STRATEGIC ANALYSIS Presented by: Kevin Andrews • Ebube Anizor • Nasir Gondal • Mohammad Shafiei-Monfared • John Selvakumar Schulich School of Business July 19, 2010 Thursday, 8 September, 11
STRATEGIC ANALYSIS
Presented by:Kevin Andrews • Ebube Anizor • Nasir Gondal • Mohammad Shafiei-Monfared • John Selvakumar
Schulich School of BusinessJuly 19, 2010
Thursday, 8 September, 11
“Netflix will forever change the way you
watch your TV & Movies.”
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Company Overview
DVDs via mail, electronic delivery via the Internet -> great consumer value
14 million+ members in USA, projected to be 16 to 17 million by the end of 2010 (>10% of US household subscribe to Netflix)
2009 Revenue: US$1.67B
2010 forecasted: US$2.05B to US$2.11B
Several subscription plan choices: 3 DVDs at-a-time/Unlimited Streaming
- $17/month 2 DVDs at-a-time/Unlimited Streaming
- $14/month 1 DVDs at-a-time/Unlimited Streaming
- $9/month 2 DVDs /2 hours streaming - $5/month Netflix corporate headquarters
Los Gatos, California
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11 Years of Strong Growth
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Financial Highlights
Average Monthly Revenue per Subscriber: $13.30 Gross Profit: $4.71 Net Profit: $0.92
Profit (Gross/Net): 35.4% / 6.9% Cost Distribution:
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Service Overview
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DVD-by-Mail Service
58 distribution locations nationwide
Netflix ships 2+ million DVDs each day
97% of subscribers receive discs in one day
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Instant Streaming Service
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Netflix-ready Devices in 2009
Blu-Ray & HTiB Samsung LG Insignia (Best Buy) Sony NFLX check list in ‘10
DTV LG Sony Vizio NFLX check list in ’10
Gaming Xbox Sony PS3
STB Roku Tivo Sony BIVL
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Netflix-ready Devices in 2010
Blu-Ray & HTiB VIZIO Samsung
LG
Sony
Insignia
Sharp Toshiba
Panasonic
Philips
DTV VIZIO Samsung LG Sony Insignia Sharp Toshiba Panasonic Philips Sanyo
Gaming Xbox Sony PS3 Nintendo WiiSTB Roku Tivo Western Digital SeagateOn-the-Go PC/Mac WMC HP TouchSmart Apple iPad & iPhone
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Netflix-ready Device UI
Instant Queue Title Details
Streaming Playback Optimized FF/RW
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Business Strategy
Customer Intimacy Strategy Subscribers are offered a choice of delivery method and
platform that is most convenient for them, all at one low price Focus on customer service and user experience
Core Business Objective: Grow a large subscription business consisting of streaming and DVD-by-mail content
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Technology Strategy
Bowling alley approach
Shift to the next S-curve
Leader in technologies to enhance the subscriber experience and operate efficiently
DVD by Mail
Buildsubscriber
base
OfferStreaming
Customer Reference
DigitizeRelationship
WholeProduct
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Technology Strategy
Create• Digitize customer
relationship• All you can use
content
Deliver• Personalized
Experience• Hybrid DVD/
streaming system
Capture• Strong installed
base• Multiple platforms • Monthly
subscription fee
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Innovation Strategy
Disruptive innovation has been the hallmark of the company’s success One of the first companies to introduce DVD by mail over
the web
Innovation focus has been shifting to online streaming
Internal and open innovation $1 million competition to improve recommendation
engine by 10%
Investment Priorities Web based STAs Processing and distribution of DVDs and streaming
content
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Intellectual Property
Netflix uses a combination of patent, trademark, copyright and trade secrets Patent for Online DVD Rental process (2006)
Netflix successfully sued Blockbuster for infringement
Patented in-house video streaming technology
Patented recommendation engine
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Complementary Assets
14 million customers and counting Strong customer service
24/7 call center in US
High level of interaction with customers
Relationship with content providers and leveraging it to acquire licenses for online streaming content.
Netflix-ready Devices
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Competition
Traditional DVD Rental Stores Blockbuster
Now near bankruptcy (delisted from NYSE) struggling to compete in digital and mail service space
Internet delivered video (video-on-demand, ad supported, and subscription) Cable / Satellite Providers / TV Stations Downloading Services (e.g. iTunes) Streaming Services (e.g. Amazon on Demand) Content Providers (e.g. Hulu+)
Shifting from an industry with a few players to one with several strong players!
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Competitors
Source: Netflix 2.0
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Competitive Factors
Factor 1: Access to Content / Release Window
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Competitive Factors
Factor 2: Pricing / Service Model
Factor 3: Existing Business / Customer Base
Unlimited subscription
Newer TV shows, some new movies, older movies
17,000 titles and growing
DVD rental
$4-5 PPV Hot new
releases PPV: 24 hrs
to view
Ad-supported video
TV show centric Older movie titles Free for Hulu bas
and YouTube PPV Model for
Hulu+
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Competitive Strengths
Brand Personalized Service Growing Scale (efficiencies, negotiations)
Convenience, Selection and Fast Delivery
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Competitive Position - Summary
Netflix augments the standard video package. Its success is based on clearly defining where and how it competes:Segment. Consumer-paid streaming
subscription Content. Library and relatively new
content. Other content types not in scope. Revenue Model. Single, simple
subscription based revenue model.
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Competitive Position - Summary
Netflix compares itself to a motorcycle Positioned to “augment” rather than
“replace” Standard video package is a car, Netflix
is a motorcycle Few people with a motorcycle, vast
majority have a car Need to offer a great experience to get
“car” owners to buy spend on Netflix
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New Entrants
Independent offerings from content providers
Potential for M&A amongst players Alliances with content providers (a la
Hulu)
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Outlook
What’s Growing? Declining?
Source: Netflix 2.0
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Outlook
Studios need to protect high margin DVD sales and value chain Avoid iTunes-like domination by Netflix
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Outlook
Studios goal is to manage online availability (what and when)
Net Neutrality
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Recommendations
Focus on negotiating favourable long term content agreements
Deploy to as many devices as possible Geographic expansion Expand complementary assets Leverage DVD / Streaming hybrid model Long Term: apply model to books, video
games…
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Are You In?
Poised for growth: Currently services the only the US (today, announced expansion to
Canada) Growth in smartphone and tablets Performance of broadband and mobile network improving IP connected devices on the incline Established “Gorilla” in Video Streaming market
In the 5 years heading into 2010 subscribers tripled, revenue up 20% annually, profit 23% and a market cap of US$6.2 billion.
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In Canada
Streaming only – no discs
English at launch, French later
Public announcement July 19th
Target of less than $10/month unlimited streaming
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Are You In?
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Our Bet
“Medium” investment Ideal investment distribution:
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Market Trends & Threats (to Cable)
Source: Rogers
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The Impact of On-Line
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Video Driving Growth in Network Traffic
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Choice, Convenience and Control
Source: Rogers
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Content Acquisition
Netflix focuses on getting Netflix members the highest total “viewing value” in our library
Not striving for a specific quantity Offer the best overall library Content obtained through direct purchases,
revenue sharing agreements and license agreements with studios, distributors and other suppliers. DVD content is typically obtained through direct
purchases or revenue sharing agreements. Streaming content is generally licensed for a fixed fee
for the term of the license agreement.
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Continued Investment in Content
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