The leading provider of ondemand Internet streaming media and flat rate DVDbymail in the United States WHY STUDY Examine how technology helps firms craft and reinforce a competitive advantage ID: 158321
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Slide1
By Austyn Shepherd
The leading provider of on-demand Internet streaming media and flat rate DVD-by-mail in the United StatesSlide2
WHY STUDY?
Examine how technology helps firms craft and reinforce a competitive advantage.Look at how new technology continues to shift this competitive landscape.Slide3
ABOUT
Netflix is an online subscription-based movie and television show rental service that offers media to subscribers via Internet streaming and US mail (PURE PLAY)Largest service provider with 26 million subscribers worldwideApproximately 2 million DVD’s are shipped daily88%
of subscribers watch streaming contentSlide4
ABOUT
Offer more than 100,000 movie titlesDependent on their growing number of subscriptions in order to offer their unique selectionMaintains strong ties with various entertainment video providers and major studiosProprietary technologySlide5
HISTORY
Founded in 1997 by Marc Randolph and Reed HastingsWorked together at Pure Software CompanyHastings thought of idea after being charged $40 late fee for a movie rentalSlide6
RANDOLPH
Received his BA from Hamilton CollegeVP of Corporate Marketing at Pure Software President & CEO of Netflix until 2002Served as Director of the Board for Netflix until 2004Currently an advisor on several high-tech boardsSlide7
HASTINGS
Received his BA from Bowdoin College in 1983Received an MSCS in Artificial Intelligence from Stanford in 1988Founded Pure Software which he sold in 1997Current CEO of NetflixServes on the board of Microsoft and FacebookSlide8
TIMELINE
1998 - Netflix website launched Original version was a pay-per-rent model on a fee per use basis with late fees1999 - Introduced monthly subscriptions2000 – Launched personalized movie recommendation system
2002 – Netflix went public
2007 – Introduces streaming option
2010 – Launches internationally (Canada, UK, Ireland & Latin America)Slide9
CONCEPTSlide10
FEATURES
No Due DatesNo Late FeesNo Cancellation FeesNo Per Title Rental FeesFree DVD Shipping & HandlingBoth Receiving & ReturningSlide11
SERVICES
*Blue-ray Discs available for an additional $2 per monthSlide12
LOYALTY
Consistently maintains 84% of existing customers – low churn rateRanks at the top of customer satisfaction surveys - 94% recommend to othersAchieved through:Huge Selection (over 100,000 titles)
Ease
of
use & convenience of site
Fast Delivery (97% receive in one day)Fair priceSlide13
GROWTHSlide14
LONG TAIL
The “Tail” is the demand for less popular items that are not offered by tradition shops75% of DVD titles shipped are from back-catalog titles, not new releasesLong tail works because it is economically viable to offer a huge selectionSlide15
LONG TAIL
Internet allows for large selection inventory efficiencies that other firms cannot matchWhen geographic constraints go away, untapped markets open upForeign films - BollywoodIndependent films - BableDocumentaries – Daughters of Danang (PBS)
*Able to distribute movies that no other retailer would carrySlide16
BUSINESS MODEL
Netflix obtains DVD for a low initial cost Studios earn a percentage of the subscription revenue for every disk sent outThe content of movies available for streaming are licensed directly from studios and distributors for a specific amount of timeSlide17
TECHNOLOGY
Netflix merchandising technology creates a powerful method for catalog browsing Proprietary technology manages processing and distribution of DVD’s from shipping centersProprietary recommendation software offers a quick and personalized way of finding content based on viewing preferencesWebsite provides information on each title such as factual data, trailers and editorial informationSlide18
IMPROVEMENTS
October 2006, Netflix offered $1,000,000 prize to whoever could devise a system that was 10% more accurate than the company’s current system, Cinematch, for recommending moviesNetflix was able to incorporate many innovations offered by contest participantsTeam won contest in 2009Saved company money, improved software and generated significant publicity for Netflix globallySlide19
CINEMATCHSlide20
OPERATIONS
58 ultrahigh-tech distribution centersLocated strategically next to USPSDVD’s are hand inspected for cracks/scratchesDVD’s are fed into custom-built sorters Sends email confirmation of returned DVDMoves desired DVD’s directly to outbound pile to be sent directly to other subscriber
Turnaround DVD in 8 hoursSlide21
OPERATIONSSlide22
EMPLOYEES
Known in the industry to pay higher salaries to attract and keep the best talentEmployees choose how much of compensation they want in cash vs. stockAverage performers are let go as they only want to keep the top performersEveryone tries to improve the firm processesSlide23
VALUE CHAINSlide24
IPO
Netflix went public on May 29, 2002 selling 5.5 million shares at $15 per shareData disclosures required by public companies attached larger rivals to the firms market Slide25
COMPETITION
Movie Rental StoresBlockbuster, Wal-MartLocal Rental StoresMove Rental KiosksRed Box, BlockbusterDownloadable MoviesApple, YouTube, Hulu
“
On Demand
” NetworksSlide26
COMPETITIONSlide27
BLOCKBUSTER
Forced to drop late fees – Lost $400 million
Launched Blockbuster Total Access
Couldn’t sustain subscription rates Slide28
GOING DIGITAL
Issues with the change in technology from “atoms to bits”Streaming model is limited by: Access to contentMethods to get content to televisionsIncrease cost of licensing rates
Windowing – content is available to a given distribution channel for a specified window Slide29
WINDOWINGSlide30
STREAMINGSlide31
SWATSlide32
QUESTIONS