Netflix Case Study

Netflix was founded in 1997 by Marc Randolph and Reed Hastings as a DVD rental by mail service and online media streaming company. Inspired by having to pay late fees for turning in a movie late the company was envisioned as the future of content distribution for movies and later TV. The company went public on May of 2002, selling 5,500,000 million shares of common stock at $15.00 per share, and sold an additional 825,000 shares later that year. Netflix posted its first annual profit of $6.5 million in 2003 on $272 million in revenue. Netflix has seen stunning growth in subscribers throughout to mid-2000's going from one million subscribers in 2002 to 5.6 in 2006 to 14 million in 2010. Over that time Netflix used its online service and large portfolio of movies to successfully dominate its brick and mortar rivals such as blockbuster who couldn't match Netflix prices and catalogue of movies. Competitors like Blockbusters attempts to compete and adapt were largely unsuccessful during this period and Netflix grew rapidly almost unimpeded. On September, 18 2011 Netflix changed all that with an attempt to rebrand its services and spin off its DVD by mail service to a new company to be called Qwikster. This was driven by the CEO's belief that streaming was the future and DVD by mail was a declining market with diminishing margins that would play an increasingly smaller role in the company's future. The move was a colossal blunder, within a quarter Netflix's growth had stalled and it lost 800,000 subscribers. Despite the negative press the company still increased its earnings 63% at the end of the first quarter in 2011 and began adding subscribers again in 2012 bringing its total up to 24.4 million in the US.

Netflix's current position is tenuous; it no longer commands the field unopposed. In DVD rentals it faces strong competition from new rival Redbox providing cheap rentals with no late fees via a network of kiosks or vending machines at various retail locations. Its competition in the online sphere is even more intense with industry titans like Amazon entering the market and other established media companies creating proprietary portals to their original content. From its highs in 2011 Netflix share prices have plummeted from close to $300 dollars per share to around $78 today. Many analysts believe that Netflix's business model, predicated on special deals from media companies for content to distributed allowing their cheap subscription plan to succeed is over as competition increases and media companies increase their prices. If Netflix it to survive and thrive it needs to maintain and increase its content library while simultaneously continuing to boost its subscriber base. Netflix's current five year plan is to boost content with package deals and create original content to be distributed through online streaming. To continue to push online subscriptions as DVD by mail declines despite the fact that DVD by mail provided most of the revenue and to use US profits to subsidize foreign investments, and to continue to put Netflix on as many devices as possible for internet streaming.

NETFLIX SWOT ANALYSIS

Strengths:

* A #1 User experience: Netflix still provides the best services in DVD distribution and the most comprehensive streaming system. Netflix customer support is excellent and the company has a loyal customer base.

* Competitive pricing: Netflix still maintains low $8.99 monthly streaming rates or DVD rates giving users a lot of content for not much money, and significantly less than many of its media establishment rivals.

* Streaming Capability: Netflix streaming is increasingly available on everything from TVs to game consoles, to phones. This ubiquitous distribution is a significant strength in availability to consumers.

Weakness:

* Pricing Power: Production studios have enormous power over what content Netflix can distribute and how much it will cost them. Netflix is dependent upon their content and negotiations can be difficult because these companies revenue does not depend on Netflix.

* Content: Netflix does no control the majority of the content it distributes and its agreements