final strategic report

8/22/2019 Final Strategic Report

1/19

LoganKrieteThisreportisananalysisofthebusinessclimateinwhichNetflixcurrentlyfunctions,aswellasthe

identification,breakdown,andpredictionsofthreeemergingtrendsthatwillaffectNetflixandprescribed

strategiesonhowtobestrespond.

T R F 6 8 3 / C o m m u n i c a t i o n s I n d u s t r y F r o n t i e r s

2 M a y 2 0 1 3

2013NetflixStrategicPlan


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2 [2013NETFLIXSTRATEGICPLAN]

2 0 1 3 N E T F L I X S T R A T E G I C P L A N

A N A L Y S E S A N D R E C O M M E N D A T I O N S B Y L O G A N K R I E T E

TABLEOFCONTENTS

EXECUTIVESUMMARY 3

PART1:THECURRENTBUSINESSCLIMATE 4

SWOTANALYSIS 4

STRENGTHS 4

WEAKNESSES 4

OPPORTUNITIES 5

THREATS 6COMPETITIVEENVIRONMENT 6

PART2:EMERGINGTRENDS 7

SECONDSCREENENGAGEMENT 7

NETWORKNEUTRALITY 8

TRANSMEDIA 10

PART3:TRENDPREDICTIONS 11

PART4:NEWSTRATEGIES 12

RETHINKOURMOBILEAPPS 12

FORMSTRATEGICPARTNERSHIPSWITHISPS 15

DEVELOPTRANSMEDIAPROPERTIES 16

PART5:CONCLUSION 16

WORKSCITED 18


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[2013NETFLIXSTRATEGICPLAN] 3

EXECUTIVESUMMARY

InthisreportIwillproposeafewrecommendedstrategicplansthatIbelievewillhelpNetflix

adapttoboththeimmediateandnear-termchangingmedialandscapewhenlookingatthree

recent,salientdevelopmentsthatwillaffectourbusiness.Theseemergingtrendshavebeen

researchedandforecastedtohaveaneffectonthedigitalspaceinwhichweoperateanditismystrongbeliefthatthemovesIlayoutwillenableustonotonlymeetbutalsopositively

exploittheseaffecters.

Tobegin,IreviewthecurrentbusinessclimateinwhichNetflixfindsitself.AquickSWOT

analysis1revealsustohaveaverywellknown,nationalbrandnamewithmorethanthirty

millionsubscribers.Ourcompetitorshavenowhereneartheconsumersnorcontentwehave

available,andourpublicstockshareshavemorethandoubledinthepastsixmonths.Still,we

aretakingonmassiveamountsofdebttofundtheextremecontentlicensingourbusinessplan

necessitates,andourtraditionalphysicalmedia(i.e.,DVDandBlu-ray)deliveryservicehasbeen

steadilydeclining.Obviouspotentialthreatsincludeourcompetitorsifandwhenthey

eventuallyoffergreatervaluethanwedo(meaningpartofwhatwemustdoiscontinuetoaddvalueforourconsumersfasterthantheycanmatchuscurrently)aswellasthegovernment

regulationlandscapewithissueslikenetneutrality.Finally,weseemanyopportunitieswithour

originalcontentanddemandforstreamingtelevision,especiallygiventherecenttrendstoward

cord-cuttingandinternationalexpansion.

Nowthatourexistingsituationisunderstood,itisappropriatetointroducethethreetrendsI

predictashavingagreateffectonNetflixintheupcomingfiveyears.Secondscreen

engagement,netneutrality,andtransmediaallofferunprecedentedpossibilitiesalongwith

someworrisomerisksifnotmanagedcarefully.Forexample,whenitcomestothenewtrendof

viewersutilizingsecondscreendevices,itisimportanttorecognizethat,foralargenumberof

consumers,weAREthesecondscreen:wearethetablettheyusetowatchtheircontentortheiPhonetheyseekoutnewrecommendationson.Wecancapitalizeonthispreexistingstatein

consumersmindstomorecohesivelyintegrateatrendalreadysweepingnetworkTVintoour

ownoriginalcontent.Similarly,theriseofvideogaming(inparticularcasual,mobilegames)and

lobbyistsagainstInternetfreedomscanandwillhaveaneffectonourbusinessmodels,anditis

timewerespondsuitablytothem.

Itismyrecommendation,then,thatwecarefullyobservethesethreetrendsandselectthebest

coursesofactionthatwillallowustonavigatetheirescalationinawaythatyieldsbeneficial

resultsforNetflixsbottomline.Specifically,weneedtorethinkourmobileappsandsecond

screenexperience(includingaredesignofouruserinterface),developpositivestrategic

relationshipswithcurrentISPs,and(withourfutureoriginalseries)seekoutintegratedtransmediapropertiesthatcanbetiedintothetraditionalcontent.

1SWOT:strengths,weaknesses,opportunities,andthreats. Itisathoroughexaminationof

acompanysstrategicpositioninthemarketplace,includingbothwhatitexcelsandfailsat

alongwithwhatmaycausefutureissuesandfurtherbenefits.


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Therestofthisreportservesasafullaccountoftheanalysis,breakdown,predictions,and

recommendationsforNetflix.Citationsarefoundthroughoutthetext,andacompletelistof

workscitedcanbelocatedaftertheconclusionofthepaper.

PART1:THECURRENTBUSINESSCLIMATE

WebeginwithanoverviewoftheenvironmentinwhichNetflixoperatesinordertolay

groundworkappropriatetounderstandinghowandwhytheselectedtrendswillaffectthe

company.EssentialtothisunderstandingisrecognitionofNetflixscurrentstrengths,

weaknesses,opportunities,andthreats,oraquickSWOTanalysisofthecompany.

SWOTANALYSIS

Tosummarize,Netflixhasacriticalcombinationofmembership,brandawareness,and

accessibilitythatallowsthemtobecompetitivewithsimilarbutsmallerstreamingcontent

providers.Tocopewiththethreatstheyface,Netflixmustredirectresourcesfromitsdeliveryservicestoenhancestrengths.Providingever-expandingstreamingcontentwillenableNetflixto

serveandattractanevenwiderbaseofcustomers(Bauman,Deal,Ishak,&Johnson,2013).

STRENGTHS

TheNetflixbrandisaverywellknown,nationalnameintheUS.Withmorethanthirtymillion

customers,itsidentityisvaluedgreatlyamongconsumersasaquick,easy,andavailable

destinationforstreamingmedia.WearethetopproviderofstreamingcontentintheUS,with

ourservicealoneaccountingformorethanthirtypercentofUSInternettrafficdaily.

Additionally,thevalueofourbrandnamehasbeenontheriserecentlyafterthestrongmedia

attentionstemmingfromthesuccessofourfirsttwooriginalseries, HOUSEOFCARDSandHEMLOCKGROVE,andthecriticalacclaimwevereceivedfromouroriginalscriptedcontenthas

catapultedusintotheworldofEmmynominationsandotherHollywoodawards.

Whenitcomestoourcompetitors,allofthemareeitherlesswidespread(withfewer

customers,suchasHulu)orlessmassive(intermsofcontent,likeRedboxInstant).Wehavethe

largestcontentlibraryavailabletoaudiences,withwelloversixtythousandtitlescomparedto

Amazonsthirty-eightthousand.

Additionally,positivesharescurrentlyweighinourfavorasoneofourstrengths.Thestockprice

ofNFLXhasbeenveryvolatileinthepastsix-to-sevenmonths,comingalongwayfromthe

approximately$50regioninOctober2012toitscurrentpriceofmorethan$180.Combinethiswiththefactthatwestillhaveagoodlistoforiginalcontenttobeunveiledlaterthisyearandit

isplaintoseethatourstockstillhasalotfurthertoclimb.

WEAKNESSES

Despitethemeteoricriseofourstockvalue,thecompanyisundertakinglargeamountsofdebt

tofundthemasslicensingpackagesweusetoacquirecontentfromotherproviders.Whilethis


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doesintheshortrunguaranteeoursuccessintermsofpurenumberswhenreferringto

librarysize,italsoenhancesourcreditriskandrunsthedangerofimpactingfurtherloans.Since

wewanttocontinueproducingexclusive,originalcontent,wedonotwantourabilitytobe

providedmoneyimpacted(Faruk,2013).

Additionally,ourphysicalmediadeliveryservicehassufferedsignificantlossesinjustthepast

yearalone.Whatwasoncethecornerstoneofourbusinessisnowameresidelinetoourtrue

function:morethantwoyearsagoourCEOReedHastingspredictedthatthemarketforDVD

andBlu-raydiscswoulddecline,andhewasabsolutelyright(Roettgers,2013).Unfortunately,

DVDsstillprovidemoreofacontributionmargintoourbottomlinecurrentlyandinFY2012we

lostmorethanthreemillionsubscriberstothatportionofourbusiness.

OPPORTUNITIES

CarefulscrutinyofthemarketrevealsthreemainimmediateopportunitiesforNetflix,all

centeredontheideaoforiginalcontent.First,thecord-cutting2trendpopularamong

consumershascreatedanewdemandforInternet-basedTV.TheincreasedadoptionofInternet-connecteddevicesformediaconsumptionaidssubstantiallyinaddingmoresubscribers

asmoreandmorepeopleareconstantlyhookedup.

This,inturn,fuelsourgreatestopportunity: ORIGINAL,IN-HOUSEPROGRAMMING .Thedemand

forstreamingmediaperfectlyfitsourabilitytoprovidecontentdigitally,andourownexclusive

seriescanbeviewedbyconsumersanytime,anywhere,attheirleisureinsteadofrestrictedto

broadcasthoursorchannels.Theirnaturaltendencyismovingtodesiringcontentonline,and

ouruniqueabilitytobothcompletelyproduceanddistributeviatheInternetisahuge

opportunity.

Interestingly,thisincreasingdesireforourownshowscanbeseeninNetflixsmarketing

expenses,whichhavesteadilygonedownsubstantiallyduringthelastfourquartersandinQ4

2012stoodatjust12.4%ofoursales(Faruk,2013).Thiscanbeattributedtoouroriginal

contentprovidinginvaluableword-of-mouthcampaigns,andasaresult,wecanstandto

actuallysubstitutesomeofourmarketingbudgetandredirectthosefundstoproducingmore

originalcontent.

FIGURE1

2Cord-cutting:theprocessofcancellingacablesubscriptionandwatchingtelevisionsolelyvia

theInternet.

0

50

Q1 Q2 Q3 Q4

Marketingexpensesasapercentageofsales,FY2012


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Finally,theideaoforiginalcontentnaturallyopensupanavenueintogreaterinternational

growth.Asitstands,wehavesomeglobalmarketsbutnotmost,andwhilealargemajority

desireAmericancontent,itstandstoreasonthatprovidingcontentspecificallyforthemwould

attractgreatersubscribers.WearealreadyintheearlystagesofdevelopingcontentforLatin

America;whynotcontinuetheoutreachtoothercultures?Producingoriginalcontentgivesway

intointernationalexpansionaswetakeonnewrolesglobally.

THREATS

OneofthebiggestpotentialthreatstoNetflixrepresentsInternetserviceproviders(ISPs)who

maydiscriminateagainstusifandwhennetworkneutralitylawsfailtomaterialize,atleastin

theUS.In2012MarciaClemmitexplained ISPsmightconsiderittheirfinancialinteresttoslow

contenttrafficto[]competitors[likeNetflix]togainanedgeoverthem.Eventhoughourown

generalcounselDavidHymanarguesthatbandwidthischeapandplentifulandwillonlygrow

moresowithtime,thereisnogoodreasonforbandwidthcapsandfeestotakeroot,the

possibilityisstillgreatlytherethatsuchdiscriminatorytacticscouldtakeplace(Dampier,2012),

andthuswhythisisoneofthethreetrendsIvechosentofocusfurtheron.

Otherobviousthreatsincludeourcompetitorsifandwhentheyreachapointwheretheycan

begintoprovidemorevaluetoconsumers;asitstands,Amazonhasposedthelargestthreat

since2011whenitbeganofferingstreamingasapartofitsAmazonPrimeservicedesignedto

providefreeshippingtoitssubscribers.AlthoughAmazonappearstostaycommittedtooffer

thisstreamingservicemainlyasawaytoattractnewcustomers,itsdeeppocketsandbaseof

loyalcustomersshouldhaveNetflixconcerned.In2012contentgrowthincreasedby70%and

Amazonprimehadbetween3to5millionsubscribers.Additionallythecompanyplanstoattract

5millionadditionalsubscribersbymid2013(Trefis,2012).InthesamereportbyTrefis,they

identifiedthatalthoughComcast'sXfinityserviceofferslesscontentthanitscompetitorNetflix,

itispricedmuchlowerandismoremotivatedtocompetedirectlywithNetflix.Worstofall,Comcastpossessesestablishedrelationshipswithmediacompaniesthatwillsoongainthe

leverageneededtogainaccesstolicensingrightsthatallowcontenttomimicitscompetitor,

onceagainestablishingtheneedtorespondearlyandinafriendlymannertoISPslikeComcast

inordertomitigateanypotentialsouringofrelationshipsifthenetneutralitytrendstands

unregulated.

COMPETITIVEENVIRONMENT

Netflixstartedin1997distributingmail-orderDVDrentalswithnolatefees.Itquicklygained

25%ofthemarketshareintenyearsnowcommandsapproximately37%afteritintroduced

streamingin2008.Itssuccessmotivatedcompetitorstoalsogetinthegame,whichhasresulted

inslow(andthusfarnegligible)lossestoitsmarketsharesince2012.

Today,Netflixoperateswithinthehighlycompetitivemediastreamingmarketthathasbeen

forecastedtoincreasetenfoldfrom$1.3billionin2007to$12.5billionin2017(Bauman,Deal,

Ishak,&Johnson,2013).ItholdstheleadinprogrammembershipsandsinceComcast,its

closestcompetitorintermsofsubscribers,experiencedanetlossofmorethan260,000


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subscribersinQ4of2012,Netflixshowspotentialtokeepthelead,albeitwithtroublingtrends

onthehorizonifnotmanagedcarefully.

INADDITION,AGGRESSIVEGROWTHINCOMMUNICATIONTECHNOLOGYHASLEADTOAN

INCREASEININDIRECTCOMPETITORS.THETWOMAININDIRECTCOMPETITORSAREYOUTUBEAND

VIDEOPIRACYFILE-SHARINGWEBSITESLIKEBITTORRENTANDBEARSHARE.CONSUMERSTURNTO

THESESERVICESBECAUSEVIDEOSTREAMINGISAVAILABLEWITHOUTSUBSCRIPTIONFEES;AN

ATTRACTIVEOPTIONINASTRUGGLINGECONOMYWHERECONSUMERSCONTINUETOSEEKCHEAP

ANDFREESOURCESOFHOMEENTERTAINMENT(Thomas,2012).

Comparatively,Netflixsindirectcompetitorsandpriacyrepresentmoreofathreattoitsprofits

sincetheyharmalllegitimateproviders,regardlessofmarketpositioning.Tohelpunderstand,

thefollowingfigureassociatesNetflixsmaincompetitors:

DirectCompetitors IndirectCompetitors

AmazonStudios/Prime YouTube

Hulu ThePirateBay

ComcastXfinity Bittorrent

Coinstar Dailymotion

FIGURE2

PART2:EMERGINGTRENDS

Itisimportanttorealizethatintodaysdigitalworld,changehappensbothexponentiallyand

erratically.Someofthetrendsdiscussedherewerebarelyonanyonesradarfiveyearsago;

othershavebeenputbeforeCongressforatleastsevenyearsnowandstillseenosignoffuture

slowdown.Assuch,Ihavetriedtoidentifythreeofthemosteffectibletrendsthatwillaffect

Netflix,andinturneliminatedthosefadswithnegligiblelifespans.

Thethreeemergingtrendscomefromallareasofthebusiness,fromnewtechnologiesand

consumerbehaviortoregulatoryandgovernmentissues.Theintersectionofthesegeneral

descriptorsiswheremythreetrendslie:theideaofthesecondscreen,networkneutrality,

andvideogamingwillallaffecttheentertainmentindustrysignificantly,andinparticularNetflix

aswenavigatetheunchartedwatersofcreatingourowncontentforthefirsttime.

Whatfollowsisabriefoverviewofeachtrend.

SECONDSCREENENGAGEMENT

Whenreferringtothesecondscreenintheentertainmentindustry,werefertothegrowthof

tabletsandsmartphonesasextensionsofaconsumersprimarywatchingmechanism.Aviewer

maybewatchingarerunofatelevisionshowthroughtheircablesubscriptionwhileatthesame

timelookinguprelevantinformationabouttheshowonWikipediathroughtheirsmartphone.


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Alternatively,theycanbelive-tweetingtheirthoughtsaboutasportsbroadcastasithappens

andengagewithotherfansandviewersaroundtheworldsimultaneously.Thisistheworldof

thesecondscreen:literally,aworldinwhichtwoscreenspervadeconsumerslives.

Morethan80%ofsmartphoneandtableownersreportusingthesedeviceswhilewatchingTV,

andatleast25%ofthemusethemmultipletimesperday.51%ofthosewhopostsocialmedia

whilewatchingTVdosotoconnectwithotherswhomightalsobewatchingthesameprogram,

and24%ofFacebookusersreportpostingabout

themovietheyrewatchingwhileinthetheater

(Ulanoff,2012).

Amongdigitaldevicesconsumersusetowatch

TV,only3%ofusageactuallycomesfrom

traditionalcomputers:almost40%isthrough

tabletsandawhopping59%ofallstreaming

televisionwatchedisonasmartphone,truly

demonstratingitsubiquityanddesireamong

consumers.Sinceourappsarebyfarthelargest

sectorofouroursubscribersaccessourcontent,

theusageofsecondscreensbyconsumersgreatlyimpactsourbusiness.

NETWORKNEUTRALITY

In2010,anewsetofedictsbytheFCCfinallysettledpartsofthealmostdecade-oldargument

surroundingnetneutrality:wiredbroadbandproviderswererestrictedfromInternettraffic

discriminationbutwirelessproviderswerefreetodoastheypleased,includinglimitingor

completelyremovingaccesstoservices(FederalCommunicationsCommission,2010).

Unfortunately,thisdidnothingtoresolvetheissueswhenmostcableproviders(likeAT&T)simultaneouslyoperatewirelesscells.Ultimately,thecontroversysurroundingnetneutralityis

stillverymuchalive.

TheargumentboilsdowntotheideathatcompaniesthatprovideInternetaccesstoconsumers

shouldhavetherighttomonitorandrestrictwhattrafficandservicesarerunacrosstheirown

infrastructure.Theyrelayingthecables,buildingthecelltowers,andlettingacustomeruse

theirequipmenttoaccesstheInternet,sowhyshouldnttheybeallowedtosaywhatisallowed

tousetheirlines?Internetfreedomactivistsvehementlyopposetheissue,citingabase

degradationofthefoundingprinciplesoftheInternet,whichistoallowthefreeandopen

sharingofinformation.Whilesomegovernments(liketheEU)havecodifiedtheideaofnet

neutralitythatis,thatISPcompaniescannotrestricttrafficoraccesstotheopenInternetintolaw,theUSremainsrecalcitrantinfollowingtherestoftheworldslead.Sincewearea

serviceaccessedbyconsumersoverISPInternetconnections,theresultofthisdebateholdsa

hugeeffectoverus.

Withnoregulation,thisopensupsometrulyterrifyingpossibilities,suchasISPscharging

consumerstieredpricingforaccesstocertainservices.Thefigure#4onthefollowingpageisan

exampleofwhatcouldcometopassonedayifnetneutralityisnotrespected:

Tablet Computer Smartphone

FIGURE3


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FIGURE4


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TRANSMEDIA

Theideaoftransmediarelatestocross-platformstorytelling.Whereastheoldmodelof

storytellingcomprisesamovie,andthensubsequentlyanovelizationofthefilmandperhapsa

gamerehashingtheplot,thenewworldoftransmediaopensuplimitlesspossibilitiesthat

continueastoryacrossplatforms,insteadofsimplyduplicatingit(Rose,2011).Theimagebelowgraphicallydepictsacomparisonofhowtransmediafranchisescanbettersuitconsumerstoday:

FIGURE5

Withoverthreebillionhoursperweekspentgloballyonvideogaming,theideaofcontinuing

storiesthroughalternativemediaplatformsshouldbehighlyattractivetoNetflix.In2005,the

averageAmericanspent78hourspermonthplayingvideogames;inthelastyearof2012,that

numberroseto142hourspermonth.Sincecasualgaming3inparticularhasbeenalargepartof

thatincreaseandconsumersalreadyuseourappstoobtainourcontent,itwouldbeveryeasy

andprofitabletocombinethetwoandcreateadditionaltransmediafranchisesforouroriginal

series.NBCUniversalhasrecentlytriedthisbyco-buildinganimmersiveonlinevideogamewith

theircableseriesDEFIANCEonSyfy,andtheywererewardedwiththeirmost-watchedscripted

seriespremiereinhistory(intermsofratings)andmorethansevenmillionhoursofplaytimeonthegamesincelaunch(Morabito,2013).

3Non-immersive,simple,on-the-gomobilegameslike AngryBirdsorFarmville,asopposedto

traditionalfirst-personshootersorrole-playinggameslikeHaloorWorldofWarcraft.


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PART3:TRENDPREDICTIONS

Justasidentifyingthetrendsthemselvescanbeacapriciousundertakingduetotheconstant

ebbandflowofwhatspopular,predictingwheretheymayleadisalsoaficklebeastofa

problem.Still,IstronglybelievethatthedirectionsIlayoutbelowforeachofthethreetrends

areprettygoodobjectivesofwheretheywillendupandillustrateourneedtorespondappropriately.

Thesecondscreenwillcontinuetoseepositive,beneficialengagementamongconsumersforas

longasdigitalexists.Tablets,oncethoughtofasapassingfad,arenowhighlyintegratedinto

manyconsumerslives,andthosewithoutthemhaveatleastsmartphones.Slowly,atleast

everyhouseholdintheUSwillhavesomeformoftabletorsecondscreendeviceandconsumer

behaviorpatternsindicatetheywillcontinuetoutilizethemassuchduringtheprimary

consumptionofmediacontent.ThiswillbebeneficialtoNetflixaswecancapitalizeonour

subscribersestablisheduseofsecondscreenappstoenjoyourcontentbycreatingricherand

friendlierexperiencesforthembywhichtonavigateourservice,includinggreatersocialmedia

integrationforsharingwithusersotherrelationships.

Networkneutralityhasseenaneventualpushbygovernmentstocodifyitsprinciplesintolaw,

butmoresointernationallylikeintheEUthaninAmerica.Ittookalmostfiveyearsofbattling

andlobbyingCongressonbothsidesfortheFCCtorenderanysortofdecisionintheUS,andits

recentimplicitfederalauthorizationforwirelessproviderstosubstantivelyNOT benet-neutralis

asignthatwecannottrustgovernmentregulationstoincubateourbusiness.Thistrendis

potentiallydangerouslydisruptivetousasitisnotunreasonabletothinkthatanISPmay

eventuallydecidetochargeconsumersmoresimplytoaccessourservice:now,paying

essentiallytwiceforourcontent,customerswillbelesslikelytobecomeoursubscribers.

Alternatively,anISPmaydemandthatinsteadofoffloadingcoststotheconsumer,wepaythem

fortheabilityofourservicetoreachcustomersuninterrupted,orslowdownsandinaccessibilitywillresult.Mostfrighteningly,thiscantaketheformofanticompetitivepracticesbysuchlarger

conglomeratesasComcastwhoownandoperatebothISPsandcontentproduction/delivery

companieslikeNBCUniversal,whohasalargestakeshareinHulu.Suddenly,everyonewhouses

ComcastforInternetcanaccessHulustreamsmuchbetterthanourown,andourbusinesswill

sufferforit.Truly,networkneutralityisthemostpotentiallydisruptivetrendthatfacesusright

now.

Asforvideogaming,thereseemstobenostoppingofitscurrentexplosivegrowth.Likethe

secondscreenandtablets,itcontinuestoseeincreasedadoptionamongconsumers,andthe

pastdecadehasseennothingbutupwardnumbersforAmericansandinternationalcultures

engaginginvideogames.Sincetransmediapropertiesarehighlyvideogame-centric,thisprovidesuswithanexcellent,positiveopportunitytointegratecasualandmobilegamesAKA

transmediaelementsintoouroriginalseries,creatinganevenfurthervalueforsubscribers

whoenjoyourin-houseprogramming.


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PART4:NEWSTRATEGIES

GiventhetrendsIvediscussed,howtheycanaffectus,andourcurrentbusinessclimate,Ive

comeupwithafewrecommendedstrategiesforNetflixtoadoptthatwouldhelpadapttothese

trends.Insomecases,thesetaketheformofnewstrategicrelationships;inothers,itwillresult

inusdevelopingnewbusinessmodelsandcorecompetencieswhilereformingothers.Intotal,adaptingtheseprescribedstrategieswillhelpusrespondinthebestwaytobeneficiallydeal

withourtrendsathand.

RETHINKOURMOBILEAPPS

WhilemanyconsumershavecutthecordandmadetheswitchtoInternet-onlyTVofferings,

undoubtedlytheyveexperiencedfrustrationsaswell.Ourmobileapps,whilegood,canbe

overhauledtopresentamuchbetterandmoreseamlessexperienceforthoseontablets,

especiallywhenutilizingsecondscreenviewingmodessuchasAirPlaystreamingtoabig-screen

TV.

Fromaninterfaceperspective,thegreatfolksatYOUiLabscreatedademoofaproducttheycall

FLIPtv,anaturaluserinterface(NUI)thatdemonstratesthecapabilitiesoftabletsforstreaming

mediacontentaswellastheirvisionofhowsecondscreenscanprovidenewandinnovative

waystoenjoycontent.TheytooktheirinterfaceandtranslateitovertoNetflixstabletapp,and

theresultsareastounding:

FIGURE6


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Comparedtothecurrentappsdesign,thisnewproposalfeelsfreshandclean.Whileretaining

theNetflixbrandidentity,itrevitalizestheoft-useddiscoverfeatureofourservice,while

providingnewopportunitiesforsocialintegrationandcommunitycollaborationthroughsuch

ratingssitesasMetacriticandRottenTomatoes.Moreover,theyproposetheloginscreen

changebyallowingsocialcredentialsasauthenticators(muchaswedoonthedesktopversion;

thefeatureisshockinglyabsentinthemobileapp)aswellasminimizingthescreenrealestateneededforloginbyaddinglarge,high-resolutiontilesofnewly-addedcontenttoencourageuse

oftheservice(TheLabBlog,2013).

FIGURE7

Theycontinuetosuggestadded-valuefeatureslikedragging-and-droppingcontentpostersonto

dynamicwatchlistsandqueues(figure7),skeuomorphicanimations,andmoredetailed

friendshipconnections,includingtheabilitytoseewhatfriendsonbothFacebookandTwitter

havewatched,theirrecommendations,andsharecontentwithothers(TheLabBlog,2013).

Byfar,theirmostimpressivechangeiswhenwatchingshowsthemselves:thenewviewing

playerincludesataggingfeature(figure8)thatIbelievetobeinstrumentalinexpandingthe

socialwatercooleraspectsofourcontent.Viewerscantapthebuttonatanytimeduringa

showtotagmomentsonthetimelinerelevantwithquotesfromthatsceneormakeacomment

regardingwhattheysaw.Subsequentfriendswatchingthecontentcanseethesetags,opening

upadialoguebetweenthepartnersandencouragingmoresocialconversationthroughourapp

(TheLabBlog,2013).


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FIGURE8

Similarly,manytabletsofferanabilitytowirelesslystreamvideocontentfromthetabletoalargerTV;forexample,aviewersiPadcanbesignedintoourNetflixappandwatching

ARRESTEDDEVELOPMENT whentheychoosetoAirPlaystreamthevideoitselftoabig-screen

LCDmonitor.Atthispoint,thetabletappbecomestheprimerealestateforsecondscreen

contentsinceitisalreadytheoneprovidingthecontentstimeline;itiscompletelysyncedwith

theshowasthevieweriswatching,allowingforcontextualads,tweets,shopping,relevant

socialconnections,IMDbandcast/crewinformation,andmore(figure9).Truly,thiscreates

extraordinaryopportunitiesforsecondscreenengagement,especiallywithourowncontent,

andfurtherbrandingprospectswithourlicensedcontentfromthirdpartiesaswellasahigher

valuetothem4.

FIGURE9

4Theywouldhavenoneedtodevelopasecondscreenappoftheirownwhenwehavethe

capabilitybuilt-intodeliveronealreadytotheirviewers.


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LimitlesspossibilitiesaboundwhenweconsiderwhatcanbedoneoncewerealizethatweARE

thesecondscreen:wearetheappconsumersusetoconsumecontent.Theveryfactthat

contentisstreamedfromourserverstocustomersuniqueaccountsopensupamazingchances

fortakingadvantageofthisone-on-onetimewiththeviewer.Forexample,wealreadypermit

uptotwostreamsatonceperaccount:ifacoupleisalong-distancerelationship,whynotlet

thembothsignintothesameaccountatthesametimeandsynchronizewhattheywatchtogether?CouplesalreadyholdSkypedateswheretheywatchafilmtogetherwhenapart,

buttheyreplaguedbymanuallysyncingthefilmsandrequiringtwooftheexactsamecopy.

Wevealreadygotthecontent;wecaneasilystreamtheexactsametimelineofaTVshowor

movie,atthesamesyncpoint,intime,totwocomputerssimultaneously.Thisisjustone

exampleofaveryeasy,cheapchangethatcanbeimplementedatrelativelylittlecosttousbut

withbigvalueforoursubscriber,somethingthatwillconvincethemtowantusmore.

Whenwerecognizethepotentialthatsecondscreenappshold,wecanandshouldreadjustour

mobileappstobetterpresentmoreintegrated,pleasingexperiencesforoursubscribers.

FORMSTRATEGICPARTNERSHIPSWITHISPS

Thisshouldhonestlybeano-brainer,butitbearsaquickbreakdown:netneutralitythreatens

ourbusinessbecauseISPscouldeasilyrequireeitherNetflixortheconsumertosubsidizethe

trafficrelatedtomediastreaming.Thisisapotentiallydisruptivetrend,sothebestwayto

respondappropriatelyistodevelopstrategicpartnershipswithISPs.

NotethatIdidnotsaydevelopco-productionswithISPs,orco-offeringsofcontentorservices.

Wedontneedtomakeproductswiththem,butwedoneedtogetinbedwiththem,soto

speak.NetflixneedstomakesurelargeISPsareonitssideifandwhenthenetneutralitydebate

favorsthosewiththeabilitytothreatenusinthefuture.Itsasimpleidea:makefriendsnow

withthosewhocanharmuslater.Thegoalistodevelopsuchcloseworkingrelationshipsthat,whenthetimecomes,werebetterabletostemsuchwarringpricediscrimination.

Thesepartnershipscancomeinmanyforms,andadmittedlyshouldgothroughenough

administrativeoversightandwithsufficientinputbeforebeingformed,butIcansuggestsome

preliminarywaysinwhichtheymaycomeabout.AT&Tcurrentlyhasnostakeinanymedia

conglomerate,butalargeportionofsmartphoneusersstreamourcontentoverAT&Ts4GLTE

wirelessnetwork.TheFCCslastdecreeonnetneutralitygivesAT&Ttherighttolimitor

degradeaccesstoourservice,whichwouldinturnpullcustomersawayfromaccessingusover

theirsecondscreenandmobiledevices,whichwouldofcourseultimatelyturnthemofffrom

oursubscriptionsentirely.Tomitigatethisthreat,wecouldnowexplorepotentialrelationships

withAT&Tthroughtheguiseofrecruitingnewcellsubscribersfortheir4GLTEservice.PerhapsinouradvertisementsforNetflixappsondevices,thephonesandtabletsusedcouldbe

prominentlyonlyAT&Tsnetwork,gentlyencouragingcustomersthatweworkbestthrough

AT&T.Granted,thisisaveryrough,earlyidea,butthefactisthatbypartneringwithAT&Twe

wouldprovidethemaserviceadditionalsubscribersthatlatertheycanlookuponasagood

thinginourrelationshipthattheywouldnotwanttosourbyharmingusthroughtieredpricing

andInternetaccessmodels.


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DevelopingthesestrategicpartnershipsnowwithISPswillhelpdefrayattentionfromthetrue

reason,becauseotherwisebasiccapitalismwillkickinatthecorporatelevelandanyInternet

providercurrentlynotlimitinguswillbehard-pressedtofindareasonnottoimmediatelystart.

Wedontholdmanycardsinthishand,soitisstrategicallybeneficialforustoavoidthe

disruptivethreatbycozyingupnowtothosewhocanultimatelyhurtus.

DEVELOPTRANSMEDIAPROPERTIES

Videogaming,asIpointedout,isheretostay,andtransmediapropertieslikeNBCUs DEFIANCE

onSyfyarequicklybecomingagreatwaytoaddvaluetoatraditionalfranchiseseries.Weve

gotanadvantageinbeingabletopushoutcontenttoconsumersanytime,asfastaspossible,

andnotbeinglockedintonetworkairdates,butalsothefactthatourappsarealready

downloadedbyconsumers.Tobefair,itistoughtoarguethatweshoulddevelopcasualgames

intoourmainapp,butthetrustisalreadytherewithconsumers:itisnaturalforthemtohave

Netflixappsontheirdevices.Itwouldbenodifferentwithvideogamesandothertransmedia

propertiescreatedbyus.

Furthermore,wecouldnotsimplymakevideogamesbasedoffeverythinginourlibrary;aside

fromnothavingtherightstodoso,itdbeimpracticalanduseless.Instead,itisourownoriginal

seriesthatcanbenefitmostfromthecreationofrelatedtransmediaproperties:ourin-house

productionswillquicklyberealizedtohaveanaddedvaluebeyondthoseshowscreatedby

traditionalnetworksorcablechannels.SyfyalreadycreatedaTVshowthattiesintoanonline

videogame,butwealreadydistributeonline:whycantournextseriesbeproducedalongsidea

casualgamethatviewerscanplayontheirsecondscreenwhilewatchingontheirmain

monitor?Or,alternatively,wecouldaugmentourappwithanalternativerealitygamethat

wouldalloweagle-eyedviewerstospotcluesinastoryline,tagorselectthem,and

collect/achieveprizesinthegameworld.

Understandably,thepossibilitiesarelimitless,andthebestwaytocapitalizeontheupward

trendofvideogamesandsuccessoftransmediapropertiesistogetintothegameourselves.

Wealreadyhaveplansformanyseriesindevelopment,andsomeofthosewillworkbestas

traditionalproperties.Butafewcanprobablyofferoursubscribersmuchmoresatisfying

conclusionsbyimmersingthemselvesintotheworldofourcreation;viewerscangaineuphoria

atcollectingallthepieces.Iprescribeweshouldabsolutelygetintothebusinessofatleast

startingtoexplorethetransmediapotentialouroriginalserieshave,sincethiswillofferadded

valuethatwillmakeviewersmorelikelytochooseusinsteadofcompetitorsthatcannot

competewithourcontent.

PART5:CONCLUSION

Asdemonstrated,Netflixsurvivestodayinathrivingbusinessenvironmentwithhealthy

competitionandaflourishing,prosperoussubscriberbase.Weprovideamassivecontentlibrary

toviewers,includingtherecentlaunchofourownoriginalseries,andhaveplentyof

opportunitiesforinternationalexpansionwithfurtherin-housecontent.Thefewthreatsthat


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existnowaresolelywithcompetitorslargelyunabletovieharmfullyforourbusiness,andthose

moresignificantareaddressedinmyprescribedstrategies.

Sometrendsthatarecurrentlydevelopinginthemarketplaceincludesecondscreen

engagement,networkneutrality,andvideogamingalongsidetransmediaproperties.Second

screenengagementhasseenhugeincreasesinadoptionbyconsumersasmorehouseholds

purchaseandusetabletsregularlytowatchstreamingmediacontent,andvideogaminghas

likewiserisendramaticallyinthelastdecadeinbothcasualgamingandmoreimmersive

markets.ThedebateoverInternetfreedomcontinuestorageinboththebusinessworldand

governmenthouses,andcanpotentiallyspelltroublesomeairsforNetflixsaccessibilityto

consumers.So,whiletwoofthesetrendshavethepotentialtobenefitus,anothercanreally

hurtus,anditisimportanttorespondappropriatelytoallofthem.

Itismypredictionthatbothsecondscreenengagementandvideogameswillcontinuetoriseat

unprecedentedlevelsduringatleastthenextfiveyears,soitonlymakessensetotake

advantageofthesetrendsbydevelopingproductsthatexploittheirusebyconsumers.Viewers

tendencytowardsecondscreentaskscaneasilybeaddressedbyredesigningourmobileapps

andpresentingmorestreamlined,integratedinterfacesforthecurrentsocialworld,andtheir

greathoursspentperweekplayingvideogamescanaugmentouroriginalseriesbygivingthem

addedvalueovercompetitorsofferingsifwedeveloptransmediapropertiesthatwholly

enhancethetraditionalwatchingofcontent.Together,thesetrendsandtheirpredicted

directionscanbestberespondedtobythestrategiesIveprescribedandItrulybelievethiswill

leadtogreaterprofitsandcustomerloyaltyamongoursubscribers.

Asforthenetneutralitydebate,itisstillaveryambiguoussituation.Internationalmarketslike

theEUnowhavestandardizedgovernmentregulationinsupportofInternetfreedomandwedo

nothavetoworryaboutanticompetitivepracticesoverseas.ButtheFCCsessentialsidingwith

wirelessInternetprovidersintheirlatestdeclarationonthematteropensupthepossibilityof

mobiledataproviderslimitingsubscribersaccesstoourserviceunlessthecustomerorNetflix

payadditionalfees,apotentiallyveryharmfulthreat.Thus,nowformingstrategicpartnerships

withISPscanbestdiminishthisdisruptivetrend,sothatwearefriendlyifandwhenthetime

comes.

Truly,thedynamicmedialandscapeisanever-changingone,andthrowingbusinessintothemix

onlycomplicatesmattersfurther.Butbylookingaheadtothetrendsthataffectusand

predictingtheirdirectionstothebestofourability,Netflixcanbesuretorespondinthebest

wayappropriatetomeetingthechallengesaheadandultimatelycomeoutontop.


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final strategic report

Documents