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International market fuel Netflix subscriber growth

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International market fuel Netflix subscriber growth

Table of Contents

1     Introduction. 3

2     Discussion. 3

2.1      Demand, Supply, and elasticity of demand. 5

2.1.1      Consumer Behavior or consumer preference effects on demand. 6

2.1.2      Seasonal Impact on demand. 6

2.1.3      Privacy of information affects demand and revenues. 7

2.1.4      Third-party contracts. 7

2.1.5      Price elasticity. 7

2.2      Fuel for growth in the subscribers. 9

3      Conclusion. 11

4      References. 11

 

 

 

1           Introduction

Netflix is providing stream entertainment services to its 158 million paid memberships, and they are streaming in 190 countries of the world, making the company a leading digital content provider. The content it provides to a wide range of subscribers is; documentaries, TV series, and featured films in many languages. Members have full access to enjoy the services through the internet anytime, anywhere in the world; they can pause, resume, and stop according to their feasibility (Netflix Inc., 2019a). The international subscribers are growing rapidly since the near past, and this has not only gave an opportunity for Netflix to grow but also has shown the consumer behavior and demand for Netflix. This report will cover the aspects that have made Netflix boost its business in the international market.

2           Discussion

The increase in growth is due to the demand and supply effect, although Netflix can entrain a large number of customers by providing better series and economies of scale. The international subscribers’ growth in the near past can be observed from below specified graph.

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Figure 1 Netflix Subscribers Growth

Source: (Richter, 2019)

As per the graph above, the subscribers’ number from the international market has boosted since 2012, the international subscribers’ numbers have reached to 97.7 million. In contrast, the local US subscribers are only 60.6 million, with a total subscriber of 158.3 million at the end of the third quarter of 2019. If it is considered the position in 2012, then the local customers’ number was above 18 million, whereas the international customers’ number was below 2 million. Looking at this trend of Netflix to increase the number of subscribers since 2012, competitors like; Apple+, Disney+, and HBO Max are set to enter the streaming market to get a large number of subscribers. It is time for Netflix to get the customer loyalties to protect itself from the extent of competition coming from the competitors in the near future (Richter, 2019).

2.1         Demand, supply, and elasticity of demand

The demand for Netflix is increasing in the international market because, in the streaming market, it has only one competitor i.e., Amazon Prime. The number of subscribers in the international market has grown by 6.3 million, and it is a high achievement by Netflix. To maintain the customers’ loyalty, Netflix is providing the original content to give the best experience to its users. The demand is high; it is due to the reasonable price for a subscription, and the users can activate the same account at multiple devices i.e., smart TV, mobile phone, tablet pc, Ipad, and many more devices gives the easy access over the Netflix content. Netflix is facing competition from the price and the content. To grow in the market and retain existing customers, Netflix is going towards innovation through the quality of content, and it is also charging low prices to give the best service at a reasonable price. It is expected that shortly, the competition will be high from many new entrants because 27% of Netflix customers are interested in Disney+, 13% are interested in HBO+, 11% are interested in Peacock, and 12% are interested in SVODs. It is an indication that the competition will result in a demand to decline shortly, and this will ask for some new innovative ideas to retain the customers and compete with the market and retain the leading position in the market (Schomer, 2019).

The increase in high demand for last years, Netflix is facing issues to meet the demand of a wide range of customers; here come the supply limitations of Netflix. The demand is increasing, whereas Netflix is facing difficulties in providing the supply to a large number of subscribers. Netflix cannot resist the demand, and this is why it is pending much on the content and the facilities to a large number of subscribers. The price used to affect the demand and supply, because the price is reasonable, this is why it may not be feasible for Netflix to give a wide range of products and series to the subscribers around the world. The supply is being also affected by the cost structure; if the cost is high, then it is hard for Netflix to meet the growing demand by increasing the capacity. The ultimate effect will be increased in price that will affect the demand and supply, the supply will need to be reduced; as a result, the increase in demand will ask to increase the prices at a level that Netflix can meet the demand (Netflix Inc., 2018).

2.1.1        Consumer Behavior or consumer preference effects on demand

The level of service it provides also affects the demand because the quality of content will affect the demand and the preferences of the customers. Netflix is providing a high level of videos to maintain the demand or increase demand; in this race, it is providing new series and other videos to make the customer entertained and feel value for money service. Most of its customers are about high-quality video preferences because the DVDs, YouTube, and many other sources are providing low-quality content to the wide range of customers with minimum or no cost. If the quality declines, then the customers can easily move to other sources with low or no cost (Netflix Inc., 2018).

2.1.2        Seasonal Impact on demand

It is observed that Netflix membership numbers vary according to the season; many customers buy subscriptions during the period they are willing to increase their online content. It is observed that the numbers of subscriptions are high during the first quarter and the fourth quarter of the year as compared with the second and third quarters of the year. The number of the subscription is high during October to march i.e., 6 months, and it is low during the result of the 6 months. This is a clear indication that the subscribers prefer streaming content from October to March (Netflix Inc., 2019b). As per the information is given above, the supply has to be increased from October to March; as a result, the teams must have to work during this period. It is the best time to attract the other customers by offering the new web series and high-quality material in bulk, the new customer can also be attracted. In order to meet this seasonal demand, another measure is required to meet the supply, in that case, the team must work actively, or it must hire some contractual staff for the specified period of 6 months to meet the demand.

2.1.3        The privacy of information affects demand and revenues.

Netflix is providing the streaming content to its subscribers; the customers have access to view it from any device; in that case, the information is being shared with others, and the numbers of users are high on one subscription. This is result in loss of revenue and the demand, at this place with one id more than one potential subscribers enjoy the content, this will affect the revenues and the demand at the same time (Netflix Inc., 2018). The costs are high despite the fact Netflix is giving high-quality content at a reasonable price.

2.1.4        Third-party contracts

Netflix is under yearly contracts with many their party contractors, and it has put the fixed cost on it to provide the streaming content.  The supply is limited with her point with third parties, if the supply from the third party is not enough to attract the customers, then the fewer videos and entertainment will highly affect the demand, and the customer may ask for a discount due to less number of entertainment videos.

2.1.5        Price elasticity

It is a common phenomenon that the demand is being affected due to the change in the price as per the history the prices of Netflix subscriptions have increased as well. The price history is given below.

Figure 2 Netflix Historical Subscription Price

Source: (Molla, 2019)

The prices have increased in the recent past, and the demand has also increased, this indicates that the Netflix demand is inelastic. Since 2013 the demand has increased with a high number, and the price for the premium subscription has also increased from $8 to $16. The price of the standard has also increased from $8 to $12, whereas the basic service price has increased by $1 from $8 to $9 during the period.  The increase in price, along with the increase in demand, makes it demand inelastic.

Although this is just for theoretical context, the demand for products in mostly elastic, and the increase in demand can be through many other reasons those will be discussed below.

The demand for Netflix services has increased in the international market due to the increase in the quality of service, quality, and quantity of content. The increase in awareness in the international market is also in the recent past, previously Netflix had focused on US and neighbour market. Now that it has increased its efficiency in the international market, as a result, the number of international subscribers is more than the local subscribers. Although the prices have increased, the price seems reasonable as compared with other stream services with high quality; this is why it is attractive. Netflix is enjoying the monopoly position because the level of service it provides is only possible by giants like Apple+, HBO, and others, as discussed above. Now the entry of these competitors may create a price war, content competition, and as a result, Netflix will bear extra competition. Then the price elasticity will be positive due to the entry of other competitors into the market, and then Netflix will not be able to charge high prices to a wide range of customers.

2.2         Fuel for growth in the subscribers

In this current era, the Smartphone and internet number of users have increased since 2012, and the internet stream has achieved a boom. In this era, internet users are in billions, and technology has made changes in the preferences of the consumers. If we come with cost versus benefit analysis of the customers, then Netflix is more attractive than expected in many regions of the world. The high-quality videos give customers to watch theatre equality videos at home rather than paying $5-$25 for movie tickets, and there are no time limitations to watch the movie. The movie can be enjoyed by the whole family on the weekend or any day feasible for them, unlimited access with limited cost i.e., $16 per month for the premium account. The people are now looking for their time feasibility, and cable serials are telecasted on their time, Netflix has given them the opportunity to watch the serials and web series according to their time feasibility, this has made cable-less attractive that use to cost around $8 per month on average in the world. The price of $16 for the premium account is still feasible for the customers around the globe because the cost savings are high due to Netflix (OFCOM, 2018). The proof is that according to the Netflix, there are only 35% mobile sign-ups with the mobile phone, and 70% of the viewings are at Television, this is an indication that the TV is replacing the cables, and mobile or laptop access is an added advantage to the customers (Scomer, 2019).

The other booster for the growth is the level of content it is providing to the customers. Netflix has third party contracts to provide quality content to its customers, and it is giving a range of videos and movies that are demanded by the customers. The customer is getting high-quality videos with a variety of choices; the choice is not bounded with one boundary; it has contracts with international content providers as well. It is easy for international customers to access their local and international content at Netflix. The contract with a variety of content providers makes it more attractive, and its web series are also appreciated around the world, it provides the content in many languages to make the customers of each region satisfied with its services. This strategy is making Netflix shine and grows in the international market with a high remarkable growth rate (Budzinski and Lindstadt, 2018).

The people are more useful to have on-demand videos and movies to enjoy in the metro, taxi, or any other place. This gives them access to have content at any place, no matter they are away from home. People use to enjoy the travel through on-demand videos and at many other places; this is why the demand has asked for on-demand videos. This new trend has increased in recent years, and in recent years the on-demand videos have also increased; this is why the boost is being followed by the growth in Netflix (Schwittmann et al., 2018). In this current world, 5G will hit the world in the near future, and 4G speed has made streaming easy and uninterrupted, which has increased the entertainment for the customers. In this world, people need entertainment at the time when they need it, this has asked to increase the on-demand videos, and Netflix is the one that gives access to a wide range of videos and movies. The people have less time for entertainment, and the timings do not match with the TV serials and other materials at that time. The use of Netflix has given them access to videos, serials, and movies that have increased the demand for Netflix in the recent past.

3           Conclusion

As per the above discussion, Netflix is enjoying an increase in international subscriptions since 2012, and have given it the leading position. But in the near future, the competition will be hard due to the entry of other on-demand giant companies; this is why Netflix needs to have innovative measures to retain its customers and target potential customers to join Netflix. There is still capacity in the international market; this is why Netflix required to take innovative steps to attract potential customers.

 

4           References

Netflix Inc. (2019a). About Netflix. [Accessed on 06 Dec 2019]. Available at <https://media.netflix.com/en/about-netflix>

Felix Richter. (2019). International Markets Fuel Netflix Subscriber Growth. [Accessed on 06 Dec 2019]. Available at <https://www.statista.com/chart/10311/netflix-subscriptions-usa-international/>

Audrey Schomer. (2019). Most of Netflix’s future growth will come from international markets. Accessed on 06 Dec 2019]. Available at <https://www.businessinsider.com/netflix-growth-comes-from-international-markets-2019-10>

Netflix Inc. (2018).Form 10-K Netflix Inc. for the year ended 2017.  [Accessed on 06 Dec 2019]. Available at <https://www.sec.gov/Archives/edgar/data/1065280/000106528018000069/q4nflx201710k.htm>

Netflix Inc. (2019b).Form 10-K Netflix Inc. for the year ended 2018[Accessed on 06 Dec 2019]. Available at <http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_NFLX_2018.pdf>

Rani Molla. (2019). the history of Netflix’s price increases in a single chart. [Accessed on 06 Dec 2019]. Available at <https://www.vox.com/2019/1/16/18185174/netflix-price-increase-subscription-chart-original-content-streaming>

OFCOM. (2019). Media Nations: UK 2018 [Accessed on 06 Dec 2019]. Available at <https://www.ofcom.org.uk/__data/assets/pdf_file/0014/116006/media-nations-2018-uk.pdf>

Budzinski, O., and Lindstädt, N. (2018). The new media economics of video-on-demand markets: Lessons for competition policy. Ilmenau Economics Discussion Papers, 24(116). [Accessed on 06 Dec 2019]. Available at <https://www.econstor.eu/bitstream/10419/184728/1/1039859488.pdf>

Schwittmann, L., Boelmann, C., Matkovic, V., Wander, M., and Weis, T. (2017). Identifying tv channels & on-demand videos using ambient light sensors. Pervasive and Mobile Computing, 38, pp.363-380. [Accessed on 06 Dec 2019]. Available at <https://www.researchgate.net/profile/Matthaeus_Wander/publication/311699144_Identifying_TV_Channels_On-Demand_Videos_using_Ambient_Light_Sensors/links/5c8ff287a6fdcc38175ca8dc/Identifying-TV-Channels-On-Demand-Videos-using-Ambient-Light-Sensors.pdf>

 

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