Discussion
Netflix US is an American company which was founded in the year 1997 by Marc Randolph and Reed Hastings with its headquarters in California. The company is a media services provider and is one of the top online streaming websites in the world at present. The primary service that the company provides is its subscription based streaming media services (Netflix.com 2018). Netflix contains a library of various television shows and films. While some of these films and shows are in house productions, some are produced by external production houses. The customers who subscribe to Netflix would be able to access all the shows, documentaries and films under their banner after having paid a definite charge. At present, Netflix has over 137 million subscribers around the world.
The present generation of youngsters prefers to watch their films and television series at home, instead of having to head out to brick and mortar theatres. It is comparatively more convenient. It is this change in attitude which has led to the increasing popularity of online media streaming websites like Netflix US. In the UK and around the world, people are choosing to opt for Netflix as compared to traditional television, because of a few factors. For one, the variety of shows and films that are available on Netflix allows the viewers access to enriching content. Secondly, viewers also have access to a range of Netflix Original films and shows, which are not available elsewhere. For a nominal charge, viewers can watch television shows and films on the go, from any remote corner of the world and even use multiple devices to access the website. The following report analyses Netflix’s presence in the UK, with emphasis on the factors affecting operations and profitability.
The above diagram shows the growth of viewers in the online streaming media industry in UK from December 2012 to December 2015. The graph also shows an estimated growth till the year 2020. In 2014, there were nearly three million viewers who were paying subscription to Netflix. The number is expected to reach about 9.5 million by the year 2020. In the United Kingdom, the viewers have access to at least 2023 films and 697 television series (Forbes 2018). The media and the entertainment industries are expected to grow at an annual rate of 3 per cent for the next few years. The industry of digital media is expected to grow at nearly 7 per cent in the next few years. The subscriptions to traditional pay television services, which had dominated the UK market for years, have now fallen. These are gradually being replaced by online media streaming websites like Netflix and Amazon. Out of the two, Netflix has almost a 34 per cent dominance over the market. While Pay TV revenues have gone down, the popularity of broadcast television remains consistent. Yet, it has been observed that the majority of the population watching broadcast television is older. On the contrary, the younger generation between the ages of 16 and 34 prefer to watch shows and films on online channels.
Overview of Online Streaming Industry in United Kingdom
The Porter’s Five Forces analysis of Netflix in the UK is as follows:
- Bargaining power of buyers – The bargaining power of buyers or the customers in this case is very high. This is because the switching costs are very low and it is very easy for a customer to switch to a different streaming website if they are not satisfied with the quality of service or content provided by the website in question.
- Bargaining power of suppliers – The bargaining power of suppliers in this industry is pretty low. However, Netflix will need to ensure that the contracts with the network providers and subscribers are maintained properly. This would determine the quality of content provided by the company.
- Threat of new entrants – The threat of new entrants in this industry is very high. Online streaming has almost completely replaced traditional media at present and thus a number of new names have come up in the industry which provide similar services. Also, the entry costs in this industry are not very high, which means that new entrants are a real threat for Netflix.
- Rivalry in the industry – The competition in the online streaming industry is very high. Although Netflix is one of the most popular companies in the world, it faces tough competition from other companies like Amazon Prime which provides similar services at lower costs.
- Threat of substitutes – The threat of substitutes in this industry is comparatively low. This is because online streaming is the future of television and it is expected that this industry will continue to grow in the upcoming years.
There have been numerous factors which have resulted in change in the online streaming industry. They may be explained as follows:
Political factors
There have been a number of political factors which have led to an increase in the popularity of Netflix in the online streaming industry. These political factors have also affected the profitability and sustainability of this industry. For instance, in the United States, United Kingdom and other places, the traditional pay television channels have lost their popularity. As a result, there is a growing movement to impose more stringent policies and taxes on these online media streaming websites, with respect to usage and prices. If these bills are passed, the cost of subscribing to these channels would increase (Forbes.com 2018). Moreover, in the European Union, several controversial rulings have been passed. These rulings categorize online streaming websites like Netflix on the same level as traditional television (Netflix.com 2018). As a result, companies like Netflix would have to adhere to policies which dictate that at least thirty per cent of the content displayed will be European.
Economic factors
One of the major drivers of change in this industry is the growing competition. Although Netflix is one of the forerunners in the industry, there are other competitors in the UK market, who too offer similar services. Similarly, there are other economic factors which affect the changing trends in the online streaming industry. These include foreign exchange rates, purchasing power of the customers, income rates, inflation rates and so on. The exchange rate is particularly important in this case since Netflix is an American company. The pricing for the company was fixed at around 10 US dollars. However, depending on the country and the VAT applied, the exchange rates can go higher (Yahoo.com 2018). Similarly, fluctuations in the domestic streaming costs may also affect the subscription rates of Netflix.
Social and cultural factors
There are various social and cultural factors which could affect Netflix’s performance in the UK industry. For instance, a majority of the population in the United Kingdom are today turning to online channels when it comes to movies and television shows. This can be said to be a shift in the attitude and preferences of the customers, the viewers in this case. Most of the younger population at present is used to watching movies and television shows on the internet – either by downloading or through streaming websites. Netflix offers top quality content which is both enriching and entertaining, in a variety of languages from all over the world. Thus, for modern viewers, the subscription fee is a small price to pay for the services they receive in exchange for it (Wang 2018). In the United Kingdom, the younger generations watch traditional television shows at least three times less than the older generation. Research has shown that online streaming services are the preferred mode of entertainment for this generation. Social trends also show that a large portion of the viewers prefer to watch their films and television shows on the go and on their smartphones. Today, customers are prepared to watch forty minutes worth of television on their smartphones. Netflix satisfies the need for customers to watch content on the go. This trend is known as cord cutting, which refers to the shift from traditional television shows to online streaming services.
Porter’s Five Forces of UK Online Streaming Industry
Technological factors
Technological improvements and advancements are one of the most important factors which have led to the growth of companies like Netflix. The core of its operations is based on the availability of the internet. The rapidly developing technology sector is responsible for the immense popularity of the company. Across the world, the 4K television market has seen an average growth of almost 43 per cent, which is expected to be worth almost 71.9 billion dollars. In order to make the most of this technology, Netflix has invested in this sector in order to provide for efficient 4K streaming. However, 4K streaming requires huge amount of bandwidth which most customers lack (Netflix.com 2018). As a result, the company has also come up with means of compensating for the same. The company has also come up with a new technology which grades a translation of a foreign languages show automatically.
At present, Netflix, without a doubt is a forerunner in the online streaming industry. In the year 2015, the company grew by 130 per cent, moving from 48.80 dollars per share to 114.38 dollars per share. The question arises as to what factors contribute to the profitability of the company. The following factors can be said to the drivers of profitability in this industry
Expanding international markets
The growing international markets happen to be one of the most important factors affecting the profitability of Netflix in this industry. In January, the company announced that it would go global by expanding to nearly 130 countries – thus reaching more than 190 million homes. Similarly, the number of people subscribing to Netflix has almost doubled in the past few years. Netflix may have started out as a US based company. Yet, its robust global marketing strategies, coupled with its inclusive policy of including various foreign languages shows and films have contributed to its growth. The company has also demonstrated the ability to grow, adapt and accommodate the changing trends in the industry. For instance, the taste and preferences of the people in the UK are different from that of US (Ofcom.org 2018). As such, Netflix has been successfully able to adapt to the changing markets and unique needs and expectations of the customers.
Changing customer needs
This is also one of the most important drivers of profitability in the industry. Had the customers not preferred online streaming over traditional television, companies like Netflix would not have had the opportunity to grow the way it did in the past few years. Gone are the days when people would actually visit brick and mortar theatres to watch a film. They would rather watch it from the comfort of their own homes. Moreover, online streaming allows a viewer to access content on the go directly from their smartphones. One of the major reasons why viewers have shifted to online streaming is because of the convenience they offer. Accordingly, the domestic and international streaming markets have grown at an alarming rate (Sweney 2018). Although Netflix has several competitors within the industry, the company has managed to exhibit a steady growth over the last few years.
Drivers of Change in the Macro Environment for the Online Streaming Industry
Content
The most important factor about Netflix’s content is that it provides exceptional quality television shows and films. The company also provides a number of original shows and films, which are not available elsewhere. It offers a range of movies and series or shows, from different eras and even offers subtitles for the foreign language shows. It has a number of features and a range of easy and convenient payment options for the viewers. It is interesting to note that Netflix is not just focusing on the volume of content generated – it pays due attention to the quality of content as well. From documentaries to musicals, Netflix encompasses a range of content. Moreover, Netflix has also given due prominence to rising directors and talent (Grazia Daily 2018).
Growth of OTT TV
The number of over the top (OTT) television services has increased consistently over the past few years. The number of subscribers is expected to reach a startling 333.2 million globally by the year 2019. With technological advancements and changing needs of the customers, more and more viewers are adopting internet television and on demand viewing, which companies like Netflix provide (Pwc.co.uk 2018).
Strengths
- Brand name – Over a period of time, Netflix has emerged as one of the most popular names in the online streaming industry, owing to its enhanced services, top rated content and wide customer base.
- Customer base – Ever since Netflix went global, it has access to over 190 countries and more than a 100 million customers. This is far more as compared to its competitors.
- Original content – Netflix has not restricted itself to films and television shows which have previously released. The USP of the company is original content, produced by its in house production team, which are not available on other websites or in theatres.
Weaknesses
- While the original content of the show has certainly increased its profitability, the cost of producing such original content must also be taken into account. For instance, in 2017, the company had to invest almost 2.5 billion dollars in just original content.
- Environmental costs – Netflix was rewarded a D grade when it comes to environmental awareness. This has resulted in bad publicity for the company.
Threats
- The most important threat for Netflix at present is growing rivalry and competition within the online streaming industry. Netflix faces tough competition from Amazon, which has been trying to gain a strong hold in the market. One major advantage that Amazon has over Netflix is the fact that the former has consistently increased the sheer number of available titles needed for online streaming. The company also provides a number of interesting television shows and movies for the viewers, at prices comparatively lower than that of Netflix. Amazon has also consistently been updating its library, by including new shows at frequent intervals Netflix had suffered with market shares last year, and the strong positioning of Amazon creates a hostile environment for Netflix. Similarly, several other companies like HBO, Showtime, Walt Disney and others are planning to venture into the online streaming industry (Investopedia 2018).
- Digital piracy is another major threat that the company faces. Digital piracy has led to more than 5 billion downloads all over the world in 2016, which has led to significant losses within the industry.
Opportunities
- However, there are tremendous opportunities for growth as far as Netflix is concerned. For instance in Europe, Netflix could partner up with Canal Plus and BBC in order to provide rich, native language European content which would help it make a mark in the local markets.
- The technology related to internet television and online streaming has grown in the recent years. In fact, this sector continues to grow and further technological advancements are expected in the upcoming years. Incorporating these technologies would provide the company with competitive advantage and would also improve the quality of services provided to the customers.
Based on the above analysis, the following recommendations can be made to Netflix, so as to enhance its operations in the UK and across the globe:
- Netflix should provide provisions for social media integration. At present, social media platforms like Facebook and Whatsapp are the main modes of communication. Allowing social media sharing would increase the level of convenience for the viewers. The company has been unable to include social media sharing owing to the Video Privacy Protection Act, which is applicable in most countries. However, amendments to the act allow for social media integration. Including this would improve the quality of service provided to the viewers.
- Netflix should also take adequate measures to improve and update its library. While there is no denying the fact that Netflix certainly has one of the most updated and all encompassing libraries amongst the online streaming websites, it is recommended that Netflix also incorporates certain region specific shows and movies.
- Netflix has a very poor recommendations section, which is another advantage that Amazon has over the company. The suggested movies and television shows on Amazon are based on user experience, unique needs of the user and the previous usage patterns of the viewers. Netflix should make use of available technology in order to improve the quality of suggested watches and recommendations so as to enhance overall user experience.
Conclusion
To conclude, it can be said that Netflix is without a doubt one of the most popular names in the online streaming industry as of 2018. This is due to a number of factors, as mentioned earlier. For instance, the quality and variety of content that Netflix offers to its viewers around the world has endeared customers globally. Moreover, Netflix offers exemplary customer service as well, which offers it a competitive advantage. However, the company has been facing numerous issues owing to rise in competition and fall of market shares. Accordingly, recommendations have been made which can help Netflix make further progress.
References:
Forbes. 2018. The Factors Behind Netflix’s 60% Stock Rally In 2017. [online] Forbes. Available at: https://www.forbes.com/sites/greatspeculations/2017/12/01/the-factors-behind-netflixs-60-stock-rally-in-2017/#203ca0361e78 [Accessed 2 Nov. 2018].
Forbes.com. 2018. Factors That Can Lead To A Significant Change In Netflix’s Valuation (Part I). [online] Forbes. Available at: https://www.forbes.com/sites/greatspeculations/2015/04/09/factors-that-can-lead-to-a-significant-change-in-netflixs-valuation-part-i/#52e91b5a67cd [Accessed 8 Nov. 2018].
Grazia Daily. 2018. How Online Streaming Has Improved Diversity In The Television Industry. [online] Grazia. Available at: https://graziadaily.co.uk/life/tv-and-film/online-streaming-improved-diversity-tv/ [Accessed 8 Nov. 2018].
Investopedia. 2018. Analyzing Netflix’s Degree of Rivalry Among Competitors | Investopedia. [online] Investopedia. Available at: https://www.investopedia.com/university/netflix-porters-5-forces-analysis/analyzing-netflixs-degree-rivalry-among-competitors.asp [Accessed 8 Nov. 2018].
Netflix.com. 2018. Netflix United Kingdom – Watch TV Programmes Online, Watch Films Online. [online] Netflix.com. Available at: https://www.netflix.com/gb/ [Accessed 2 Nov. 2018].
Ofcom.org. 2018. TV streaming services overtake pay TV for first time. [online] Ofcom. Available at: https://www.ofcom.org.uk/about-ofcom/latest/media/media-releases/2018/streaming-overtakes-pay-tv [Accessed 8 Nov. 2018].
Pwc.co.uk. 2018. The 2018 UK entertainment and media outlook. [online] PwC. Available at: https://www.pwc.co.uk/industries/entertainment-media/insights/entertainment-media-outlook.html [Accessed 8 Nov. 2018].
Sweney, M. 2018. Netflix and Amazon become more popular than pay-TV services. [online] the Guardian. Available at: https://www.theguardian.com/media/2018/jul/18/netflix-and-amazon-become-more-popular-than-pay-tv-services [Accessed 8 Nov. 2018].
Wang, U. 2018. How the Netflix model impacts the environment, economy and society. [online] the Guardian. Available at: https://www.theguardian.com/sustainable-business/2014/feb/06/how-the-netflix-model-impacts-the-environment-economy-and-society [Accessed 8 Nov. 2018].
Yahoo.com. 2018. Factors-could-affect-netflix-international. [online] Finance.yahoo.com. Available at: https://finance.yahoo.com/news/factors-could-affect-netflix-international-130712152.html [Accessed 8 Nov. 2018].
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
