Netflix Presentation

Presented by Laura Nicholson

BUS 621 – Individual Project

12/15/2011

Company Background

1997 – Reed Hastings and fellow software executive Marc Randolph co-found Netflix to offer online movie rentals.

1999 – Netflix launches the subscription service, offering unlimited rentals for one low monthly subscription.

2005 – Netflix ends the year with 4.2 million members, up 60 percent from 2004.

2007 – Netflix introduces streaming.

2009 – Netflix partners with consumer electronics companies to stream on the PS3, Internet connected TVs and other Internet connected devices.

2010 – Netflix is available on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, and other Internet connected devices.

2011 – Netflix Raised prices and segmented DVD Rental and streaming and lost 800,000 customers.

Financial and Operational Performance

Financial Summary 2009 2010 End of Q3 ‘11

Revenue ($M) $1,670 $2,162 $2,329

Operational Summary As of Q3 ’11

Members in millions Domestic International

Streaming subscriptions 21.45 1.48 (stream only)

DVD Rental subscriptions 13.93

Operational Expense Summary 2009 2010 End of Q3 ‘11

Cost of Revenues ($ in millions) $1,079 $1,357 $1,464

Operating Expenses ($ in thousands) $399 $521 $550

EPS $2.05 $3.06 $3.63

Executive Summary

5 Main Points:

• How does Netflix recover from losing 800,000

customers?

• Identify reasons for segmenting divisions and

price increase.

• Strategic positioning through expansion and

target market.

• Netflix has options to rebuild market share

through improved products and services

• Outcome will be to show how Netflix will regain

market share.

Specific problem I address:

Problem Statement:

Netflix has lost 800,000 customers due to an

increase in price based on segmenting DVD rentals

and streaming services.

I selected this problem because:

After researching Netflix’s reason for the price

increase, I believe the decision makes sense for

future growth and market share.

Current BMG Canvas

Key Partners

Paramount

Miramax

Sony

Dreamworks

Key Activities

Expanding

markets

Customer

Service

Software

development

Value Propositions

Streaming

DVD Rental

Convenience

Entertainment

Timely

Innovation at

internet pace

On demand

Customer

Relationships

Availability and

choice

Personalized to

taste

Customer

Segments

Families

Entertainment

seeking

Convenience

seekers

Key Resources

Marketing

Strategies

Technology

development

Licensing

Channels

Website/Media

Movie Studios

HBO/Stars/ESPN

Cost

Structure

Ongoing Licensing Costs

Overhead

Technology Development

International Expansion

Staffing/Infrastructure

Revenue

Streams

Streaming Movies

DVD Rental

Membership Fees

Hypothesis

Through a more focused customer segment

target and revised positioning strategies,

Netflix will regain lost market share and

increase growth in revenue.

Macro-HypothesisThrough a more focused customer segment

target and positioning strategies, Netflix will

regain lost market share and increase revenue

growth.

Sub-Hypothesis #2

Through international

and domestic

expansion, Netflix will

regain lost market

share in increase

revenue growth.

Sub-Hypothesis #3

By introducing a new

product/service line of

video games, Netflix

will increase revenue

growth and regain

market share.

Sub-Hypothesis #1

Netflix will regain

market share and

grow revenue by

focusing efforts on

demands in the target

market.

Problem Logic Tree

Tools Used

The tools that will be used in this

presentation are:

• The BMG Canvas

• The Value Disciplines Model

• The SWOT Analysis

• Activity Map

Sub-Hypothesis #1

Netflix can regain lost market share and

grow revenue by focusing efforts on

demands in the target market.

Netflix has been the innovator for DVD rental by

mail and online streaming capabilities.

Netflix’s Current Value

Discipline of Product

LeadershipProduct

Leadership

CustomerIntimacy

OperationalExcellence

Competition

NetFlix

Proposed Value Discipline of

Operational ExcellenceProduct

Leadership

CustomerIntimacy

OperationalExcellence

Competition

NetFlix

Sub-Hypothesis #2

Through continued international and

domestic expansion, Netflix will regain lost

market share and increase revenue growth

Activity Map Template

Domestic

Revenue

Choice/

Selections

Key Partnerships

International

Expansion

TV Series

Streaming

DVD

Hybrid of DVD

and Streaming

Service

International

Revenue

Global

Revenue

On-Demand

Convenience

Price

Selections

Availability

Sub-Hypothesis #3

By introducing a new video game

product/service line, Netflix will regain lost

market share and increase revenue growth

SWOT Analysis

Strengths:

• Branding

• Convenience

• Technology Base

• Key Partnerships

• On demand

• Streaming

Opportunities:

• Video Game Market

• International/Domestic

Expansion

• Key Partnerships

Weaknesses:

• Technology Expense

• Current customer dis-satisfaction

• Negative media

Threats:

• Increased competition

• Price competition

•Technology development of

competitors

November 7, 2014

TOWS MatrixStrengths:

• Branding

• Convenience

• Technology base

• Key Partnerships

• On Demand

• Streaming

Weaknesses:

• Technology development

expenses

• Current customer Dis-

satisfaction

• Negative media

Opportunities:

• Video Game Market

• International/Domestic

Expansion

SO Strategies

• Focus on global expansion

of video steaming and key

partnerships

WO Strategies

• Focus on global

expansion of video game

streaming using less

operating expenses for

technology development

Threats:

• Increased Competition

• Pricing Structure

• Technology development

of competitors

ST Strategies

• Partner with streaming

video game companies to

offer new product line

WT Strategies

• Improve negative media

and reduce technology

development expenses

Macro-HypothesisThrough a more focused customer segment

target and positioning strategies, Netflix will

regain lost market share and increase revenue

growth.

Sub-Hypothesis #2

Through international

and domestic

expansion, Netflix will

regain lost market

share in increase

revenue growth.

Sub-Hypothesis #3

By introducing a new

product/service line of

video games, Netflix

will increase revenue

growth and regain

market share.

Sub-Hypothesis #1

Netflix will regain

market share and

grow revenue by

focusing efforts on

demands in the target

market.

Summary of Findings

TRUE TRUE TRUE

TRUE

Conclusions

By shifting to Operation Excellence and re-focusing the target market, Netflix will regain market share and increase revenue

By expanding streaming service internationally and domestically, Netflix will regain lost market share and increase revenue

Introducing video game streaming and developing additionall key partnerships, Netflix will regain market share and increase revenue

Recommendations

To regain lost market share and increase revenue growth, Netflix should:

Shift from Product Leadership to Operational Excellence

Continue expansion of international and domestic streaming markets.

Introduce new product/service of video game streaming service.

November 7, 2014

BMG Canvas Based on

RecommendationsKey Partners

Paramount

Miramax

Sony

Dreamworks

Video gaming

companies list

Onlive.com

Key Activities

Expanding

markets

Customer

Service

Software

development

Value Propositions

Streaming

DVD Rental

Convenience

Entertainment

Timely

Innovation at

internet pace

On demand

International

Market

Video Game

streaming

Customer

Relationships

Availability and

choice

Personalized to

taste

Innovative

technology to

improve

choice/service

Customer Segments

Families

Entertainment

seeking

Convenience

seekers

Multi-device users

Tech Savvy

Gamers

Key Resources

Marketing

Strategies

Technology

development

Licensing

International

Markets

Channels

Website/Media

Movie Studios

HBO/Stars/ESPN

Mobile Devices

Apps

Cost

Structure

Ongoing Licensing Costs

Overhead

Technology Development

International Expansion

Staffing/Infrastructure

Revenue

Streams

Streaming Movies

DVD Rental

Membership Fees

Video game rentals/streaming

Apps

Risks

• Losing market share to more innovative companies.

• Costs associated with International expansion and impact on operation expenses.

• Possible partnership issues and costs associated with introducing video game streaming

Summary 5 Main Points:

• Netflix has lost 800,000 customers and needs

to regain market share despite price increase.

• Customer demands are shifting due to

technology.

• Strategic positioning through expansion and a

more focused target market.

• Introduction of new product/service proves

opportunity for a new market share

• Netflix has opportunities for a come back!

Action Items:

• Shift to a Value Discipline of Operational Excellence for pricing and convenience with a consumer focus of multi-device users

• Continue global expansion of streaming service

• Partner with Onlive.com to offer video game streaming to consumers

QUESTIONS?