Netflix Case Study

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Question 1.

In the SVoD market in the USA, Netflix may rely on several resources and competences in order to build competitive advantages. However, among all these advantages only one is sustainable: the algorithms for personal recommendations.

First, let’s begin with resources and competences Netflix possesses. In terms of resources, the huge user base and the reputation of the brand as well as technological and financial resources are core elements that have to be taken into account. Netflix can also rely on its high-skilled employees and on the genius of its leader, Reed Hastings. Then, as regard to the competences, software and product development and management of data storage can be considered as of a great importance.

Thanks to all these resources and skills, Netflix has developed several thresholds and distinctive capabilities. If, at the beginning, Netflix was only a streaming platform where people were able to find well-known series; quickly it signed exclusivity clauses with many producers for the diffusion of their shows. Netflix also began to create and produce its own shows, by spending the majority of its investments in the development of new contents. and to offer contents that are very specific to certain users. The wide library Netflix offers is a competitive advantage but it is only temporary since other competitors may also give users the possibility to watch a great variety of content. Moreover, it is substitutable, as individuals don’t need to have a Netflix account to watch shows on computer or on TV. Indeed, there are a lot of different means to watch shows. As other non-sustainable advantage, the technology that makes the viewing of shows very pleasant can be identified. Netflix tries to limit the interruption during the viewing by quality switching nearly invisible for the user. Users can watch shows on almost any device they want thanks the development of their application programming interfaces. If they can watch their favorite show anytime, anywhere, on any device with a relatively good quality, it sure adds value to the experience. A technology so accurate and well developed is still pretty rare but it is slowly imitated by competitors who begin to improve the quality of their services. And once again, it is substitutable. There are portable DVD or Blu-Ray players, people can take their laptop everywhere and the quality of a Blu-Ray is very good too. In terms of other temporary competitive advantages, Netflix can also rely on the culture embedded and the influence of its CEO, which are inimitable and intangible resources that have contributed to the company’s success and reputation.

Finally, comes the only sustainable advantage of Netflix: the algorithms that recommend content that may please subscribers. By analyzing many different factors (on which device the customer watch his show, which type of shows he prefers, how long a day he uses Netflix, etc.), the algorithms propose user shows and programs that are the most likely to please him.

Valuable? The algorithms that recommend content to the customers create value: if, at each connection, the user has to browse the whole library to find something that might please him, he will quickly be fed with Netflix and its huge library. Moreover, the collected data are useful in the creation of new content, Netflix knows what want its users and can produce new shows satisfying its customers.

Rare? Even if data-mining isn’t rare, the way Netflix developed it is unique. Indeed, in its market, Netflix has the most-developed algorithms, with 300 engineers and mathematicians working on those, and, each year, an investment of $150 millions to improve the recommendation’s technology.

Inimitable? For a newcomer, it will be nearly inimitable, because of the invested amounts. Only a company that has equivalent budget would be able to develop such a technology. However, develop such an efficient technology and collect so much data would take a considerable time. Netflix has a first mover advantage concerning this technology.

Non-Substitutable? Algorithms so accurate that make each user’s library personal without intrusive questions (just by analyzing preferences, the way people watch shows, the devices they use) are not substitutable today.[pic 6]

Question 2.

The type of strategy that Netflix used to follow is a global and rapid one. The phases started in 2010 with Canada and South America, and then it began to expand in Europe, beginning with countries that were digitally well developed and where the main language was English. However, its European internationalization faces some barriers that must be overcome.

Firstly, Netflix has a global strategy. Indeed, the firm is geographically concentrated and is seeking for a high efficiency. The European market especially is a real growth accelerator for the firm in terms of number of subscribers and turnover. In international markets, Netflix generally enters with a price quite close to the American one and with its Hollywood library and does not, at first, try to acquire or develop local content, which, on average, represents no more than 15% to 20% of the Netflix libraries offered to European subscribers.

Then, as regard to its pace of internationalization, it can be said that Netflix follows a rapid rhythm. The company has always set up subsidiaries in foreign markets and has not entered into an alliance with local players. Netflix has leveraged its first mover advantage to expand rapidly, much faster and more global than competitors.

The main threat to this strategy is that the European market is heterogeneous. There are different cultures, languages, regulations and technologies within European countries making geographic expansion very difficult and expensive. European market is fragmented in terms of demand, so there is a need to adapt to local markets with more programs personalization and geographically- focused marketing campaigns. Furthermore, there is also the threat of local competitors who know better the needs and tastes of consumers. Hence the importance, once again, of local adaptation.

Question 3.

From PESTEL and FIVE FORCES analysis made in order to analyze Netflix’s capacity to establish and develop itself significantly in France, the conclusion that the entry in the French market is quite difficult can be drawn. Indeed, the regulations are present in greater number and the level of digitalization is lower in France. Moreover, the French industry is not very attractive.

First, as regard to the political and legal factors, the French market can be considered as a highly regulated environment. This context allows piracy to be very flourishing and leads to a lack of available content in streaming library. In the USA, although piracy is also a major threat, it is less present than in Europe. Next to that, there is an existing principle in the United States and not in France, called the principle of neutrality, which prevents commercial relations between SVoD suppliers and network operators and ensures fair treatment for all players. In terms of economy, both markets have been affected by the crisis and, as a result, they have faced a constant decline of the turnover related to physical video since a few years. Despite these commonalities, while the American VoD market is the biggest in the world, virtual video is only experiencing a slow growth in France. France is therefore defined as an emergent but lagging market.