Industry Report 1

Industry Analysis
Netflix in the Global Market

Strategic Management (BS6201_A_TY13_22)

Rishita Sukhadiya
K2025677
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Executive Summary

The global positioning of Netflix has been analysed, evaluated, and interpreted in
this research. To better understand Netflix's strengths, weaknesses, threats, and
opportunities for expanding their brand and sales abroad, I have employed a variety
of models, including PESTEL analysis, Porter's Five Forces, VRIO analysis, and
SWOT analysis. Additionally, I have offered a few suggestions for future marketing
plans that will serve as a framework for competitive pricing, content and media
creation, and client base expansion.Because of rising modernization and
globalisation, SVoD enterprises have evolved globally. There is little doubt that
market competition will intensify, and every company will be battling to get a
competitive advantage at the end of the day. In this study, I would like to examine,
analyse, and identify all of the potential long-term competitive advantages that Netflix
can get by employing the appropriate business models to assess their strengths and
possibilities, as well as work on their weaknesses and threats as a firm evolves.
Currently Netflix is the largest and world's most successful SVoD streaming service
platform. Netflix has expanded to 190 countries in just 7 years because its
globalisation tactics were expertly executed and allowed them to plan content region
by region, allowing them to swiftly tap into a wider client base. This report will provide
insight into potential techniques that Netflix's senior management might utilise when
developing future plans.
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Table of Contents
1.PESTEL Analysis…………………….……..…………………………………………………...4

2.Porter's Five Forces………..…………………………………………………..……………..…5

3.VRIO Internal Analysis……………………………………………..…………………….……..7

4.SWOT Analysis…..……………………………………………………….…………..……….…9

5.Recommendation………………………………………………………………..………..…....10

6.Bibliography………………………………………………………………………...……...…...10

List of Figures

Figure 1. Factors of PESTEL Analysis

Figure 2. Elements of Porter's Five Forces
Figure 3. VRIO Framework
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1) PESTEL Analysis

PESTEL Analysis assists a corporation in identifying internal dangers and opportunities in

the external business industry. It will also assist management in understanding how these
external variables impact the company's productivity, performance, and sales. If PESTEL is
properly analysed and applied, it may serve as a guiding tool for the organisation, assisting
in the identification of opportunities and the avoidance of threats.

Fig 1. Source: Bruin, L.de (2022) Pestel analysis (pest analysis) explained with examples: B2u, Business. Available at:
https://www.business-to-you.com/scanning-the-environment-pestel-analysis/

Political Factors
Government rules and regulations are an example of an external variable that a business
cannot control. All SVoD companies have serious issues when it comes to censorship, as
different nations have varying censorship policies and laws, which causes some of its
content to be blocked internationally and puts them in the red (Lakhpatwala, 2022).
Countries that have blocked Netflix because they found the content to be harmful include
China, Syria, Crimea, South Korea, and Russia. Because homosexuality is illegal in the
UAE, the country asked that gay scenes be cut out to prevent backlash, as it did with the
movie Perfect Strangers in the middle east countries like Epypt (Vivarelli, 2022).

Economical Factors
Variables like inflation, exchange rate, interest rate and customer buying decisions led to the
economic and financial condition of the company. SVoD companies like Netflix and Amazon
Prime Video are making the most money from the original content they have been creating
internally, but it does cost them a lot to produce these series. Nevertheless, they must
continue to generate new content each month in order to compete in the market today.
Another significant benefit is the aggressive competitive pricing strategy that few SVoD
companies use to give competitions to their rivals since the beginning. However, because of
taxation laws in various countries, the entire industry is compelled to develop new
membership plans with varying prices, which may result in fewer users in that country. One
of the main barriers is piracy, it is not only illegal but a huge threat for the privacy of the
company as well as it alters the customer base and directly affects profitability. Netflix piracy
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rate is currently at 16% and keeps increasing every year due to higher costs for streaming
sites (Van der Sar, 2022).

Social Factors
Socio-Cultural elements help indicate the preferences of customers, population analysis as
well as studying the demographics and following cultural trends to get an edge in the market.
Netflix wants to improve their brand image and reputation in UAE which is why they have
come up with a collaboration with Dubai which includes 4 Arab writers to win an award of
$300,000. The ease and comfort of streaming video have also helped the SVoD industry’s
customer base grow as more than 90% of the world population has access to a smart screen
and can log into any streaming websites and watch content either for free or for paid plans.
Majority of teenagers now follow the social trend of watching Netflix on a mobile device,
laptop, or tablet and want to discuss the series and movies with their friends, this also helps
in spreading a good word of mouth which leads to the shows being successful (Matrix,
2014).

Technological Factors
When it comes to technological advancement, Netflix is leading the way. In order to increase
the correctness of their subtitles, they have located the best translators on the planet. Due to
growing modernisation, many 4K televisions have been marketed, and even smartphones
now have larger screens for HD viewing. When streaming videos online, Netflix aims to offer
the highest quality with the least amount of data usage (Kumar et al., 2020). The Hermes
algorithm that Netflix is now utilising is known to be accurate, yet consumers continue to
have a lot of problems with suggestions because users' profiles are constantly changing their
viewing and search histories.

Environmental Factors
Companies must create business strategies to lower carbon footprint and adopt more eco-
and environmentally-friendly practices at their data centres if they are to be held accountable
for their carbon emission levels. All SVoD companies need to adhere by the Paris Climate
Agreement Netflix has stated that they will have zero greenhouse gas emissions by the end
of 2022 and will cut their scope emissions by 45% by 2030. With the launch of their CSR
programme, Net Zero + Nature, Netflix has made great strides toward environmental
protection. Among their many new ideas for the future is investing in the restoration of vital
natural habitats (Stewart, 2021).

Legal Factors
When it comes to intellectual property, patents, and contracts. SVoD enterprises must be
extremely cautious and diligent, as losing these rights and contracts might result in a
significant loss. Every SVoD company has its own patents, copyrights, and contracts, but if
they are not maintained safe and secure, competitors can easily duplicate or imitate the
data. Contracts for content libraries, outsourced production companies, and hired performers
must be renewed on time or they will be sold to competitors. Netflix initially failed to secure
their copyright on technological developments, resulting in the entry of new competitors and
the loss of competitive advantage.

2) Porter's Five Forces

Personally, I feel that Porter's Five Forces analysis assists a whole industry by identifying all
of the competitive elements and supporting companies in improving their profitability by
altering their strategy while keeping the competitive forces in mind which will also lead to
potential profits and improved productivity. It may also enable competitive advantage by
determining where the organisation has the greatest power and where it has to act to
strengthen its market position.
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Fig 2. Source: Porter's Five Forces Analysis Definition and Examples (no date) Edrawsoft. Available at:
https://www.edrawmind.com/article/porters-five-forces-analysis-definition-and-examples.html

Threat of New Entry

It is quite difficult to survive in the market when facing the danger of new competitors if
strategies are not well-controlled. A competitor can cause a large firm to disappear from the
market, just like Apple and Nokia, by not only taking its client base but also lowering its
prices and profitability (Porter 2008). In order to keep its customers, Netflix must continue to
release new content on a monthly basis, otherwise, this will encourage them to go to one of
its rivals. Technically, new competitors pose a minor danger to Netflix because they would
need to make the same capital expenditures and technology breakthroughs that Netflix has
already mastered.

Threat of Substitutes
The two biggest threats to the SVoD companies are cable television connections and DVDs.
Customers who already own TV connections and DVD players would find it advantageous to
switch from Netflix to these sources if they manage to expand their content and gain access
to the same material as Netflix (Amematekpo et al, 2011). Netflix needs to make sure that
they are meeting the right client needs and creating content that is widely acclaimed. By
offering the greatest service and more affordable options, Netflix can raise the price of
moving to an alternative. Customers will be kept around longer and less likely to switch to
competitors.

Bargaining Power of Buyers

Potential customers have a lot of bargaining leverage because it is entirely up to them to
decide when to sign up for Netflix and when to switch to another service. For the same
reason Netflix will need to maintain their service and content quality to retain its customers
for a longer time period. Netflix can decrease the bargaining power by creating a larger
customer base and streamline their potential sales and production process.Sometimes, even
income elasticity is important because a client can decide to forgo Netflix in order to save
money during a recession or just to save up money.

Bargaining Power of Suppliers

Suppliers have a higher bargaining power as most of the content for Netflix is provided by
these suppliers. Everything related to pre and post production is outsourced to different
production companies. Numerous price negotiations are involved, and suppliers typically
have the upper hand because of their experience. By establishing their own production
company and hiring numerous internal actors on long-term contracts, Netflix will be able to
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lessen the bargaining power that suppliers currently enjoy over them. Netflix is also in
danger of the movies or television shows becoming well-known, and they would be
responsible for the expenses if their audience are not entertained by it.

Competitive Rivalry
Netflix is facing a lot of competition from Redbox, Amazon, Disney+ and retailers that sell
DVDs (Netflix,2018). Netflix will need to use aggressive marketing strategies to make sure
they dominate the market. Netflix’s affiliate deals and collaborations helped them earn 14%
of their sales (Netflix, 2010). By providing more value and a competitive edge, or by entering
niche markets by producing more conventional and authentic content, Netflix can lessen
competition. The third tactic is to partner with up-and-coming streaming services like Hoopla,
TubiTV, and PlutoTV. This will assist to lessen competition, expand the consumer base, and
offer fresh content.

3) VRIO Analysis

This analysis will help the management team to figure out Netflix’s current resources and
capabilities. It will also help them to properly allocate the resources and also evaluate the
companies performance based on the 4 elements of VRIO which are value, rare, inimitable
and organisation. It means that the resources and capabilities that a company owns need to
be valuable, rare and difficult to imitate as well as have an organised culture and structure to
achieve competitive advantage in the long run (Rivera, 2019).

Valuable
For Netflix any internal or external factors that create an opportunity or help in increasing
competitive advantage is a valuable resource for them. For example, the technology used in
accurate translation for subtitles is an added value for Netflix as competitors are still not able
to meet the accurate rate of the subtitles. Netflix's original generated material is one of their
most valuable resources; the series and movies are one of the key reasons why people
subscribe to Netflix. It is difficult for competitors to imitate the scripts because it is unique
and protected by copyright. Another advantage Netflix has is a highly skilled workforce, most
personnel are well trained, which helps boost the company's overall performance while also
keeping customers satisfied (Rivera, 2019).

Rare
Similar to valuable, resources such as technology improvements that allow smartphones to
display 4K HD videos while consuming little data are scarce, and not all rivals provide
comparable features. Netflix also has very strong distribution network contracts, and
competitors would need far more capital investment to compete with Netflix( Myer, 2019).
Netflix has announced new plans which are even cheaper which will also give them another
competitive advantage as no other competitor is offering the same plan. The patents and
copyrights which are owned by Netflix are also rare as they can not be used by the
competitors. Netflix has also expanded into different regions and targeted smaller customer
segments, such as introducing American-Indian movies and series like Never Have I Ever
and Wedding Season, which has given them an entirely new customer base to target and
will be difficult and time consuming for competitors to replicate.

Inimitable
If valuable and rare resources are easily imitable then it will add no competitive advantage to
the company. Netflix needs to come up with innovative strategies which can not be easily
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replicated by competitors and stands out in the public as well (Myer, 2019). One of the
examples could be the unique and innovative marketing strategy used for the show, 13
Reasons Why. The marketing team had created personalised instagram accounts for all their
main leads which lead to multiple viewers following these accounts and lead to more people
talking about the show. Netflix provides cheap plans which are not inimitable by all
competitors and has helped Netflix get a competitive advantage for the same. Due to
consistent demand Netflix also benefits from economies of scale when it comes to
outsourcing production companies.

Organised
Although Netflix possesses all of the vital resources that are unique and difficult to replicate,
this is unlikely to result in a lasting competitive advantage. The ability to leverage resources
through organisational competencies, knowledge, and structure is critical to developing a
sustained competitive advantage (Rivera, 2019). If Netflix is still not organised on its
strengths, it will be unable to fully utilise all of its resources. Netflix is able to develop a large
amount of original content at a faster rate due to its financial strength and the benefit of
economies of scale, which adds to its competitive edge. Even technological developments
such as precise subtitles, reduced bandwidth usage, and HD quality contribute to Netflix's
competitive advantage. The organisational culture and structure at Netflix is super innovative
and supportive which leads to increased productivity and efficiency which overall increases
companies performance and reduces labour turnover.

Fig 3. Source: A. Bell, O. (2021) Netflix Inc. in the time of covid-19: A case of managing and strategizing, Netflix, Inc. in the
Time of Covid-19: A Case of Managing and Strategizing. Available at: http://bit.ly/3AFQCtq
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4) SWOT Analysis

Strengths Opportunities
One of the main strengths that Netflix Netflix can introduce sport live streaming as
possesses is producing their own content most of its competitors have already
and they are serving at least more than 190 introduced this feature and has turned out
countries globally. to be successful.

They also have a very good brand image Netflix can partner up with China and
and reputation which leads to most of their Middle Eastern countries to generate more
content being viral and cost effective. customer base and try to meet the strict
laws that the country follows in terms of
Netflix uses innovative marketing strategies script writing and graphic content.
to pique consumers' interest in watching
their content. Netflix can collaborate with other
companies to earn extra revenue.
Netflix is making a lot of technological
advancements which include 4K HD quality Netflix can attract a new customer base by
using the least amount of data, accurate using their AI as well as tapping into a
translations and using Netflix’s own AI for smaller country target market.
better customer recommendations.
Netflix can contribute towards the gaming
Netflix has a robust distribution network industry as well which can include gaming
since it pays a minimal fee to distribute live as well as streaming gamers on Netflix,
material which is worth much more. This this will lead to an entire new market
results in higher savings. opportunity for them.

Weaknesses Threats
Censorship and piracy are the main Increased competition from smaller
weaknesses for Netflix. Some of the media companies is dividing Netflix’s customer
content that is produced by Netflix base and decreased revenue.
sometimes can not be published in all the
countries which leads to less revenue. Piracy reduces their subscriber count as
consumers prefer downloading the same
Due to a lot of competition, Netflix needs to content for free rather than paying for the
come up with more original content which subscription plans.
requires a lot of capital investment which
Netflix has to risk. Because numerous users can use the same
Netflix account, Netflix has a difficult time
Netflix has no other scope of expansion determining if the true owner is viewing or
other than streaming videos for now. someone else.

Due to limited copyrights, Netflix needs to The laws and regulations that various
look for more long term contracts to keep countries have must be followed at all times
shows that customers are enjoying. while developing new marketing or content
strategy or it can lead to censorship as well
Netflix content is banned in multiple regions as content being banned by the country.
like China, Russia, North Korea and others,
this leads to an entire untapped customer Netflix increased prices for subscription
base. plans leads to consumers to switch to
competitors that offer cheaper plans.
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4) Recommendations

Netflix has progressed from being a DVD vendor to one of the top streaming platforms in the
world. However, there are still untapped market gaps and plenty of space for strategy
development. First and foremost, I would advise the team to develop long-term strategies for
the creation of original content, as this is one of the primary causes for strong client
retention. Netflix could own their own film studio to save money on renting audio and visual
equipment, editing, and other pre and post production operations that they currently
outsource for each series or movies. Netflix’s biggest weakness currently would be limited
copyrights as they do not own most of their copyrights and can face the issue of duplication
and piracy. Netflix should assert copyrights in order to not only safeguard their own material,
but also to boost potential revenue revenues lost due to piracy. Netflix is also in increasing
debt since creating and producing unique content requires significant financial resources. I
would advise Netflix to cooperate with companies that can assist in resolving these issues.
Collaboration with a clothing business, for example, can help you save money on wardrobe
management and design. Netflix has also boosted its fees in order to give 4K HD quality to
even the smallest smartphone screen, but this has resulted in users switching to competitors
such as Disney+, which offer subscription options at a lesser rate. To compensate for this
disadvantage, Netflix may introduce lower-cost options with fewer constraints on quality,
number of screens, and content availability. Another threat to Netflix is the saturation of the
industry. Netflix was not able to meet their target for subscribers in the last quarter because
the market is saturated. Netflix needs to enter a new market like Virtual Reality (VR) and
Augmented Reality (AR). This will open up many opportunities for Netflix.

5) Bibliography

Pratap, A. (2022) Vrio analysis of Netflix, Medium. Medium. Available at:

https://abhijeetpratap.medium.com/vrio-analysis-of-netflix-2a67751f9408

Maddodi, S. and K, K.P. (2020) Netflix bigdata analytics - the emergence of data driven
recommendation, by Srivatsa Maddodi, Krishna Prasad K :: SSRN. Available at:
https://dx.doi.org/10.2139/ssrn.3473148

Bruin, L.de (2022) Pestel analysis (pest analysis) explained with examples: B2u,
Business. Available at:
https://www.business-to-you.com/scanning-the-environment-pestel-analysis/

Rivera, A. (2019) Netflix VRIO/Vrin Analysis & Value Chain Analysis (resource-based
view), Rancord Society. Available at:
https://www.rancord.org/netflix-vrio-vrin-analysis-value-chain-analysis-resource-based-vie
w

Myer, D. (2019) MBA HBR : Netflix: International Expansion Case Study Solution &
Analysis, SWOT analysis, Pestel analysis, VRIO analysis, Porter Five Forces Analysis &
Value Chain Analysis, BCG growth share analysis of Netflix aggressive, EMBA Pro for
Executive MBA Professionals. EMBA Pro. Available at:
https://embapro.com/frontpage/casestudysolution/8064-netflix-aggressive

A. Bell, O. (2021) Netflix, Inc. in the time of covid-19: A case of managing and strategizing,
 Industry Report 11

Netflix, Inc. in the Time of Covid-19: A Case of Managing and Strategizing. Available at:
http://bit.ly/3AFQCtq

Gerken, T. (2022) Young watch almost seven times less TV than over-65s - Ofcom, BBC
News. BBC. Available at: https://www.bbc.co.uk/news/technology-62506041

Adamkasi (2022) Porter's five forces of Netflix, Porter Analysis. Available at:
https://www.porteranalysis.com/porters-five-forces-of-netflix/ Analysising Netflix’s strategy -
researchgate (2020). Available at:
https://www.researchgate.net/profile/Zana-Sadq/publication/318727201_Analysising_Netfli
x_s_Strategy/links/597a60560f7e9b0469b740d0/Analysising-Netflix-s-Strategy.pdf

Sad, Z. (2015) (PDF) analysising netflix " s strategy - researchgate. Available at:
https://www.researchgate.net/publication/318727201_Analysising_Netflix_s_Strategy