Netflix’s competitive transnational strategy focuses on leveraging experience and learning to maintain a dynamic scale economy.The more paying subscribers Netflix can attract, the more profitable it can be.The company’s operating margin has been expanding because Netflix pays for its largest expense, content, on a fixed-cost basis. This means every piece of content that Netflix either licenses or self-produces cost the company a fixed dollar amount regardless of how many people watch it. As a result, each additional subscriber comes with very little extra cost and is profitable.The subscriber growth has given Netflix a large amount of additional revenue every year and it reinvests into its own content Netflix’s business model is like cable in that members pay a monthly fee to access a bundle of channels, but Netflix has a significantly lower price point (Arif Karim, CFA).Netflix’s 20 years of experience has helped it build an efficient streaming infrastructure that is at a larger scale compared to its many competitors who launched their streaming services in the last few years.
Due to its history as an internet service over two decades, Netflix has invested in building and improving the key skills necessary to scale as a direct global entertainment platform.To navigate its complex and highly distributed environment Netflix shifted its IT infrastructure to Amazon’s cloud data centers (Opheliac, 2015).Netflix distributed ownership among its engineering teams (Opheliac, 2015).Each team is responsible for coding, testing, and resolving any issues on their own work, which incentivizes more vigorous applications being built.Additionally, Netflix developed tools to monitor and provide relevant insight and visualizations to detect, diagnose, and resolve problems (Opheliac, 2015).Netflix has been able to automate and centralize these tools to more effectively monitor, identify, and resolve issues across markets in a timely manner.Through this Netflix can enhance and create a unified user experience.
Netflix continued to enhance the convenience of its service by leveraging consumer preferences to meet national differences.Netflix is always looking for ways to make Netflix more enjoyable and accessible to subscribers.Netflix re-encoded its entire catalog to produce the best possible picture using a small amount of bandwidth through Dynamic Optimizer (Blog, 2018).Netflix unleashed a down-load-and go feature in 130 new countries for users to watch shows offline. Previously the service was optimized for connected TVs, but this is a drawback in areas that prefer watching videos on phones.In India where mobile phones are preferred Netflix learned through R&D how to adapt content for mobile users (Liao, 2019). When expanding Netflix launched a test mobile-only subscription plan (Liao, 2019). Different options were tested in select countries to see what consumers preferred (Liao, 2019).By upgrading Netflix’s mobile capabilities, its posies the country for growth in new markets.
Netflix possesses the ability to manage risks and exploit the opportunities that arise from the diversity of the global environment. For example, when entering India Netflix introduced its cheapest plan to attract more Indian users in an environment filled with a lot of competition (Saha, 2019). Netflix’s India plan demonstrates its ability to develop strategies and structures in flexible terms to be strong in different international environments.
Netflix invests in its external relationships across markets to offer direct access. Netflix inked deals with major pay-tv companies Sky Italia, Canal +, KKDI in Japan, and Izzie in Mexico (Gruenwedel, 2019). Netflix uses these relationships to deliver content directly to locals. When Vodafone launched its TV service in Ireland in 2016, Netflix paid for a dedicated Netflix button to be featured on Vodafone remote controls (Gruenwedel, 2019). This increased Netflix’s visibility in Ireland compared to well-known streaming services like Amazon Prime, Now TV, and Apple TV. Vodaphone operates in 26 countries and has partner networks in over 50 additional, Netflix can leverage external client relationships of the two companies in each market to tap into Vodafone’s corporate clients in Ireland and extend that relationship to other markets where clients have a presence.
Netflix invested in its personalization technology for over a decade so that licensed content can be leveraged across as many subscribers who are interested in viewing at zero marginal cost-driving engagement (Plummer, 2017). Netflix’s recommendation system has gone beyond bringing content that matches the subscriber’s preferences. The globally shared algorithm works by gathering data from the subscriber’s viewing habits and comparing it to thousands of hyper-specific micro-genres and taste groups (Plummer, 2017). These differ depending on the country, language, and cultural context.To create shared moments between users and improve efficiency, Netflix introduced the Top 10 feature compiled of popular TV shows and movies for each country based on data collection. Netflix experimented with the Top 10 feature in Mexico and the UK before rolling it out to the United States (Prosser & Keegan Prosser Keegan Prosser is a writer, 2020).Recently Netflix announced a Top 50 feature it is currently testing to see if showing an expanded list of titles around the globe will be helpful (Prosser & Keegan Prosser Keegan Prosser is a writer, 2020).Netflix is upgrading its assets to fit its growing scale. Using Mexico’s and the UK’s experience with the top 10 features Netflix leverages this technique across markets.
Netflix not only uses technology to reinvent how content is watched but how it is made. Netflix has been working on apps designed to simplify key parts of the production process, including crew management, shoot scheduling, and budgeting (Roettgers, 2018). Move was tested on select Netflix productions before being shared across more productions (Roettgers, 2018).The app has the flexibility to work with multiple products across the world (Roettgers, 2018).The app allows Netflix productions to source local crews outside the United States at a lower cost (20 et al., 2020). Netflix uses local crews to their advantage to learn more about the culture and country and how to adapt their service to appeal to consumers. A worldwide app provides Netflix with an organizational infrastructure for the production techniques to apply across markets.
The main asset that Netflix is delivering to customers is content.In-house content capabilities allowed Netflix to competitively source content internally or externally using its revenue generated from subscribers that gave it the option to go directly to producers or negotiate better deals with third parties.By producing its own content, it gained scalability benefits of retaining global rights and leveraging its proprietary viewer data to select and price content its subscriber finds attractive. It contrasts from traditional media’s reliance on appealing to broad audiences for ratings because they lack detailed audience viewing.The ability to create more targeted, higher-value content at a low cost for smaller audiences and let them have control is access increases engagement and growth over traditional media. The more assets it can provide the more subscribers it reaches which generates revenue and future content budget.Among entertainment companies, Netflix has the fastest-growing content budget, demonstrating the compounding power of its subscriber scale on revenue and content spending budget.
Netflix uses national differences to offer the right product that increases revenue.Netflix has become a platform for not only trending content, but content conceived in native languages and shot domestically with local cast and crews. Netflix has invested in studios and developed production networks in its overseas territories (20 et al., 2020).Netflix has created more foreign-language content to build up a substantial library of international programming. For instance, the company has 20 seasons of original Spanish TV (Collins, 2018).In 2018 there were 20 premieres of foreign-language series (Collins, 2018). By creating locally relevant television they are offering something that appeals to the customer and that they would be willing to pay for.Netflix aims to reflect a viewer’s culture, language, and lived experience in their catalog to draw in new subscribers with interesting programs and locally known cast and crew.
Netflix is tasked with defending worldwide dominance as new competition from Apple TV, Disney, HBO Max, and Peaco*ck enter.Domestically, Netflix users have been plateauing while competitors offer smaller ranges of content at lower prices that are attracting consumers.Netflix can build on its existing capabilities rather than replicate a competitor advantage. Compared to Netflix the other services are tasked with challenging the global leader. Disney launched in Europe while Hulu, HBOMax, and Peaco*ck are still domestic (Alexander, 2020).Netflix is an aggressive spender compared to other streaming services that could be a liability if subscriber growth stays still (Katz, 2019). Netflix can stay at the forefront of the rapidly changing industry as it delivers a compelling value proposition to consumers and is constantly innovating and developing new methods to sustain, enhance, and improve the user experience.
As a competitor to Hollywood giants, Netflix has been able to mount a challenge.Its multinational flexibility and agility allow it to surpass movie studios that rely on traditional business models.In a studio profit summary, Netflix came in second to Disney.Compared to studios Netflix allocated $6 billion in spending in 2017 to make offers studios can afford because they estimate and buy out future revenue streams in advance, so there are no royalties or backend deals (Thompson, 2018).Netflix’s TV deals differ from networks because they are ownership deals where the production company signs away most future revenue opportunities to the company for a larger cut upfront. Netflix deducts fees for distributing the show and puts this cost into the contract as an “imputed license” (Mishcastillo, 2018). This puts production companies at break-even where they do not lose as much as they would if they had a normal TV network licensing deal. Netflix does guarantee additional bonuses for production companies if the show makes it to a second season and beyond, but it’s not as lucrative as if the production company retained the rights (Mishcastillo, 2018). For example, a producer on a hit Netflix show may earn an additional $2 million if the show gets to the second season, while it could have earned as much as $20 million if that same show were licensed to a network, one industry executive estimated (Mishcastillo, 2018). It is a great deal for creators because they get much closer to the full budget to make their shows and Netflix is hands-off.
Netflix pursues a different business model. Netflix’s business is selling different movies to individual customers- in bundles. By bundling, Netflix can practice a different type of price discrimination from the movie studios. They don’t have to figure out how much a consumer values any individual movie on the service because the bundle does it for them (Michael D. Smith and Rahul Telang, 2019). For traditional firms, messing up the theatrical release window puts the entire business at risk. Netflix doesn’t need a successful theatrical release to generate profit.If Netflix can predict the average value a subscriber is willing to pay for all movies in a bundle, then it can set a price just slightly below that value and extract the maximum value possible from its audience (Michael D. Smith and Rahul Telang, 2019).Bundling allows artists to tell stories on Netflix that would have never been made at the studio, for example, Roma, because of fear of losing profit.Netflix’s model has come up with effective and profitable ways of succeeding in the entertainment industry through using new technologies to create engaging stories and using the right business models to bring these stories to subscribers across markets.
