Netflix Company
1.1 Current and Historical Background
It is a United States-based company that deals with production and media services. Currently the company has its headquarters in Los Gatos California. Netflix was founded by Marc Randolph and his counterpart Reed Hastings in 1997. Hasting a pure computer scientist and a great mathematician invested U$ 2.5 and the main aim was to start Netflix. Randolph on the other side had a great passion for selling portable items through the internet. The VHS tapes were in plenty during that time only they were expensive in terms of stocking and shipping. This made the two gentlemen reject the idea. March the same year DVDs emerged in the country therefore the two partners took an initial step of both renting and selling the DVDs via the email. The same year they mailed a compact disc to Hasting house located in Santa Cruz. Immediately the disc arrived they took U$ 16 billion rental industry and home video sales. Hasting made a mistake by returning a copy of Apollo 13 late. Hence the Blockbuster store fined him U$ 40 something that distressed him to the extent of coming up with an idea of forming Netflix. Later Netflix was able to launch an online DVD rental store that had 925 titles and 30 employees on board. In 1997 the company came up with an idea of monthly subscription but the following year it did away with the single rental model. The company, therefore, has been operating on flat-fee unlimited rentals with no due dates, handling fees, shipping, or per-tittle rental fees. By doing these, the company was able to gain a reputation. By 2000 the company had approximately 300,000 subscribers. Since there was government postal, the subscribers relied on it for the delivery of their DVDs. However in 2001 the company faced a blow that led to a huge number of employees losing their jobs. Sometimes later the issue was restored and business was back to normal as Netflix sold U$ 200 DVDs all over. A year later the number of subscribers tremendous increased. Introduction of Initial Public Offering helped the company to sell 5.5 million shares of common stock at U$ 15 per share. In 2003 the company made profit compared to the past years of formation amounting to U$ 6.5 million in profits on revenues of U$ 272 million. Two years down the line there were 35,000 different films. Hence the company had a humble time of shipping 1 million DVD every single day. It was in a good position after obtaining movie rights thus something that made it go public. Youtube gave the company a great advantage due to streaming services which became more effective by 2007. In 2009 the company had gained popularity due to a lot of tittle numbers that were available for streaming and there were more than 12,000 movies on board. Four years later Netflix had an additional 2 million customers across the country. That meant it had 29.4 million streaming customers. As a result the revenue was 8% to U$ 945 million during that period. It did end there as the number kept on rising. By 2014 the company had expanded to more than 40 countries world worldwide. But the figure rose further since before the end of 2018 customers had reached 137 across the world. At the commencement of 2020, Netflix formed a joint coalition with six Japanese creators. The main was to come up with a Japanese anime project. They include You, Ohtagaki, Manga creator group CLAMP, Manga creator Mari Yamazaki, Mangaka Shin Kibayasi, novelist Tow Ubutaka, and novelist and film director Otsuichi. Hence when the pandemic broke down the company had an additional 16 million new subscribers. Thus it recorded the highest number compared to the previous periods.
1.2 The company’s mission
Just like any other Organization, Netflix company has a mission; “We promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact.” it means the company is committed to providing quality video entertainment services. The mission also indicates the company’s aim of ensuring customers and other stakeholders’ satisfaction. Therefore the greatest demand for the company is to transform lives by ensuring people are living a comfortable life. Exceeding expectations is also the company’s motive by producing quality services to its customers that it may continue being the best.
1.3 External environments
These may be attached to all the outside factors that influence the operation of the organization either direct or indirect. Hence, the company must react to remain functional. Therefore for the company to identify threats, challenges, and opportunities there was a need to use the PESTEL analysis.
- Remote Environment
The remote environment comprises of the following components:
- Political factors
The advance in technology led the audience in the United States to shift from traditional television to streaming services. All these were a result of the increase in internet usage that made the service providers like Telecom to seek clarification in the Federal Communication Commission to insist on stricter usage regulations. If the item will go through, the internet price will rise which is a great threat to the company as it relies heavily on the internet.
- Economic factors
The company has more than 100 million subscribers who mainly access their services through the internet. On the other hand, the traditional television service is also doing its best hence, there is tough competition among the two services. Currently customers have a tight budget and the majority will prefer spending less costly which gives Netflix a clear path since its services are cheaper compared to traditional television.
- Social factors
Changes in the way people behave affect business performance. With the advancement in the technologies, the customers may choose to adopt something new for instance mobile phones. This decision will help improve the company’s performance as it will embark on more production. With the use of mobile phones, customers can watch the videos and they do not require big traditional screens. It indicates many are in since it’s cheaper to access smartphones and videos can be watched at any place.
- Technological factors
Netflix has invested more in R&D to support 4K streaming more effectively. In the R&B labs new software has been developed with a code name ‘Hermes’. The software grades translation of Netflix shows automatically. Hence, with this technology in place, services become faster than the world can access without much effort.
- Ecological factors
Streaming services tend to put high pressure on the environment. It comes about as a result of many people’s efforts to obtain data. Therefore the company features on internet traffic category in the United States. Many groups played a critical role in advising the company to adopt renewable energy on its data server centers. However the company introduced blocking workarounds for the users beyond the country.
- Industry Environment
The industrial environment refers to the overall conditions for the competitors affecting the business as a result of providing related goods and services. The company faces competition mainly from the Amazon Company, Hulu, and Walt Disney among others. A high chance of entry of new competitors and the bargaining power of the suppliers are some of the potential threats to the company. Therefore the company had to form a strategy to help cope with the competition which includes;
- The company embarked on developing and modifying its online business in a way that made it so unique from its competitors. It focused on producing original content using its means of production.
- The company made great efforts during its formation and today it has made its services accessible all over the wide. Hence, standing a good chance of in the matter of business.
- Operating Environment
Entails factors found in the immediate competitive situation that hinders the company’s ability in accessing the required resources. The common problem faced by the company is the change in the buyer’s behavior which tends to be unpredictable. In the long run it affects business sales. The company had a challenge in transportation since it was dealing with a huge inventory of DVDs. Today the company struggles to on the rights it has to stream the virtual content.
1.4 Internal Environment
It comprises of components within the organization. These include; the management, the employees, and the social corporate. Some of these constituents tend to affect the organization as a whole while others only affect the manager.
1.4.1 Strengths of Netflix Company
- Original movies. The company offers a mass collection of videos ranging from documentaries, video series, and comedies.
- Brand equity. Netflix features among one of the trusted brands when it comes to internet and television categories. Its focus on customers’ satisfaction has not only made it gain trust but popularity.
- The company focuses more when it comes to innovation and technology.
1.4.2 Weakness of Netflix Company
- Huge investment and operating costs. Since it serves customers across the world, the company spends much to make its services unique and stay outcompeted.
- The company’s free cash flow has gone down
- The high cost paid in licensing new content. It happens to exceed the streaming content costs
1.4.3 Financial situation
The company’s financial situation is strong and day by day it keeps on improving. At the end of last year the company had U$ 14.8 billion long term debt since it only had U$ 2.6 billion as operating income the previous year. The year ended with the company having a total amount of cash at hand. However the company aims at improving free cash flow which stood at a negative of U$ 3.3 billion last year. The problem arises due to the billions of money invested in trying to come up with the original content. Despite that, the company’s profit margin has been increasing by 3% every single year.
- Generic Strategy
The company has a generic strategy for competitive advantage. Therefore the company adopted Michael Porter’s strategy which has played a greater role in maintaining the company’s competitive advantage. The company uses a flat-rate subscription model and there are no kinds of adverts on the streaming platform. Its choice of dealing with videos alone and producing original content was can be termed as a great strategy.
- Long-term Objectives
Netflix has goals that it intends to achieve in more than five years to come. The company aims to achieve the following;
- To sustain the growth of the company and increasing the value to IPO.
- To increase the market shares.
- To enhance the website can reach more customers.
- Grand Strategies
The company uses grand strategies to enable it to achieve its long term objectives. It has taken efforts by minimizing costs to make the company on the move. A lot has also been done in minimizing selling prices to reach out to many customers.
- Short term Objectives and Action plans
- To increase profitability
- To increase the number of subscribers worldwide.
Netflix uses three mainly streaming plans to achieve its goals. They include basic, standard, and premium. They start at a rate of U$9 per month and ends at U$16 per month.
1.9 Functional Tactics
Netflix Company does daily routine activities in each functional area which includes; movie editing, finance, marketing, Television shows production and human resources. The tactics are done to enable the quality of shows including the online videos.
1.10 Strategy Execution Policies
Through various departments the company has taken steps in making communication within and outside the organization. It has also clarified the services produces and besides the implementation of different policies. These efforts have helped increase the rates of investment.
1.11 Executive Bonus Compensation Plans
Just like other companies, the Netflix company does provide extra benefits to competent executives and employees. The plan has helped in retaining the key employees and executives as they play a major role in the success of the company.
1.12 Organizational Structure and Leadership
The company is headed by Reed Hastings who was the co-founder but currently the CEO. Through his leadership abilities like creative intelligence, traveling policies, research, and surveys made him with new ideas. Therefore the knowledge gained has led to a great performance of the company. He made a step of empowering the workforce that created a favorable working environment. The CEO went ahead with employees’ freedom of coming up with new products and initiatives. But since man is to error, he made a mistake in 2009 when announcing that Netflix will separate the mail-order from the streaming section and that customers will be charged differently. In return, the DVD memberships drop from 20 million to 5.3 million subscribers.
1.12.1 Culture
The company has well-established customs, values, and behaviors that help in determining the employees’ behaviors. The most important is when it comes to the managerial decision-making process. The company keeps on modifying its culture to fit in the previous business needs and the industry trends. Netflix offers an unlimited number of holidays to the workers on its own expense as one way of motivating them.
1.13 Strategic Control
This involves the management efforts in identifying challenges that exist in the underlying premises and making the required efforts reducing them. Due to stiff competition, the company has put in place antagonistic marketing strategy which has played a major role in multinational streaming activities.
1.14 Entrepreneurship and Innovation
Entrepreneurship involves the process of which different ideas and skills are brought together to improve the general condition of the organization aiming at creating wealth and resources. It happened that the founders of the company were both entrepreneurs. Entrepreneurs are believed to be having ‘shiny object syndrome.’ That means after getting bored with one thing, they quickly move to another one. According to them honesty is the best policy as workers and stakeholders are given that opportunity of expression. The employees are not to be overworked as working eight hours a day and five days a week is much enough. The interests of entrepreneurs taking risks by venturing in new sites look for opportunities that will help transform their business. It helps them to come up with distinctive products and services to construct the customers’ network and avoid being out-competed.
Key Strategic Issues and Problems
Too much spending
A lot of money is used on the company’s efforts of recruiting new subscribers. The amount used in streaming and marketing rose from U$308 to U$ 581. Thus, the rising in customers’ acquisition costs leaves the company with a hard decision to deal with negative free cash flow.
Relying on licensed content
The company spends a lot on the original content licensed from third-party studios. This plan takes a lot of the company viewing hours and the fact that the company does not produce its viewing data. The plan does not seem to work but instead a burden.
Growing competition
With the emergency of companies like Disney, Apple television, and more others, the company stands a chance of facing stiff competition. This upcoming company offers its services at a lower price compared to Netflix and if it does not precaution, subscribes may be tempted to shift.
International growth
The company managed to add only 500,000 subscribers within the country during the last quarter. These were a clear indication that the domestic subscribers almost hit the wall as during the second quarter the number of subscribers reduced. Hence, the company has a plan of moving to India which will be so costly especially dealing with the new audience.