Diagnosis of Netflix’s Business Situation

Netflix

Author Name(s), First M. Last, Omit Titles and Degrees

Texas A&M Commerce

Table of Contents

Diagnosis of Netflix’s Business Situation

Problems Netflix is currently facing

Actions to Address Current Issues

Pros and Cons of Solution Alternatives

Conclusion and Recommendations

References

Abstract

Problems Netflix is currently facing

Even though Netflix has faced competition in the past, most prominently before now in 2011, when HULU, Google TV, Apple TV, and various other cable companies started streaming live, never before has the competition been as strong as it is today. According to Brandon Katz and his article in the Observer in 2019, one of the major concerns Netflix is currently facing is the arrival of new entrants to the market. The previous competition was not really in the position to unseat Netflix from their competitive advantage, but now, with Disney+, Apple, and Warner Media entering the market this year, competition will get much tougher. Disney+ for example is bringing content like Star Wars and Marvel and all the other Disney movies and shows to the table which Netflix cannot replicate. Additionally, Disney is pulling all its content from Netflix, which means subscribers’ that enjoy watching the content that was previously offered at Netflix, now need to either add Disney+ or, for price conscious consumers, just leave Netflix altogether and join Disney+. On the other hand, Disney+ will not be globally available like Netflix which give Netflix a competitive edge in the international market. Apple will be a little less of a challenger because streaming will not be their main revenue and with it not their main focus, but when it comes to budget it has very deep pockets. Just like Apple, Warner Media has a lot of resources that will be hard to match for Netflix, but on the positive side Warner Media might face some organizational challenges in the beginning with the acquisition of their new parenting company AT&T. Content on Warner Media will include well-known shows form HBO and Warner Brothers. The last serious competitor that could emerge in 2019 is Amazon. So far Amazon has not had any break-out hits and it does not spend nearly as much money on content as Netflix does, but its market cap is six times bigger than Netflix and it has the money and resources to do whatever it wants to do, should it choose to (Katz). Another advantage Amazon has over Netflix is that they have a platform ecosystem of partners and a digital platform that lets third parties make money on Amazon’s platform (Katz). This is another area where Netflix is lacking considering the additional revenue that could result from an option like that.

Altogether Netflix has currently 140 million subscribers in over 190 countries and has a great selection of movies and shows, often original content, but with this kind of selections there comes, at least in the case of Netflix, considerable long-term debt. In order to keep up with the competition in 2019, Netflix will have to invest even more money in order to stay competitive. Creating original series comes with a high price tag and a lot of upfront cost that Netflix finances through long-term debt which Netflix already has a lot of.  Furthermore, Netflix spends a lot of money on licensed content, but it does not own the rights to it which could put them in a position where popular shows get pulled from its streaming platform and sold to the competition. If this should end in a price war, and considering the deep pockets some of the competitors have, Netflix has the potential to incur too much debt and will either have to raise the prizes to their subscription, which they have already done very recently, or drop some of the content that gives them a competitive advantage over their rivals. Since Netflix has shown an increase in subscribers and profit each year so far, investors have not demanded for Netflix to reduce its debt enabling them to spend the money it needs to create its original content, but if a drop in subscribers incurs because of the new competition, investors might put pressure on Netflix to reduce its spending.