Netflix is on-demand video streaming platform, that connects video content providers and final consumers, most of whom are either “cord-cutters” or “cord-nevers”. As of 2017 Netflix was valued at $60 billion, reported $11.7 billion in revenues, had 117.6 million streaming members worldwide and boasted 50 billion hours of content watched. In 2013 it started developing its own original content and in 2018 claimed to spend $8 billion on original content production, aiming at around 700 original TV shows.
Just like social networks of the world, Netflix doesn’t exist in the world of “winner takes it all”, but rather in a highly-competitive environment with high indirect networks effects (the more viewers it has, the better chance it has to get best content and talents and vice versa) and multi-homing (streaming services are hugely dependent on the top shows and cannot prevent consumer from switching to other platform once the top show is over).
Value creation: Netflix provides value to the whole ecosystem – both consumers and content providers.
- Affordable price. Netflix, first among content providers, introduced monthly subscription fee as low as $7.99, offering a vast amount of content for everyone.
- Accessibility. Netflix made it possible for people to watch video anywhere anytime, capturing growing multi-devicing trend. Importantly, Netflix created value through offering personalized recommendations and helping customers chose a video to watch without searching & evaluating content in its vast library.
- Benefits for content providers. Netflix has become a great new channel for the content distribution of the media companies, paying high prices for the licensing deals. Its fast-growing audience allowed it to close more exclusive and larger deals with the best companies out there including Disney, Warner Brothers etc. Over time, of course, these companies realized that Netflix was much more of a direct competitor than just a distribution channel.
- Original content. First, with critically acclaimed shows like Stranger things, Orange is a new black and House of cards, it helps to attract more viewers on the platform and increasing binge-watching. Second, with more traditional media companies realizing the scale of threat Netflix presented, original content became a tool to defend itself when the licensing becomes trickier. And just in time: Disney pulled out most of its content in 2017 in preparation to launch its own OTT (over the top) service, and others will probably follow shortly, too. Over the time, Netflix will substitute its current content providers with producers, directors and actors, working with them directly.
Value caption: Netflix is one of a few digital platforms that doesn’t have advertising. Instead, it offers a tiered monthly fee ranging between $7.99 and $13.99 depending on the number of devices and video quality chosen. Such set up depends largely on growing client base as fast as possible, which Netflix has been doing successfully over the years both in U.S. and internationally.
There are several ways Netflix can reinforce its stronghold:
- Scale up: Netflix survival relies heavily on scale – both to afford its ad free model and sponsor its growing original content production. It should push harder international expansion and localization of its content, which it has started already: so far it has 80 original productions from outside the U.S.
- Improve consumer stickiness and reduce multi-homing through versatile original content and improved recommendation algorithm
- Leverage its first mover position and lock long-term exclusive deals with top talent (directors, producers, actors) to secure future pipeline of high quality content
- Differentiate by building a stronger brand, especially outside of the U.S.
- Reduce its exposure to studios