Netflix Case Analysis

ASSIGNMENT #1: NETFLIX, INC.
CASE ANALYSIS
Florida A&M University

School of Business & Industry
Assignment #1
Netflix, Inc. Case Analysis
MAN 5721
Business Policy & Strategic Management
Prepared By:
Nathaniel Russell Causley, III
Submission Date:
January 17, 2015
ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Causley 2
Netflix, Inc. Case Analysis

This report contains an in-depth analysis of the 2011 Baldwin-Wallace College case on
Netflix, Inc. In alignment and relevance to the material discussed through Chapters 3-6 of
Davids Strategic Management book, my analysis and suggestions will include the data
incorporated within the case and the strategic procedures suggested throughout the Strategy
Formulation process in order to create a strategic plan for the firm Netflix.
Netflix Table of Contents

Executive Summary......................................................................4
Internal Analysis........................................................................... 6
Company Background................................................................................................ 6
Mission Statement...................................................................................................... 6
Suggested Mission Statement................................................................................ 7
Vision Statement........................................................................................................ 8
Core Values................................................................................................................. 8
Company Objectives and Current Strategies..............................................................8
External Audit............................................................................10
Opportunities............................................................................................................ 10
Threats..................................................................................................................... 10
PEST Analysis........................................................................................................... 11
Porters 5 Forces....................................................................................................... 12
Bargaining Power of Suppliers.............................................................................. 12
Bargaining Power of Buyers.................................................................................. 12
Industry Rivalry..................................................................................................... 13
Threat of Substitutes............................................................................................ 13
Threat of New Entrants......................................................................................... 13
Competitive Analysis................................................................................................ 14
Internal Audit.............................................................................15
Strengths.................................................................................................................. 15
Weaknesses.............................................................................................................. 16
Internal Factor Evaluation (IFE) Matrix......................................................................17
Strategy..................................................................................... 18
SWOT Matrix............................................................................................................. 18
Strategic Position and Action Evaluation (SPACE) Matrix..........................................19
External Factor Evaluation (EFE) Matrix....................................................................20
Grand Strategy Matrix.............................................................................................. 21
Suggested Strategies..................................................................22
Strategic Recommendation..........................................................22
Strategic Implementation............................................................23
Product Positioning Map........................................................................................... 24
Balanced Scorecard.................................................................................................. 25
Evaluation & Control...................................................................26

Conclusion.................................................................................. 28
Works Cited................................................................................ 29
Appendix.................................................................................... 30
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2.4:
2.5:
2.6:
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3.1:
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3.3:
Netflix Balance Sheets............................................................................30

Netflix Income Statement.......................................................................31
Netflix Statements of Stockholders Equity.............................................32
Netflix Statement of Cash Flows.............................................................33
Organization Structure, 2010..................................................................34
Netflixs Revenue and Cost per Subscriber.............................................34
Netflix Income & Expenses.....................................................................35
Netflixs Stock Prices 2010-2011............................................................35
Netflix VS. Top Pay-TV Operators 2010 Subscriber Ads...........................36
Netflixs Subscribers by Quarter (2008 Present)..................................37
Netflix Exponential Growth.....................................................................37
United States DVD Market 10................................................................38
Netflix Vs. Hulu Traffic Comparison.........................................................38
Netflix Revenue VS. Blockbuster Revenue (2004 2010).......................39
Netflix Revenue VS. Blockbuster Revenue (2004 2010).......................39
Netflix Competitive Advantage...............................................................40
Netflix Interface via Apple TV.................................................................41
Netflix Interface via X-Box 360................................................................41
Netflix Interface via iPhone.....................................................................42
Executive Summary
The underlining purpose of this strategic plan is be to provide a thorough evaluation of
the firm based on the information provided for the firms 2010 fiscal year and to develop
suggested strategies the company could conduct in order to ensure a successful future for the
longevity of the company. Current day, Netflix, Inc. is the worlds largest and leading
subscription service provider that offers the ability for its consumers to stream movies and TV
episodes over the Internet. Within a decade of existence, Netflix began to soar above its
competitors and eventually explored new markets.
The time setting for this case, takes place within the year of 2011. The market for
streaming video, of which Netflix exists in, can be divided into three different segments: video-

Causley 4
on-demand (VOD), ad supported, and subscription. The competitors that stand against Netflix
within the VOD segment include Amazon, Apple, and Microsoft. Video-on-demand (VOD) is a
service that customers pay for that allows them to select and watch clip and video content over a
network as part of an interactive experience.
The competitors that existed within the ad support segment included Hulu and YouTube.
Unlike most of Netflixs rival companies, the firm offered many various subscription plans with
no fees for late returns, no due dates, no shipping, or pay-per-view fees. Subscription plans, for
the firm, started as low as $7.99 per month and by the summer of 2011 the firm possessed a
database of over 25 million subscribers.
Although Netflix sits on top of the mountain as the primary provider in the subscription
segment, the company was still experiencing some hard pressure from outside competition to
figure out how to stay innovative and maintain their competitive advantage as consumers shift to
Internet delivery of videos. The I want it now mindset of consumers for instant-gratification
video within on-demand streams is changing the media industry to gain a major concern over
Netflix. Constantly trying to find new ways to improve their subscription experience, the
competition within the industry is concerned that Netflix is removing the reason for consumers to
pay for expensive cable TV. With the shift of industrys attention upon VOD, Netflix must figure
out how its company will move from an online-subscription based DVD rental service to
positioning itself in sustaining its current position as a monster within the media industry.
Internal Analysis
Company Background
Founded on the date of August 29, 1997 in the state of Delaware, the firm Netflix, Inc.
provides and offers DVD home delivery to home and Internet based subscribers within the
United States, Canada, Mexico, and Latin America. Due to complaints from consumers about
how the video streaming industry was charging for returning videos late, Netflix decided in 1999
to launch a No late fee policy to its consumers. Netflixs customers, who received DVDs by
mail, now had the ability to hold onto their media for as long as they wished without receiving
any consequences. During the early years, very little competition for DVD rentals existed. Many
of Netflixs indirect competitors were still selling VHS.
In 2001, the firm decided to move into the Video-on-demand industry. As many of the
firms competitors felt the sabotage of the Netflix virus, they too decided to follow Netflixs
direction into the VOD industry. In May of 2002, the company completed its initial public
offering to the world, running under the ticker symbol of NFLX. By 2007, company leadership
decided that the firm would begin streaming content over the Internet. This opened the airways
for Netflix to be a downloadable app within any warranting device and thus growing the firm
tremendously. By December of 2010, Netflixs workforce had grown to over 2,180 full-time
employees and 2,197 part-time employees, also possessing revenues of up to $2.4 billion.
Mission Statement
Our appeal and success are built on providing the most expansive selection of DVDs;
an easy way to choose movies; and fast, free delivery.

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Suggested Mission Statement

Original Mission Statement
9 Components
1. Customers
2. Products & Services
3. Markets
4. Technology
5. Survival, Growth, Profitability
6. Philosophy
7. Self-Concept
8. Public Image
9. Employees
Excerpts from Mission Statement addressing the component

providing the most expansive selection of DVDs
Revised Mission Statement

As the world leader in the home video entertainment market (3, 7) Streaming
entertainment content straight to the interested consumers device, making viewing interactive,
easier, and available whenever the consumer wants it (4). Serving TV and movie viewing
customers (1) with topnotch entertainment (6). Leading by example as a responsible, caring, and
sustainable company making difference in the communities we serve (8) and inspiring our
employees to do their best, offering opportunities for personal development and success (9).
Netflix continues to develop the frontiers of home entertainments by continuously growing their
content library in order to stand out in the industry (5) and providing the most expansive
selection of DVDs (2).
9 Components
1. Customers
2. Products & Services
3. Markets
4. Technology
Excerpts from Revised Mission Statement addressing

the component
Serving TV and movie viewing customers
providing the most expansive selection of DVDs
home video entertainment market
Streaming content straight to the consumers television,
making viewing interactive, easier, and available whenever
the consumer wants it
5. Survival, Growth,
Profitability
Netflix continues to develop the frontiers of home

entertainments by continuously growing their content
6. Philosophy
7. Self-Concept
8. Public Image
9. Employees
library in order to stand out in the industry

Serving customers with top notch entertainment
home video entertainment market
Leading by example as a responsible, caring, and
sustainable company making difference in the
communities we serve.
Inspiring our employees to do their best, offering
opportunities for personal development and success
Vision Statement
Becoming the best global entertainment distribution service.
Licensing entertainment content around the world.
Creating markets accessible to film makers.
Helping content creators around the world to find global audience.
Core Values
Netflix has the following core values:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Judgment
Productivity
Creativity
Intelligence
Honesty
Communication
Selflessness
Reliability
Passion
Company Objectives and Current Strategies

Netflix first offered its services through mail to its customers. The strategy to stream a
selection of movie titles began in January of 2007. Initially, Netflix anticipated that there would
be a very slow adoption to their newly innovative online streaming, but to their surprise the idea
immediately took of. This caused Netflix to rise to the world leader in online streaming content
and its subscriber based grew tremendously. Within 5 years of implementation, Netflix reported
23.8 million subscribers, of whom about 21.4 million were accessing the online database for

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some sort of movie entertainment. The trial of the company to use streaming had become so
successful that competitors started to make attempts at adopting the companys new strategies.
Netflix only had the cost of paying transmission fees in order to strengthen the signal associated
with their site to ensure that their customers were able to have a smooth viewing experience. If
Netflixs subscriber base continues growing at current rates then content manufacturers may soon
be compelled to seek Netflix as their primary content distributor for movies and TV, similar to
Apple Inc. in the music industry. Netflixs ultimate objective is to effectively conduct operations
that assist the company in maintaining their current position within the industry while continuing
to be innovative.
As the U.S. moves forward to predictions of a weak economic period, it is of high
importance that Netflix prepare their selves accordingly. They must continue to conduct building
partnerships to increase their overall accessibility and availability of its streaming service. The
current market challenges their organizational strategies, as Netflix must constantly change and
diversify its features in order to have a better chance of adapting to their impending competitors
and the shifting innovation within the industry. Within the cases time period, Netflix was a
dominant force within its industry, but failure of the firm continuing to be innovative within its
Research and Development Department could be detrimental to their overall growth and future
success.
External Audit
Opportunities
Existing within a fairly fast-paced and constantly changing content streaming business,
there exists many opportunities for Netflix to maintain their current position within the industry.
In the early stages, the company entered the movie rental business by providing similar services
as Blockbuster but for a considerably lower price. The streaming of content online is fairly new
to the industry, but overall causes a significant drop in costs that were associated with packaging
and shipping out DVDs. With VOD being looked at as the wave of the future, Netflix has
decided to survey the field before entering. This gives the company a chance to closely examine
competitors as they undertake the new venture. With problems arising as they go, Netflix can sit
back and closely strategize on how they could infiltrate this market effectively and efficiently.
The use of single user accounts, which allow single movie streaming to one location, are now
being used by Netflix and VOD competitors. To combat this, Netflix considered creating a
family price that would encourage multiple accounts all within one household creating a greater
customization of viewing media content.
Threats
There existed many threats that Netflix faced during this time period. Netflix competed
within the fiercely contested web/cable/television industry that was constantly changing by the
cause of many various technological advances. The overall evolution of video streaming
technologies point attention to the future of VOD. Along with competition, Netflix is perfectly
aware that VOD can possibly become the common format used for viewing media in the near
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future. This risk causes the company to stay innovative and constantly change the direction of the
companys operations.
Netflix has also been strongly considering going global and is trying to get outside of the
western hemisphere. With this exploration, Netflix is open to many unknowns, which include:
international trade laws, copyright and patent laws not being accepted in certain areas, potential
negative economic downturn, and currency fluctuations. Within the case, Netflix does a trial of
expansion into Canada. This venture ultimately surpassed initial growth estimates. Trying to
global requires the company to conduct a significant amount of research, acquire mass resources,
greater attention upon management, and ultimately exposes the company to regulatory,
economic, and political risks. In the international market in particular, Netflix will also face
challenges of content licensing and identifying the most effective marketing channels.
PEST Analysis
Political
E-commerce safety
International Taxation
Changing laws in regards
to patents, trademarks,
copyrights
Confidentiality
Agreements to protect
companys proprietary
software and website
Dependency upon
content licenses in order
to distribute content
Legal complexities of
international trade
Complex tax effects
Intellectual Property Laws
Economic
Negative Economic
Downturn
Currency fluctuations
Industry based on
disposable income of
customers
Exchange Rate Risk
New Competition
International Financial
Operations
Social
Online & Social Networking

Ethical & Religious Issues
Subscriber ratings
Streaming movie rentals on
Facebook
Word of mouth
recommendations
Cultural adaptations to user
interfaces
Identifying most effective
marketing channels
Technological
Consumer search process

search engines
Order processing
Fulfillment operations
Software interfaces on
allowing syncing with ready
devices: Blu-ray disc players,
Microsofts Xbox 360,
Nintendos Wii, and Sonys
PS3 consoles
Content Library Utilization
Inventory management
Customizing subscribers
experience
Apple now uses Netflix to
stream movies to its Apple TV,
iPhone, and iPad
Subscriber access via: PCs,
Macs, Internet-connected TV,
home theater systems, digital
video reorders, and Internet
video players; Apples iPhone,
iPad, and iPod touch, as well
as Apple TV and Google TV.
1
1
Porters 5 Forces
Bargaining Power of Suppliers
There exist three major suppliers within Netflixs business: the film industry, transaction
processing services, and delivery services. Within the case, Netflix does not create or supply
their own content, which makes the bargaining power of the studios extremely high. When it
comes to Hollywood, Film Industry studios have the ability to sign licenses over to Netflix or
not. This puts Netflix in a potentially vulnerable state as these studios gain a favorable amount of
leverage when it comes to negotiating contracts. Transaction Processing Services are used with
the official purchasing of subscription plans of customers for a very small minimal fee per
payment transaction. Delivery Services were more so used in the beginning of the companys
start. Within the days of Netflix shipping DVDs to customers, the power of the U.S. Postal
Services were very pivotal in the make or break of the companys operation. Once the product
left the possession of Netflix, it was strictly in the mail services hands of whether the customer
would be satisfied by a speedy delivery. The success of the overall operation and customer
satisfaction would rely solely upon the success of the transportation.
Bargaining Power of Buyers
Netflixs main buyers are the companys real consumer, which leaves the firm with
positive sovereignty. Through an interactive user interface, customers are able to recommend
titles as well as give feedback of their overall satisfaction with the service that they are provided
with. Also the avenue is open for customers to protest against certain material found prejudice or
insensitive, which could potentially cause harm to potential customers.
Industry Rivalry
During the date of the case, the competition of the video streaming industry was very
high. Competitors in the VOD segment include Amazon, Apple, and Microsoft: while key
players in the ad-supported segment are Hulu and YouTube. In the beginning stages of the DVD
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rental business, Netflix ran head to head with Blockbuster and Hollywood Video Entertainment.
Main competitors of Netflix include:
Video-on-Demand devices
Internet movie providers
Online DVD sites
Movie rental retail stores
Cable providers
Direct broadcast satellite providers
Threat of Substitutes
Within Netflixs industry, there exist many various substitutes for customers to
potentially choose over the companys service. Customers of this industry want access to the
media of their choice as fast and as easy as possible. This opens up the avenues for a quick home
video to be popped in or the title found on-demand through a customers cable provider.
Consumers can also possibly take on to other options to solve their entertainment needs such as
surfing the world-wide-web, reading magazines, or playing video game consoles.
Threat of New Entrants
Entry within this industry is relatively unrestricted. Any entrant obtaining a large volume
and collection of movies and/or TV series could potentially become a threat if they can
successfully market their services. The big determinant of the success would be their ability to
successfully obtain licenses to use titles within an era of increased regulation and copyright law
enforcement.
Competitive Analysis
Netflix
Critical Success
Factors
Advertising
Content Inventory
Customer
Weig
ht
0.09
0.11
0.08
Ratin
g
3
4
5
Scor
e
0.27
0.44
0.4
Redbox
Rating
3
5
5
Score
0.27
0.55
0.4
Amazon
Ratin
g
4
4
3
Score
0.36
0.44
0.24
Convenience
Customer Loyalty
Customer Service
E-Commerce
Financial Position
Global Expansion
Management
Experience
Price
Competitiveness
Product Quality
Sales Distribution
Totals
1
3
0.04
0.12
0.14
0.08
0.07
2
5
2
3
2
0.08
0.6
0.28
0.24
0.14
4
2
2
3
1
0.16
0.24
0.28
0.24
0.07
3
3
4
4
5
0.12
0.36
0.56
0.32
0.35
0.03
0.09
0.06
0.09
0.11
0.08
0.05
1.00
2
5
2
0.22
0.4
0.1
3.26
3
5
2
0.33
0.4
0.1
3.10
2
3
2
0.22
0.24
0.1
3.40
After conducting a Competitive Analysis, it is very visible that Netflix has close
competition to Redbox, but still has a ways to go if they plan on catching up to Amazon. Netflix
received a final score of 3.26; Redbox score totaled 3.10; Amazons score totaled 3.40. Netflixs
lacking success factors are customer loyalty, e-commerce, sales distribution, price
competitiveness, and global expansion.
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Internal Audit
Strengths
Netflix, being the first company out of its industry that choose to venture into the online
DVDs rental retailing, created a strong head start to position itself effectively. The companys
main strength is their availability to give superior convenience and service to their consumers.
The firm offers convenient and quick access to an extensive list of titles for multiple viewing
options including delivery to over 200 Netflix ready devices. The average Netflix customers
experience is uniquely customized for ease of TV or website use, title selection, and super fast
and convenient delivery. The company strategic creates a unique experience for their subscribers
by generating user interfaces on its website and Netflix-ready devices that are tailored to a
subscribers individual rental and ratings history. This customization allows consumers with the
opportunity to gain access to their lastly viewed content, while also providing them with titles of
recommended content according to genre and actor.
Possessing a fairly large DVD title inventory coupled with nationwide distribution centers
and streaming titles available for viewing without commercial interruption provides fast delivery,
which in turn allows the firm to gain high customer satisfaction rates. In December 2010, the
American Customer Satisfaction Index (ACSI) named Netflix the number one e-commerce
company for customer satisfaction. Bold strategic moves and aggressive bartering to acquire
rights to air original series programs by chairman and CEO, Reed Hastings, have pushed
Netflixs subscriber base, earnings, and stock price up every year. With over 100,000 DVD titles
for rental by mail and more than 20 million members in the United States and Canada, Netflix
subscribers can instantly watch streaming content without commercial interruption on their PCs,
1
5
Macs, Internet-connected TVs, home theater systems, digital video recorder, and Internet video
players; Apples iPhone, iPad, and iPod touch, as well as Apple TV and Google TV. Streaming is
delivered using Netflix software that runs on more than 200 Netflix ready devices including:
Blu-ray disc players, Internet-connected TVs, digital video players, and game consoles such as
Microsofts Xbox 360, Nintendos Wii, and Sonys PS3 consoles.
Weaknesses
Over the years discussed within the case, the price for the highest subscription plan has
noticeably decreased. With consumers of this industry on the constant search for lower priced
avenues to be entertained, Netflix, and the rest of industry competitors, had to lower their prices
thus lowering the overall sales revenue collected per month per customer. Netflix stock price
suffered as in July of 2011 when the firm was at $304 but dropped to $240 the next month. Amid
worries about the economy and heightened competition played apart in this also. With an overall
low retention rate of customers, Netflix also neglected to have an effective reward customer
loyalty program. Also, if a customer were to cancel subscription there would not be call or hand
extended to retain the customer. This absence of this allowed Netflix to gain no useful
information as to why a consumer was discontinuing their services as well as gaining suggestions
on how to improve their business service.
When it comes to streaming content, Netflix can only use certain DVDs that they can
obtain licenses too and only once a particular movie is out in the market. Netflix must actively
continue to expand their inventory as competitors are also gaining access to the same titles and
are challenging the company with competitive prices. Sites such as Hulu and YouTube are able to
offer a more extensive list of streamed content to its consumers for free, while Netflix charges a
fee and provide way less content. According to Nielsen estimates, there exist up to 116 million
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households with at least one television and Netflix has only been able to achieve a penetration
rate of 14.5 percent. Among the online video content providers, Hulu ranks second behind
Google as of mid-year 2010 in the total number of videos viewed. A distinct weakness in this list
is that Netflix did not even rank in the top ten. Netflix must figure out a way to obtain more
content in order to look more appealing to competitors who are offering more for the price of
nothing.
Internal Factor Evaluation (IFE) Matrix

Strengths
1
2
3
4
5
6
7
8
9
1
0
Strategic Partnerships
Customer Convenience
Several subscription plans w/ no due dates or late fees
Innovative subscriber experience
Database
Compatible with other devices
Collection of data from subscribers
Involved in long-term contractual agreements with distributors
and suppliers
CEO Reed Hastings "Business Person of the Year"
Weaknesses
1
2
3
4
5
6
7
8
9
1
Global Expansion
Never paid a cash dividend
Lack of Original Content
Relies upon channel providers for delivery of content
Absent from top 10 list of videos viewed
Obtainment of New Releases
Netflix required not to offer new DVD releases until 28 days
after retail sale date
Reliability upon computer systems and third parties
Effective plans to market in other countries
Increase in overall cost of operation
Weig
ht
0.07
0.06
0.05
0.07
0.10
0.08
0.06
0.04
Rati
ng
5
4
5
5
5
4
4
3
Weight
ed
Score
0.35
0.24
0.25
0.35
0.50
0.32
0.24
0.12
0.01
0.03
0.02
0.06
Weig
ht
0.11
0.02
0.06
0.02
0.04
0.09
Rati
ng
1
1
2
2
1
2
Weight
ed
Score
0.11
0.02
0.12
0.04
0.04
0.18
0.04
0.01
0.02
0.03
1
2
3
1
0.04
0.02
0.06
0.03
0
Totals
1
7
1.00
3.12
The IFE Matrix assesses Netflixs current internal strengths and weaknesses within the
company. Netflixs total score was 3.12, which signifies that they higher than the average
company. Netflix has always looks to maximize their internal strengths, while coming up with
strategies to minimalize their current weaknesses from majorly affecting their business
operations.
Strategy
SWOT Matrix
SO Strategies
1. Partnering w/ manufacturers to have Netflix within
TV features
(S2, O1)
WO Strategies
1. Explore new global markets
(W1, O6)
2. Partner with Walt Disney to create a Kids

Selection w/ Disney content
(S2, O9)
2. Explore creating Netflix Original Series

and Movies
(W3, O5)
ST Strategies
1. Diversification of product, offer Pay-Per-View
options for events
via Netflix
(S1, T1)
WT Strategies
1. Paying out Dividends to increase
chances of investment
(W2, T3)
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The SWOT Matrix outlines the firms key strengths, weaknesses, opportunities, and
threats for the company. From the actual analysis, I was able to conclude 6 new potential
strategies the firm could include within their current business plan.
Strategic Position and Action Evaluation (SPACE) Matrix
The Strategic Position and Action Evaluation Matrix displays for a company how they
are effectively competing and growing within their market. Netflixs coordinates show that the
company is destined to be in Quadrant 1, being a strong competitor gaining rapid market growth.
Being this Quadrant shows that the firm is doing an excellent job at competing within the
marketplace.
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9
External Factor Evaluation (EFE) Matrix

Opportunities
1
2
3
4
5
6
7
8
9
1
0
Innovative Devices compatibility with streaming

DVD Rental Outlets industry losing profitability
Netflix "Family Plan"
Internet ready TVs with streaming capabilities
Films seeking Netflix as primary distributer
Commitment to grow its streaming entertainment
business
Apple incorporating Netflix within devices.
Cable TV subscriptions declining
Walt Disney will soon extend its reach into the
content delivery industry
Streaming via Social media sites
Threats
1
2
3
4
Pay-per-view and VOD content cable providers

Direct broadcast cable providers
Declining Economy
Telecommunication providers
Current insurance does not cover expenses related
to attacks
International laws
Inability to acquire preferred content
Product Substitution is very high
License agreements
The growth of online commerce may lead to more
regulation
5
6
7
8
9
1
0
Totals
Weig
ht
0.08
0.03
0.06
0.09
0.10
Rating
5
3
5
5
5
Weighted
Score
0.40
0.09
0.30
0.45
0.50
0.08
0.05
0.05
4
5
4
0.32
0.25
0.20
0.01
0.04
0.02
0.04
Weig
ht
0.09
0.04
0.05
0.02
Rating
2
2
2
2
Weighted
Score
0.18
0.08
0.10
0.04
0.04
0.03
0.04
0.03
0.06
1
1
1
3
3
0.04
0.03
0.04
0.09
0.18
0.03
1.00
0.03
3.40
The EFE Matrix assesses Netflixs current external opportunities and threats. Netflix
scored 3.40 meaning they are high within the industry leaders and above the average company. If
they are to ensure their success, the company must make sure that they capitalize on every
opportunity possible.
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Grand Strategy Matrix
Based on Netflixs strong competition position within a rapidly growing market, it is

apparent that the company fits within Quadrant 1. The firm could use this matrix to formulate
and adopt alternative strategies in contrast or in align with firms current objectives. The
strategies of which Netflix should consider researching are the following: Product and Market
Development, Market Penetration, Backward Integration, Forward Integration, or Concentric
Diversification.
2
1
Suggested Strategies
After analyzing Netflixs position and room for development, I derived at 6 suggested
strategies to push forth the firms growth within the marketplace.
1. Product Development; Partnering with Manufacturers to create TVs w/ Netflix
within the features
2. Related Diversification: Partner with Walt Disney to create a Kids Selection w/
original Disney content
3. Market Development: Explore New Global Markets
4. Product Development: Creating Netflix Original Series and Movies
5. Related Diversification: Offer Pay-per-view options for events via Netflix
6. Paying out dividends to increase chances of investment
Strategic Recommendation
After reviewing all six strategies, I would recommend that Netflix plan to implement
Strategy 4: Product Development with the Netflix Original Series and Strategy 2: Related
Diversification of partnering with Disney. Partnering with Walt Disney to create a
Kids Selection w/ original Disney content section within the Netflix interface
will ensure great advantages for the future. Undertaking this partnership will
allow Netflix the opportunity of grabbing users from the infant to adolescent
stage. Parents are the ultimate spenders within the United States and will do
virtually anything that is feasible in order to keep their child happy. Opening
this avenue will increase overall household use of the product and could be
beneficial to Disney in terms of distribution of their products. This will also
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allow parents the opportunity to save up the money involved with buying
their children Disney movies for the convenience of simply paying for a
Netflix subscription.
Exploring the development of Netflix original series will also prove to
be quite innovative for Netflixs operations. Redbox and Blockbuster do not
have any original content of which they present to the public. There exist
many film directors who are looking for outlets but do not have an adequate
budget to support the movie theaters but having amazing products. Netflix
could strategically give these film directors outlets while gaining another
revenue stream if it becomes big enough to hit cable TV. This strategy will
prove to be highly effective and cause strict use of the firms product to view
the movies also.
Strategic Implementation
As far as implementation, costs could possibly fair out to be relatively cheap depending
on factors unforeseen. With Netflix creating company owned original series, Netflix has major
flexibility in terms of implementing this plan. I would suggest that the firm look into film
directors at underground circuits such as the films broadcasted at the Sundance festivals. Picking
up on series or movies that have yet to be contractually inclusive, but are already finished
products, will allow Netflix the opportunity to pick up on films or series to broadcast inclusively
as well as possibly adding another stream of income to the firm.
Once a T.V. Series or movie starts to take off, Netflix will then need to promote the
product. Marketing costs would budget to be up to $2.5 Million as Netflix pushes the word out
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that they now hold their own titles, of which could only be viewed through their devises. If a T.V.
series proves to be successful, Netflix would then need to finance the future projects in order to
ensure the continued success of the series. If Netflix chooses to support the continuation of a
title or additions of a T.V. series, projected costs would be about $20 Million. With the addition
of continued growth within subscriptions, Netflix will be able to continue to profitable but will
see an initial drop in overall revenue of about 13% for the first two years then eventually
growing back upwardly.
As far as implementing the new Walt Disney venture added to the Netflix interface, this
could prove to be very costly in terms of obtaining licensing for all the years of endless Disney
content. Another route Netflix could undertake is trying to establish a joint venture with Walt
Disney in order to cut costs and gain the licenses quickly. Netflix could also benefit if they are
able to get Disney to use their technology within their facilities, thus spreading the overall
publicity of the brand to a whole new demographic. The forecasted amounts for Option 1 would
at least $55 Million in total, as Netflix pays the necessary amounts in order to gain access to
Disneys endless titles. Option 2 would prove to be more cost effective and beneficial for the
long run by Netflix conducting a joint venture with Walt Disney. Costs would equate to being
$20 Million as Netflix incorporates their technology within Disney facilities and adding their
interfaces to the T.V.s within Disneys hotels.
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Product Positioning Map
With the added addition of these two strategies, it would position Netflix to over
dominate the market. Gaining the upper hand by partnering with Walt Disney and adding their
own content will prove to be very beneficial for the firms product positing within the market.
The firms overall selection quality would boost up dramatically. Personalization would stay the
same.
Balanced Scorecard
Financial
Strategic Theme: Profitable Expansion w/ Product Development

Objective
Measure
Target
Initiative
Increase % of revenue
from new strategies
% Revenue from
added content
Avg. # of days to
breakeven
> 5% year 1
> 14% year 3
< 200 days year 1
< 130 days year 3
> 3.5% of profit
year 1
> 4.5% of profit
year 2
> 500,000 in first
6 mos.,
> 1.4 Million in
first year,
> 12.5 Million by
year 3
> 125 Million in
first 6 mos.,
> 800 Million in
first year,
> 2.5 Billion by
year 3
> 7% year 1
> 15% year 2
Marketing to new target

markets
Operations review strategy
implication
Pay out dividends
% of profit gained each

fiscal year
GrowthLearning &
Process
Customer
Avg. # daily customers
Acquire new target

markets
# of repeat customers
Fact-based site
selection
Increasing
Convenience
Increase % of
Subscriptions
Days lag between
market selection and
site acquisition
Boosting Connection
Speed
Addition of new
devices
Use business
intelligence systems
% Eligible employees
trained
Integrated knowledge
management
# Paper forms used
< 90 days year 1

< 70 days year 3
< 1.4% year 1
< 3.4% year 3
>13 new devices
year 1
> 100 new
devices year 2
>95% year 1
>99.7% year 2
< 200 year 1

< 100 year 2
< 5 year 3
Increase # of potential
investors and investor loyalty
Local marketing/PR campaigns
Customer loyalty program
Coupon program
In-store promotions & classes
Increase market penetration
Partnerships with internet
providers
Web-based project
management and strategic
partnerships
In-house system training
Corporate digital nervous

system
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Evaluation & Control

In order to effectively evaluate the status of the implementation of the strategies
presented, Netflix should conduct several assessments.
1. Competition Reaction
a. Being that Netflix has continued to stay innovative in the market, it is
eventually made apparent if the companys rivals create an alternate to
combat the strategy or try their best to duplicate it. If the competition
changes up their strategies to combat, Netflix should pinpoint solutions to
their weaknesses in order to better improve their strategies.
b. People Involved: CEO, Board of Directors, Marketing, and R&D
2. Measuring Success
a. Within taking on an additional strategy, Netflix must figure out how
exactly it is that they are going to measure the effectiveness of their
venture. Will the overall guidelines for success be labeled under market
share, increased subscriptions, lowered costs, or innovativeness to the
industry?
b. People Involved: CEO, Board of Directors, and Accounting
If Netflix continues to actively improve and develop their services, they can possibly
blow many of their competitors out of the water. I believe that these will open the door of
opportunity for Netflix to broaden their overall offerings and also possibly draw lines to
additional revenue streamlines that the company has yet to think about for extremely minimal
costs. With the TV series and movies, they should focus on already finished products in order to
negate having fork out and money if the film or TV series isnt appealing to their consumer
market. Possibly becoming the first licensed streaming company would most likely be fairly
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expensive but would prove to be very effective in the long run. I would predict the overall
subscription base to increase by 15% within the first month of implementation. If they are able to
properly integrate my recommended strategies while keeping costs low, then the firm should see
an immediate growth in profit and market share. Overall, the company possesses many of the
necessary skills to pull forward within their industry as long as they continue to stay innovative.
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Conclusion
This case study focused and examined on the rise of the Netflix in becoming the largest
and leading subscription service provider in the world. After dissecting the case, it was made
apparent that the firms growth and overall profit margin dropped dramatically once CEO Reed
Hastings made the executive decision for the company to separate from the original business
operations of DVD rentals and move towards the online streaming market. Before this the
growth for the company was marvelous, but eventually this decision would prove to be
exceptional as the companys subscription base and profit skyrocketed up, even till present day.
Although this decision proved to be very costly, the firm was able to establish a more dedicated
and bigger world wide following and customer base because of the affordable monthly rates and
super convenient service. Overall, the company Netflix has been able to maintain its dominant
position within the market. As long as the firm is able to stay innovative in the way that they
deliver their services, then Netflix should be able to grow larger and continue to dominate the
market.
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Works Cited
Basic Info. (n.d.). Retrieved January 18, 2015, from http://netflixcompanyprofile.weebly.com/
Barr, A. Amazon Prime vs. Netflix vs. Hulu Plus: New Monthly Option For Prime Should Scare
Other Services. Huffington Post. 6 Bov. 2012. Retrieved January 20, 2012, from
http://www.huffingtonpost.com/2012/11/06/amazon-prime-vs-netflix-vs-huluplus_n_2082871.html
Beaubien, G. Now Playing: Netflix Consumer Backlash. PR Tactics, p.4. Oct. 2011.
Becker, J. Netflix Introduces New Plans and Announces Price Changes. 12 July 2011.
http://blog.netflix.com/2011/07/netflix-introduces-new-plans-and.html
Gurley, Bill. "Understanding Why Netflix Changed Pricing." Above the Crowd. N.p., 2012.
Web. 20 Jan. 2015.
Netflix Long Term View. (2014, October 15). Retrieved January 18, 2015, from
http://ir.netflix.com/long-term-view.cfm
Netflix Official Website. (n.d.). Retrieved January 18, 2015, from https://www.netflix.com/us/
"Netflix Raises Prices, Offers Streaming-only Option." CNNMoney. Cable News Network, n.d.
Web. 20 Jan. 2015.
Siegler, MG. "Netflix Now 15 Million Users Strong With Over 60 Percent of Them
Streaming Content." TechCrunch. N.p., n.d. Web. 20 Jan. 2015.
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Appendix
Figure 1.1: Netflix Balance Sheets
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Figure 1.2: Netflix Income Statement
Figure 1.3: Netflix Statements of Stockholders Equity
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Figure 1.4: Netflix Statement of Cash Flows
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Figure 1.5: Organization Structure, 2010
Figure 1.6: Netflixs Revenue and Cost per Subscriber
Figure 1.7: Netflix Income & Expenses
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Figure 1.8: Netflixs Stock Prices 2010-2011
Figure 1.9: Netflix VS. Top Pay-TV Operators 2010 Subscriber

Ads
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Figure 2.1: Netflixs Subscribers by Quarter (2008 Present)
Figure 2.2: Netflix Exponential Growth
Figure 2.3: United States DVD Market 10
Figure 2.4: Netflix Vs. Hulu Traffic Comparison
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Figure 2.5: Netflix Revenue VS. Blockbuster Revenue (2004

2010)
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3
Figure 2.6: Netflix Revenue VS. Blockbuster Revenue (2004

2010)
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Figure 2.7: Netflix Competitive Advantage
Figure 3.1: Netflix Interface via Apple TV
Figure 3.2: Netflix Interface via X-Box 360
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Figure 3.3: Netflix Interface via iPhone

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ASSIGNMENT #1: NETFLIX, INC.

Florida A&M University

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Netflix, Inc. Case Analysis

Netflix Table of Contents

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Evaluation & Control...................................................................26

Netflix Balance Sheets............................................................................30

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Suggested Mission Statement

Excerpts from Mission Statement addressing the component

Revised Mission Statement

Excerpts from Revised Mission Statement addressing

Netflix continues to develop the frontiers of home

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

library in order to stand out in the industry

Company Objectives and Current Strategies

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Online & Social Networking

Consumer search process

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Internal Factor Evaluation (IFE) Matrix

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

2. Partner with Walt Disney to create a Kids

2. Explore creating Netflix Original Series

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Strategic Position and Action Evaluation (SPACE) Matrix

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

External Factor Evaluation (EFE) Matrix

Innovative Devices compatibility with streaming

Pay-per-view and VOD content cable providers

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Grand Strategy Matrix

Based on Netflixs strong competition position within a rapidly growing market, it is

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Product Positioning Map

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Strategic Theme: Profitable Expansion w/ Product Development

Marketing to new target

Pay out dividends

% of profit gained each

Avg. # daily customers

Acquire new target

# Paper forms used

< 90 days year 1

< 200 year 1

Local marketing/PR campaigns

Customer loyalty program

Corporate digital nervous

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS

Evaluation & Control

ASSIGNMENT #1: NETFLIX, INC. CASE ANALYSIS