Netflix Market Analysis - Research Paper Example

Netflix’s core business is the delivery of TV shows and movies via the Internet. Within the United States, the company also offers DVD-by-mail service however it views this service as a fading differentiator to their streaming success (“Netflix, Inc. Form 10-K”, 2012). The purpose of this paper is to conduct a market analysis of Netflix’s environment. The market analysis is guided by the company’s description of its competitors as (1) “over-the-top” Internet movie and TV content providers such as YouTube and iTunes; (2) multichannel video programming distributors, direct broadcast satellite providers and telecommunication providers; (3) entertainment video retailers; and (4) DVD rental outlets and kiosk services (“Netflix, Inc. Form 10-K”, 2012). According to Aaker (2007), market analysis can be viewed at through seven dimensions: market size, market growth rate, market profitability, industry cost structure, distribution channels, market trends and key success factors.

According to Datamonitor (2012), the global movies and entertainment market generated total revenues of $109.4 billion in 2009 which represented a 0.2% growth rate from 2005-2009. This industry spans multiple sectors and is highly dynamic. The major growth driver for this industry is the rapid evolution of platforms and delivery methods epitomized by smartphones, tablets and the social Web. 

According to Porter (2008), industry profitability is largely determined by the five forces. Profitability in this industry is low because all industry forces are high.

Analyzing an organization’s value chain makes it easier to identify where value is added and/or where the organization could develop a cost advantage. Online businesses such as Netflix benefit from the Internet’s ability to lower the costs in much of their value chain, especially in inbound and outbound logistics, operations and distribution channel.  However, to develop competitive advantage online companies must invest, innovate and grow competencies in technology, infrastructure and service. Also, these companies have to operate on low-cost models given the market’s expectation for lower product prices.

Plunkett Research (2012) identified increased consumer demand for more control over what they read, listen to or watch as the premier factor that will drive changes in this market shortly.  According to them, issues of control will be manifested through portability, pricing and delayed viewing or listening. Portability refers to the ability to view and share content across multiple platforms such as iPads, Android smartphones, digital TV and desktop operating systems. Pricing for content is important given the prevalence of free-of-charge offers from competitors such as Hulu.com and YouTube. Delayed viewing refers to the ability of consumers to watch or listen to programs as per their schedule and not as per the broadcaster’s schedule.

From the discussion above, it is evident that for Netflix to achieve its marketing objectives the following factors are critical: technological progress and customer service.  Netflix must continuously invest in developing or acquiring technology that will enable it to add value to its customers to create switching costs in its highly competitive environment. For an organization that has minimal physical contact with consumers, the company’s image is heavily reliant on its customer service as a key differentiator.

Netflix’s strengths include a strong brand name; a huge selection of movies; and a huge market share (23 million streaming members globally). The company’s weaknesses are: its software is easy to replicate and it has a large investment in the declining DVD logistics and distribution business. Opportunities for the company include the growth of the middle class in the developing world which presents new markets and continuous development of new technologies that integrate TVs to the Internet and the development of tablets and smartphones that have bigger and better screens. The major threats to Netflix are posed by: the rapid technology change which means the company must continually invest in these technologies even where their lifespan is limited and the attractiveness of the movie streaming business to companies with vast resources such as Apple, Verizon, AT&T and Google.