This is good news for user diversification, but when it comes to revenues, Netflix reported $10.5 billion from North America, or about 50% of its total $20.15 billion in revenue.
This is because in regions that are mobile first, like India, Malaysia, Indonesia, the Philippines and Thailand, Netflix offers mobile-only plans that are below $5 per month (versus the standard $14 price tag in the U.S.). To grow its bottom line, Netflix needs to grow its revenue in markets not already nearing saturation and plagued by intense competition.
3. It operates faulty algorithms which result in content recommendations that are wrong.
Netflix relies heavily on its user algorithms to determine which content to promote to its users, but the recommendations are not always accurate. A perceived disconnect between user ratings on a program and its prominence in Netflix’s recommendation structure has caused some confusion and backlash from fans.
4. It has subpar customer support.
It has struggled with customer support issues, particularly during the 2020 pandemic. With so many customers spending more time streaming, Netflix actually decreased its support hours and created backlogs with consumers who had issues with their accounts.
5. It keeps raising its prices.
Consumers often make their decisions based on cost, and a price increase could result in a subscriber canceling their service. Netflix started out at $8 in 2014, and after a series of price increases, is now at $9, $13, and $16 for its three tiers of service in the United States. In January 2021, it raised its prices in the United Kingdom for its two tiers to $13.55 and $18.98.
Some other streaming services offer lower prices, or they may offer additional premium content that Netflix has lost the rights to. When deciding which subscriptions to keep or discard, price is often the deciding factor.
6. There is some high-profile offensive content that alienates large subscriber bases.
Some of Netflix’s original content has won industry awards and has been praised by critics and audiences. But some of Netflix’s content is uninteresting, or just plain offensive, to both critics and audiences. It’s a mixed bag. If a subscriber is unhappy with Netflix’s original content, then the only reason to remain a subscriber is Netflix’s library of third-party content, which that same subscriber may be able to get elsewhere.
1. It can expand further into the global market.
Laws on streaming rights are different throughout the world, but Netflix is forging new partnerships in Europe and Asia. Netflix reported that nearly 50% of its paid membership growth came from the Asia-Pacific market. Continuing to grow revenue internationally, not just $5 mobile-only memberships, is one of its most important opportunities.
2. It can continue to produce exclusive original content.
Since much of Netflix’s library is not original content, it is often beholden to the deals it is able to strike in order to provide new movies and shows to its audience. Netflix has wisely seen the potential for creating its own content and has since exponentially increased its investments.
It is tailoring its original content to specific countries, like India where it spent $400 million in developing original content and licensing third-party content between 2019 to 2020. It plans to invest millions into its content in Asia-Pacific. Its large global subscription base represents a huge opportunity for both content and revenue expansion.
3. It can offer content to target and deeply penetrate certain niche viewer markets.
Netflix is often home to unique offerings that appeal to a very specific viewership. Rather than see this as a loss leader and abandon this model in favor of programs with more widespread appeal, it can double down on this strategy and continue to find and present niche content for a wide range of consumers.
This can create an air of exclusivity, making Netflix the only place to see in-demand programs like this.
4. It could update its pricing model to extract more revenue from its user base.
While it has increased its prices over the last few years, substantially the model has remained the same and has in fact become its own model for similar services. One opportunity would be additional variations to the subscription levels available to users, such as tiers based on the amount of media consumed.
Giving customers additional options when selecting their subscription level could not only make the experience feel more customized, it could also pull in customers that wouldn’t otherwise join the service. Another option would be to include an annual subscription at a discounted price, which could convert additional customers.
5. Its pioneering mindset could be leveraged to make it a leader in new exclusive technologies.
Netflix was an early adopter of content streaming technology and has remained at the forefront of innovations like viewing apps for mobile devices, “smart” televisions that provide apps instead of connected devices, and the original groundbreaking shift from physical media to streaming.
As the industry and technology continue to evolve, it can find the latest innovations and continue to set the standard for how media is consumed in order to stay not only trendy but a relevant and essential choice.
6. It can bundle its services with telecom providers.
One way that certain streaming services have been able to grow is partnering with other service providers, like cable media, wireless phone service, and Internet providers. The concept is that, with every subscription to those services, an additional subscription to Netflix or some other service is bundled with the overall price.
This automatically creates a new or upgraded subscriber for Netflix, which is seen as a value-added upsell to the original purchase rather than a standalone purchase. This is a valuable tool both for Netflix and the other partnering providers who are looking for their own edge in their respective markets.
1. Competitors are nipping at its heels in the U.S. and overseas.
Netflix was once the king of streaming providers, but it is under attack, primarily from Disney+ in the U.S. Disney+ is currently cheaper, hosts all the Star Wars and all-new Marvel movies, and releases one new Star Wars and one new Marvel show every week.
That is a flood of programming, and judging by the popularity of Baby Yoda, that is powerful. To compete, Netflix then started releasing more original films. It also faces tough competition in its various international markets, like from iflix, which was bought by the Chinese company, Tencent.
2. There isn’t much apparent upside for Netflix in the U.S. market.
As a pioneer in its space, Netflix has been in the market much longer than its competitors. Now, Netflix is approaching a saturation point where it already has the vast majority of subscribers it will have in its most lucrative market, the United States.
At this point in Netflix’s life cycle, it is questionable whether it can continue to generate great returns for investors, compared to its past trajectory and also compared to other FAANG companies like Apple and Google. It needs to evolve its playbook and have a clear path for retaining its current U.S. base, and growing revenue in other markets. Right now, investors aren’t sure what that path is.
3. It is a popular target for hackers who want to enjoy free streaming content.
Digital security is a major concern for any company, but Netflix is a popular target for hackers. Hackers break into accounts and change the passwords so the subscriber gets locked out, and the hacker can take over the account. Hackers can also pirate content from the library and distribute over other channels. Minimizing this vulnerability will be important for Netflix to show it can manage its own technology.
4. Regulations in various countries will need to be managed well.
Often, the largest hurdles facing companies like Netflix are regulatory in nature. Every country has its own laws and regulations for streaming content, and some are stricter than others. Overcoming these hurdles can be a barrier to entering certain markets due to the increased costs and oversight related to operating there.
5. It should carefully evaluate its strategy on alienating large segments of the population due to offensive content.
Netflix has repeated prompted the trending of the hashtags #cancelnetflix, #cancelonetflix, and #boycottnetflix from subscribers outraged by its original content and circulating petitions which urge people to cancel their subscriptions.
Netflix has even faced lawsuits. For example, it faced subscriber backlash from Christians and Muslims due to airing an uncharted depiction of Jesus Christ, and from people concerned about the exploitation of children due to airing depictions that “sexualized an ELEVEN year old for the viewing pleasure of pedophiles.”
Netflix is one of the kings of online streaming, and shows no signs of slowing down. By taking advantage of its core strengths and stepping up when opportunities present itself, it can continue its positive trend. Likewise, by addressing weaknesses and mitigating potential threats, it can lessen the negative impacts to its business model and consumer base over time.
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