Netflix streaming service

Netflix streaming service

Netflix streaming service remains one of the most-watched, reaching a customer base of more than 140 million clients by 2019 despite the growing stiff competition streaming service companies like Amazon, Hulu, and ATT.  Netflix has also faced the challenge of changing consumer behaviors as more players enter the market, giving them a variety of services to choose from. The success of the company was as a result of strategic shifting from the traditional viewership provision service through DVD delivery by mail to subscribers to streaming on-demand in the previous decade since the inception of the company in 1997.

Advancement in technology has made it cheap to acquire smartphones, smart TVs, and laptops, which have positively contributed to the company growth over the last decade. Access to the internet by many company subscribers has been a critical facilitator contributing to immense to company growth in the previous decade. Initially, the company enjoyed taking the market without much competition due to a lack of serious rivals. Around 60% of U.S adults have a Netflix subscription of video on demand. The majority of these are young people in college and working class. Netflix has a loyal user base and close to 65%  rate the streaming service provider as ‘most indispensable streaming and TV network’ (Blaire et al., 2016).

Given the Netflix market dominance, however, competing companies have tried and considerably succeeded in making a mark in the industry. The biggest competitors that have taken a significant part of the streaming market include Hulu and Amazon Prime Video. The entry of these companies into the market has occasioned a decline in the growth rate of the Netflix user base, threatening future company growth. For example, the company had forecast an increase of 5.4 million customers in the second quarter of 2019. However, it only realized half of the target. The slow-down was significant in the US market compared to other countries like India. Netflix executive remained optimistic the company was doing better in the international market.

Over the years, Netflix has distinguished itself from competitors with a great wealth of original content. In 2017, the company had over 300 titles of original content. Subscribers vastly enjoy most of these titles, e.g., over a third of users stated that the original content plays a critical role when they are deciding on the choice of a streaming service provider.  In 2018 Netflix network was awarded 23 Primetime awards (Blaire et al., 2016).

Adapting to changing consumer demands and technology has seen the company retain its market-leading role. The dwindling growth rate is an indication that the increasing competition may rob the company of this position as new equally strong companies is enhancing their market grip. There is a need for going forward strategy in the rapidly changing environment. Below are strategies that the company can adopt to maintain its market dominance.

• Enhanced Partnership ‘Onboarding’ deals.

Global Pay-TV partnership is a strategic tool for expanding the company market coverage. ‘Onboarding, deals will enable the company to forge integration association with paid TV programs operator so that viewers can access the Netflix services in their TVs. Service Video On Delivery has an opportunity to facilitate the viewership of the company content globally if it enters into a deal with 100 largest TV operators of the set-top-boxes. The sale will allow the company to reach out and earn from countries that it is not permitted to operate in, e.g., China. The company has already signed several such deals, and they are proving to be economically viable as the high cost will be content generation only. For example, it has an ‘Onboarding’ deal with CanadlPlus, a French company. The company is yet to conquer the vast market in Central and South America and the Asia Pacific through this strategy. Aggregation of paid TV platforms will be the emerging trend in the next five years, and Netflix will reap more if it makes the first move

(b)Reducing Cost of production to improve the Cash inflow-outflow deficit

Netflix has been reporting staggering sales figures as a result of growth in subscription numbers. However, the company investment in original content titles and other operational costs have been way too high, leaving it to grapple with operation cash deficit.  Between 2014 and 2018, the company Cash available for Re-Investment grew by 30% annually to a tune of $10.2 billion. However, the Cash spent on Investment went up by 36% annually during the same period (Donefeld, 2016).

The company has been forced to borrow to meet its operation cost leaving the investors with low dividends pay-outs. The free cash flow that drives up the price of company stock is insignificant. Hence, a strategy to increase free cash flow and reduce borrowing is necessary if the company is to remain valuable in the stock market. The procedure of achieving free cash flow will be undertaken through revenue growth and cost management. Revenue growth is the main focus of the other strategies discussed here, and under this point, I will describe how cost management will be used in the approach.

Given that Cash available for Re-Investment (CAR) is growing at 30%, and Cash Spent on Investments (CSI) is rising by 36%,  the company can consider a cost- reduction plan where it CSI growth by 8% every year. This implies that over the following 20 years, the CSI component will have fallen to below the CAR component (Liozu, 2019). The gradual cost reduction will be possible and practical as it is only a matter of the company exploring areas where it can tighten expenditure as the revenue grows steadily at 30%. Management forecasts must be incorporated to monitor the strategy. The company can lower its cost of production and overheads by outsourcing some services from other countries like India, where the cost of production is considerably low compared to the U.S.

© Research and Development

Technical innovation has been a competitive advantage for Netflix, as evident in its shift from the traditional DVD mail delivery service to live and Video on Demand streaming service provision.

With the entry of the new market rivals, the company has to intensify research and development in all aspects of its service delivery chain for value addition. For example, investment in user friendly video interface will facilitate the discovery of new and better streaming interfaces (Gershon, 2019). The interface is likely to enhance revenue growth as subscribers prefer the network to others. New content acquisition processes are more likely to lower the cost of production. Innovative market research will enable the company to understand the different market audiences and therefore create content that is relevant to them. Investment in content that has already been produced and already in the market will lead to waste as consumers will not respond to it.

(d) More Focus on International Market

The streaming market in the U.S is riddled with high competition and rapidly changing consumer demands as compared to other regions globally. A focus to expand to South and Central America, Pacific Asia, and Africa is likely to yield more revenues, especially because these regions have a large population of young people with a high affinity for new technology and streaming content. Geographical and Cultural segmentation will be necessary to determine the kind of material to take in a market. The company can consider franchising arrangements with competent companies abroad to reduce the cost of production.

1. e) Content Value Addition

Unique and superior content over the rival’s material will give Netflix a competitive edge. The originality of content is highly likely to contribute to uniqueness and brand exclusivity. It will distinguish the company brand from its rivals. Shows like Narcos confirm this, Stranger things, among others, catapulted the company to higher levels for their originality. The content should be personalized and with a memory of what the consumer has already watched. Consumers can be given 35 free trial days when they subscribe for the first time. The number of days is more than the conventional 30 and is likely to be a selling point for the streaming content.

1. f) Aggressive Marketing of the Brand and Content.

Market coverage will mostly be dependent on consumer recognition of the company and appreciation of the content. This will entail finding where the consumers are and connecting with them through aggressive campaigns to promote the brand (Liozu, 2019). Currently, the company is enjoying a significant viewership in India as a result of Radhika Apte. Radhika Apte is a Bollywood actress who features in many Netflix shows. She became a sensation and was able to run a successful Netflix campaign.

1. g) Streaming Pricing

Market forces are the conventional determinant of product and service prices based on consumer perception of value. Investment in different level streaming content will be essential to enhance affordability. For example, investing in a different definition of videos so that high definition streams can earn better than the low description (Gerson, 2019).  Streaming charges can also be differentiated based on time of the day to encourage 24hours viewership with night streaming charged at lower rates. Differentiation can also be found in geographic regions where regions with a lower cost of operation can be given lower pricing.

Conclusion

The primary focus of the strategies above is to improve the market performance of the Netflix company in the wake of heightening streaming service competition. The outcome of the strategy can be checked against Free Cash Flow growth, increase in customer base and retention, and market dominance.