You are expected to develop a coherent essay that presents solutions as well as arguments and evidence (e.g., data) to support your solutions. Supporting data and evidence should only come from the case rather than external sources (e.g., newspapers). Exhibits in the case are usually good sources of supporting evidence. Internet browsing is not allowed! Feel free to use bullet points to organize your arguments and logic. Your essay should be no more than 2 single-spaced pages with the 11-point font(exhibits and tables do not count towards your page limit.1. Make sure to answer all of the discussion questions below.2. ONLY USE CASE, do not find external resources.3. Make sure to use data to support Every answer, calculate data from the case is preferred. Do not just explain it in words.4. Develop your framework and arguments, Do not just repeat what in the case.5. Do not write on your common sense, stick with the case. Questions1. How did Netflix use innovation in its business strategy to gain and sustain a competitive advantage? What role did strategy, technology, and business models play? Explain in detail.2. Why is competition in internet streaming services heat-ing up? Who is jumping into the fray, and why? How do these companies differ? What do you expect the result of this intensifying competition will be going forward?3. International expansion appears to be a major growth opportunity for Netflix. Elaborate on the challenges Netflix faces going beyond the U.S. market. a. Do you think it is a good idea to rapidly expand to almost 200 countries in one fell swoop, or should Netflix follow a more gradual international expansion?b. What are some of the challenges Netflix is likely to encounter internationally? What can Netflix do to address these? Explain.With its lower-cost structure, the networks saw Hulu’s stream-
ing model as a way to test new series ideas with minimal finan-
cial risk. In response, Netflix announced a move to create and
stream original content online.
But not on the cheap. Since content streaming was
Netflix’s main business, it devoted significant resources to
produce high-quality content. In 2013, Netflix released the
political drama House of Cards, followed, among others, by the
comedy-drama Orange Is the New Black and The Crown, a bio-
graphical series about Queen Elizabeth II. Netflix followed up
with the crime drama Ozark, the science fiction horror show
Stranger Things, the teen drama 13 Reasons Why, and other
original content. Some of these shows proved tremendous hits
and have received many Emmys and Golden Globes.
In 2019, Netflix spent as much as $15 billion on content,
more than any other Hollywood studio and media company.
Although this sum is enormous, it is not surprising given that
the cost of creating high-quality original content has skyrock-
eted. For instance, the hugely successful HBO series Game of
Thrones cost some $ 10 million per one-hour content.?
Part II of this ChapterCase appears in Section 7.6.
CHAPTERCASE 7
Part II
future growth must come from overseas. To achieve growth in
non-U.S. markets, Netflix needs to develop original content
targeted for different languages and cultures, such as its
original film Roma (2018), a Spanish-language drama set in
Mexico City that follows the life of a live-in housekeeper
working for a middle-class family. Its director, Alfonso
Cuarón, won an Academy Award for best director.90
Questions
ALTHOUGH HUGELY SUCCESSFUL, by 2019 Netflix found
itself facing several forces threatening to undermine its ability
to sustain a competitive advantage going forward. First, com-
petition in the streaming media business had intensified sig.
nificantly. Media content companies such as Disney, AT&T
(owner of Time Warner, including HBO), and Comcast
(owner of NBCUniversal) were forwardly integrating stream-
ing, offering their own proprietary services. In the future,
these media companies will be less inclined to continue li-
censing their content to Netflix.
Tech giants such as Apple and Amazon have increasingly
pushed into the content business as well, offering their own
fully integrated and proprietary solutions. But developing
original content is pricey. HBO, for instance, spent about
$ 10 million per one-hour of content for its hit series Game of
Thrones. Amazon spends more than $5 billion per year on
acquiring content, while Apple TV has also spent billions to
build up its library of content. All these companies compete
for recurring revenues from tens of millions subscribers in
the United States and potentially hundreds of millions over-
seas. Yet, since each of these proprietary services costs some-
where around $8 to $15 a month, the total number of services
a subscriber will pay for is limited. Netflix, for example, now
charges $13 per month for its basic streaming service, up
from just $8 per month when it was introduced in 2007
(which equates to a more than 60 percent price increase).
Second, and perhaps even more challenging, Netflix’s
growth in its domestic market has been declining. This
implies that the U.S. market is maturing, and that Netflix’s
1. How did Netflix use innovation in its business strategy
to gain and sustain a competitive advantage? What role
did strategy, technology, and business models play? Ex-
plain in detail.
2. Why is competition in internet streaming services heat-
ing up? Who is jumping into the fray, and why? How do
these companies differ? What do you expect the result
of this intensifying competition will be going forward?
3. International expansion appears to be a major growth
opportunity for Netflix. Elaborate on the challenges
Netflix faces going beyond the U.S. market.
a. Do you think it is a good idea to rapidly expand
to almost 200 countries in one fell swoop, or
should Netflix follow a more gradual international
expansion?
b.
What are some of the challenges Netflix is likely to
encounter internationally? What can Netflix do to
address these? Explain.
Netflix: Disrupting the
TV Industry
FO
Netflix would become the online presence for the huge na-
tional chain. The dot-com bubble had just burst, and Block-
buster turned Netflix down cold. Netflix, however, survived
the dot-com bust, and by 2002, the company was profitable
and went public. Blockbuster began online rentals in 2004,
IN 2019, NETFLIX had 150 million subscribers worldwide,
but by this time, Netflix already had a subscriber base of
with 61 million in the United States. The revenues for the
almost 4 million and a strong brand identity. Blockbuster
media services provider were $16 billion, and its market
lost 75 percent of its market value between 2003 and 2005.
cap was more than $150 billion. Over the past decade,
From there it went from bad to worse. In 2010, the once
Netflix’s stock appreciated by some 2,600 percent, while the
mighty Blockbuster
tech-heavy NASDAQ-100
filed for bankruptcy.
index grew by “only” 310
Netflix was at the
percent in the same
forefront of the current
period. By continuing to
wave of disruption in
innovate on many dimen-
the TV industry as it be-
sions, Netflix was able to
gan streaming content
not only disrupt the TV
over the internet in
industry, but also gain
2007. And it stayed at
and sustain a competitive
the forefront. It adjusted
advantage. How did Netf-
quickly to the new op-
lix get here?
tions consumers had to
Netflix started as an
receive content, making
obscure online shop rent-
streaming available on a
ing DVDs delivered
The drama 13 Reasons Why is one of Netflix’s most popular original
large number of devices
through U.S. mail. After content creations. The series deals with the serious issue of teen sui-
including mobile
being annoyed at having
cide committed in a culture of gossip, innuendo, bullying, and sexual
assault prevalent in U.S. high schools as well as lack of family and social phones, tablets, game
to pay more than $40 in
support for at-risk persons.
consoles, and new de-
late fees for a Blockbuster Netflix/The Hollywood Archive/PictureLux/Alamy Stock Photo
vices dedicated to inter-
video, Reed Hastings
net content streaming such as Roku, Kindle TV, Google
started Netflix in 1997 to offer online rentals of DVDs. At
Chromecast, and smart TVs. At the same time, more and
the time, the commercial internet was in its infancy;
more Americans were signing up for high-speed broadband
Amazon had just made its IPO in the same year. Streaming
internet connections, making streaming content a much
content may have been only a distant dream in the era of
more enjoyable experience. The market for internet-
dial-up internet, but Netflix got a head start by turning from
connected, large, high-definition flat-screen TVs also began
the dwindling VHS format and dealing with DVDs, which
to take off. Within just two years, Netflix subscriptions
were cheaper and easier to mail. An improved business
(then priced at $7.99 per month) jumped to 12 million.
model helped too. In 1999 Netflix rolled out a monthly sub-
Old-line media executives continued to dismiss Netflix
scription model, with unlimited rentals for a single monthly
as a threat. In 2010, Time Warner CEO Jeff Bewkes
rate and no late fees!). Rental DVDs were sent in distinctive
snubbed Netflix, saying, “It’s a little bit like, is the Albanian
red envelopes, with preprinted return envelopes. New rent-
army going to take over the world? I don’t think so.”! Even
als would not be sent until the current rental was returned.
Reed Hastings called what Netflix provided “rerun TV.”
Even with an innovative business model, Netflix got off
But behind their bravado, the broadcast networks were wak-
to a slow start. By 2000, it had only about 300,000 sub-
ing up to the Netflix threat. They stopped distributing con-
scribers and was losing money. Hastings approached Block-
tent to Netflix and instead made it available through Hulu,
buster, at the time the largest brick-and-mortar video rental
an online streaming service jointly owned by Disney and
chain with almost 8,000 stores in the United States. He
NBCUniversal. In 2011, Hulu began offering original con-
proposed selling Blockbuster 49 percent of Netflix and re-
tent that was not available on broadcast or cable television.
branding it as Blockbuster.com. Basically the idea was that
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