This case analysis was done in 2019 as a product of my continued Business and Marketing Strategy learning. The post reflects my personal opinion on Netflix’s ability to evolve from a content delivery service to a content producer. This story analyzes potential mistakes made by Netflix, problems that arose from those mistakes, and opportunities to improve through innovative digital experiences.
Is Netflix going to follow in the footsteps of Blockbuster?
As content delivery methods have evolved and the technology for streaming advances, it’s become a more attainable goal for big-name entertainment providers to develop their own services for the delivery of content. With a drastic increase in competition, Netflix is no longer a necessity for distribution. Using similar strategies as Blockbuster, who built their business providing video rental services, Netflix broke in by disrupting the delivery method offering both DVDs and streaming with the promise of convenience, inventory, and no fees. The emphasis on convenient access to entertainment, which is what consumers ultimately longed for, also emphasizes a potential gap that was more predictable when taking a look back at the two companies. The situation in which Netflix is now adjusting its strategy to reposition the business as a critical contributor of original content shows an organizational revelation that to remain relevant in entertainment, Netflix must become recognizable as a big-name distributor of exclusive, best-in-class content.
Raising subscriber fees at the wrong time.
In the second quarter of 2019, Netflix saw a significant loss of US subscribers and a mere 2.7 million paid subscribers added globally. This was nearly half of what was projected. It’s not the first time that Netflix has experienced a slowdown. Similar to the losses in 2011, it’s safe to suggest that rising subscriber fees and the lack of original content is pushing consumers out once again. As the competition among streaming services continues to increase, consumers are beginning to ask if Netflix is worth the watch. Historically, Netflix has shown that it understands that quality content combined with its advanced streaming capabilities is what provides unique value to its customers, but traditionally the company has asked its customers to pay into the development of quality content by increasing rates. As of July 19, 2019, Netflix premium service costs $15.99 per month, the most expensive among similar services like Hulu ($11.99) and Amazon Prime Video ($8.99). The cost of Netflix likely forces consumers to re-evaluate whether the quality of content and time spent binging is worth the price in comparison to similar services and the potential content offerings of companies like Disney, ABC, CBS, and more.
Content distributors take control.
Over the next few years, Netflix will lose seven of its nine most popular shows. This loss includes favorites like The Office, Friends, and Grey’s Anatomy. Fans of comfort TV are going to need an incentive to remain loyal to Netflix. While this content isn’t new, it offers customers foundational entertainment to pass the time away, not dissimilar to watching re-runs on DIRECTV or Comcast. Without these shows, customers will begin searching for alternative services for similar comfort. Combine the loss of big-name entertainment with subscriber fee increases and value begins to take a hit. So, what’s next? Netflix has invested roughly $8 billion in the development of Netflix Original content and another $2 billion in marketing strategy intended to draw up buzz for such content. While the investment has led to some promising shows like Orange Is The New Black, and Stranger Things, the US market is becoming over-saturated with streaming services — with WarnerMedia, Disney, and Apple all launching streaming services in the next 5 years. The next step for growth may be outside of the US market. “Netflix’s subscriber spiral reveals a dangerous decapitating of their growth strategy,” financial analyst Eric Schiffer told The Verge. “Investors can expect to see a nearly insane level of development spending overseas.”. If Netflix continues down its usual path, the more quality content produced, the more customers should expect to pay.
The advancement of personalized experiences.
Technology progression continues to both help and hinders Netflix. The very disruption Netflix brought on by streaming media has dramatically altered customer behavior for viewing content. While the advent of binge viewership eliminates the frustration of cliff-hanger TV, it also creates an extended entertainment gap for popular series. Subscriber churn is a real concern for Netflix and any other streaming service provider. However, the buzz generated through word-of-mouth opens the door for Netflix to cross-promote more original content. Netflix algorithm supports cross-promotion or personalization of material for customers, but with the introduction of technologies like Apple TV and Amazon TV, customers are bypassing the personalized experiences offered by Netflix. Ultimately, searching for content through a streaming aggregator is the reinvention of channel surfing, and Netflix will have to address this challenge if it wants to market compelling content to customers.
How can Netflix adjust?
It has been reported that Netflix is in talks to partner with a Los Angeles based movie theater called the Egyptian Theater. While the move is in early development, escaping the red waters created by an overabundance of streaming content, may open the door for content that audience love delivered through a traditional, big -picture, box-office format. In 2017, box office dollars continued to dwindle 2%. While coinciding with an 11% increase with Netflix subscribers. Netflix traditionally has avoided large theaters. The assumption that the big-screen is no longer a draw is one that’s been tested by the superhero and animated film genre. Customers may not find all movies suitable for the big screen, but there’s an opportunity to leverage the large format for big-budget, CGI, spectacle. Considering the amount of money Netflix is investing in content production, continuing to develop behind big-name show products and Hollywood legends might be a marketing method used to create unique exposure and generate buzz. For example, the film Bright drew fan interest because of the inclusion of Will Smith as the lead actor and it’s enormous $90 million budget. While the film scored low on Rotten Tomatoes (29%), according to Nielsen, an average of 11 million U.S. Netflix users streamed Bright during its first three days of release which was considered an underestimation excluding viewership on computers and mobile devices. Bright was also lauded as being visually stunning, so if Netflix continues to invest a big budget, then it may be able to develop cross-platform storytelling along the lines of what Disney+ promises with it’s Marvel Cinematic Universe.
As Netflix moves forward.
As evident by their subscriber fee increases and investments, it’s clear that Netflix understands that they will need to fill the holes left behind by their most popular content providers. The organizational realization that content is the ultimate enticement for the customer is a promising indication for Netflix’s long-term survival and a strong emphasis on being customer-centered. Customers want quality content entertainment regardless of the delivery method or service with a cost that reflects the entertainment value. If Netflix can continue to develop content at its current pace – about 700 series world-wide in 2018 – it’s hopeful to see more growth across the globe. As Netflix establishes a reputation for entertainment value, they may avoid falling into a similar trap as Blockbuster. While they may not remain the leader in streaming media, a successful pivot toward delivering intriguing story-telling is one that may be applauded when it’s all said and done.
References
Hulu Cuts Prices: https://www.cnbc.com/2019/02/26/cost-of-popular-streaming-sites-like-netflix-amazon-prime-and-hulu.html
Enterprise Innovations Channel: Classic Strategic Failures – Blockbuster –https://channels.theinnovationenterprise.com/articles/classic-strategic-failures-blockbuster
The Verge: Netflix is losing beloved shows, subscribers, and confidence https://www.theverge.com/2019/7/18/20699037/netflix-earnings-report-q2-streaming-wars-disney-apple-warnermedia-international
Variety: Netflix Eyeing Total of About 700 Original Series in 2018 https://variety.com/2018/digital/news/netflix-700-original-series-2018-1202711940/
What is the Netflix Effect: https://www.forbes.com/sites/blakemorgan/2019/02/19/what-is-the-netflix-effect/#143789565640
The Washington Post: https://www.washingtonpost.com/business/is-netflix-killing-the-movie-theater-not-so-fast/2018/12/24/7a16dbf8-037a-11e9-8186-4ec26a485713_story.html?noredirect=on&utm_term=.0acd6694d0da
The Verge: Where will The Office, Friends, Brooklyn Nine-Nine, and Supernatural be in five years? https://www.theverge.com/2019/5/14/18623037/disney-hulu-netflix-warnermedia-att-friends-the-office-this-is-us-streaming
The Fool: https://www.fool.com/investing/2016/07/16/3-challenges-facing-netflix.aspx