Projects
Netflix’s International Expansion
Netflix was established on August 29, 1997, by Reed Hastings and Marc Randolph. Netflix was originally a DVD rental service that allowed customers to rent DVDs and deliver them via mail. In the early 2000s, Netflix moved to monthly subscription fees for their product. Discarding the concept of renting physical DVDs, Netflix's media content moved to digital allowing customers to binge-watch films. Digital media became more favorable as technology evolved. Businesses like Blockbuster, which sold physical DVDs through rent through in-person interaction, faced a decline in customers and ended up going bankrupt. We will discuss Netflix's strategies based on Porter's five forces model, Netflix's competitive advantage, the company's strengths, weaknesses, and threats, and how it can improve to successfully enter international markets.
Netflix’s overall profitability can be analyzed through Porter’s five forces model. This model includes the Threat of new entrants, the Bargaining power of suppliers, the Bargaining power of buyers, the Threat of substitutes, and Competitive rivalry. Starting with the threat of new entrants, the threat of new entrants can be described as the threat of a new company coming into a developed industry. If the new company’s entry into the industry is successful this can hinder the preexisting companies in the industry as their customers might transfer to the new company instead. A good example of this is Netflix, which migrated its strategy from renting physical DVDs to digital streaming of media with a monthly subscriber fee. Several other companies began offering streaming services, increasing Netflix's competition. A few examples include Hulu, HBO Max, Paramount Plus, and Disney Plus. All of these companies charge a monthly fee to stream digital media.
Next is the Bargaining power of suppliers, this is when the supplier holds an advantage over many parts of the industry including price. This happens when there are only a few suppliers in the given industry. For example, if there are very few producers willing to work with Netflix, and the ones who do sell for an extremely high price, Netflix is forced to pay that high price to create their original content. If many producers are willing to work with Netflix, the supplier no longer has Bargaining power. If the producer is selling for work and licensing fees for a costly amount, Netflix can simply look for another producer that is cheaper with better quality or similar quality production to produce their original content. The bargaining power of buyers is when customers now have the bargaining power. Customers have a variety of streaming services to choose from, If the price gets too high or if the content gets boring to the customer, the customer can always switch streaming services. This would negatively impact Netflix and require them to focus on customer satisfaction. Whether this demands the company to lower their prices, better customer service, or add more diverse and interesting content. Threat of substitutes is when a new item comes into the market fulfilling the customer's wants and desires. This can cause customers to become uninterested in the older items in the market which will lower profitability. For example, if another company comes up with a successful new item this puts other companies at a competitive advantage, leaving Netflix behind. To fix this Netflix has to stay on top when it comes to creating innovative ideas. Lastly is Competitive rivalry, the idea that in a growing industry, there will always be Competitive rivalry. On a daily basis, Netflix is constantly competing with several companies worldwide, which leads to high pricing and competition with content and licensing. This requires Netflix to maintain profitability while being affordable and inclusive.
Netflix has several strengths that are prominent in its marketing strategies. They had a competitive advantage when they switched to a monthly subscriber fee, allowing customers to access digital media accessible through any device with the use of the internet. One of Netflix’s strengths is its ability to produce original content that attracts more customers. In the past Netflix was able to make original content like House of Cards. Through shows like these Netflix was able to score exclusive partnership deals with several content providers. Netflix emphasized its desire to reach into foreign markets. To do this, Netflix provided limited-time offers and movies and shows. By doing this, they were able to limit financial involvement and many risks of moving into an untested market while gaining data on what type of programs subscribers stream and their behavior in the country the company is pursuing.
Netflix has several strengths that are prominent in its marketing strategies. They had a competitive advantage when they switched to a monthly subscriber fee, allowing customers to access digital media accessible through any device with the use of the internet. One of Netflix’s strengths is its ability to produce original content that attracts more customers. In the past Netflix was able to make original content like House of Cards. Through shows like these Netflix was able to score exclusive partnership deals with several content providers. Netflix emphasized its desire to reach into foreign markets. To do this, Netflix provided limited-time offers and movies and shows. By doing this, they were able to limit financial involvement and many risks of moving into an untested market while gaining data on what type of programs subscribers stream and their behavior in the country the company is pursuing.
Competition is a prominent threat for Netflix. One of their competitors is Amazon which offers the option to rent or buy a movie or show without a subscription. Not only that but Amazon has a wider range of streaming platforms including game consoles such as Xbox and PlayStation. Hulu another competitor that emerged later in the 2000s, they were able to partner with Walt Disney Company, NBC, and 21st Century Fox while successfully offering streaming services in the United States and Japan. When entering the Indian market, Netflix faced four competitors: Eros Now, Ditto TV, Spuul, and Hotstar. Eros Now has 30 million registered users and over 3,00 Bollywood movies. Lastly, Netflix attempted to merge into Japan’s markets that faced competition with Rakuten Showtime. A streaming service with over 100,000 movies, dramas, animations, and sports programs.
Lastly, Netflix faced several regulations that threatened its ability to merge into several international markets. Like any other business trying to enter foreign markets, some rules and regulations must be followed in both the United States and the foreign country the business is trying to enter. With the list of regulations, the American Government can give Netflix a list of countries that they are not allowed to expand into. Netflix was unable to expand into Indonesia's and Vietnam’s markets because the country's censorship agency claimed that much of Netflix’s content was unsuitable for local audiences. Another country they were unable to expand into is China because of their strict regulations on the country's media and entertainment making the task difficult to achieve.
Netflix has already made original content and partnered with international producers which benefits them in the long run but not enough for Netflix to overcome its challenges in the international markets. Netflix must integrate into the markets it is to enter. It’s important to understand the culture and its people. Netflix can do this by adding more content in different languages and as subtitles and dubbed of various shows. So that people of different cultures and languages can enjoy the content as well. When entering a foreign market Netflix has to be aware of the difference in currency. For example, 7.99 in US dollar bills may be 100 dollars in another country's currency. To fix this Netflix must be willing to be Flexible with their pricing internationally as currency difference is a cost factor. Patience is the key when it comes to expanding into a new market. Some markets are not ready for Netflix whether it is the economy or a lack of technology and internet. It’s better to research the cultural films and media that do well in those countries and expand into the market when it’s stable and ready for the content