Murray+Strategy+Analysis

To: Proximity Video Team From: Gregg Murray Subject: Netflix Strategy Analysis Date: January 10, 2010

Netflix is the leader in direct mail DVD rental and has begun its positioning in the streaming video market. Generation Y users already have learned how Netflix operates and the company will continue to grow as the company progresses into the market of streaming video. If Netflix can continue to stay ahead of technology, they have the ability to continue to lead in this market.

Netflix is the benchmark company for the online movie rental services industry. The company was founded in 1997 by Marc Randolph and Reed Hastings (current CEO). Netflix had an initial public offering on May 29, 2002, where they sold 55,000 shares at $15 dollars each. The companies headquarters is located in Los Gatos, California.
 * Company Profile **

Netflix has two primary sources for revenues: · Online DVD and Blu-ray rental. · Watch Instantly – a streaming format that connects with various hardware devices like Xbox, Roku boxes and Samsung DVD players.

At the end of 2008, Netflix had 9.3 million subscribers and counting. These subscribers accounted for $1.3 billion in revenues which was an increase from $1.2 billion in 2007.

The video industry as a whole is very volatile.Hollywood is the major driving factor in the movie industry. Netflix has to gain permission from the movie studios in order to distribute movies for rental purposes which can cause concerns in the future because some studios may not want to partner with Netflix. For example, a recent agreement between Netflix and Warner Brothers allows Netflix to distribute copies of movies 28 days after they appear on shelves in retail stores (Reuters 2010). This gives safety to the studios because the majority of sales occur in the first 4 weeks (BusinessWire 2010). However this hurts Netflix because other rental distributors have access to the newest movie.
 * Netflix’s Competitive Landscape **

Blockbuster is the largest of these competitors with one third the number of online subscribers as Netflix (Wikipedia 2010). New entrants like RedBox are gaining steam as they increased to 22,000 units by the end of 2009. RedBox is owned by CoinStar, Inc and is currently the fifth largest DVD rental company by revenue in the United States (Wikipedia 2010). Cable companies are also impacting Netflix’s revenues by offering On-Demand video services.

Netflix’s strategy is two-fold. Mail-in DVD rentals comprise the main part of their business. The growing aspect of Netflix's business is the increase of streaming movies directly into consumer’s homes.
 * Netflix’s Strategy **

Netflix’s main source of revenue comes from the direct mail DVD rental strategy that they have used to cut into the market. This plan offers consumers many rental options that include low rates and no late fees (Wikipedia 2010). The mail-in DVD rental has allowed Netflix time to grow its limited online offerings.

The new phase of Netflix’s strategy will allow consumers to stream movies directly into their homes. Netflix has started partnerships with companies like Roku, TiVo, Samsung, LP and the Xbox (Microsoft) (Engadget 2010). These companies have produced devices that will stream Netflix movies directly, and will allow consumers to view a library of media. Netflix offers a few options for subscribers and as the technology improves the library that Netflix offers will increase. This new technology is attracting interests from Apple and cable companies attempting to get into the market.

Netflix is a part of Generation Y. It has a hold on the DVD market with its rental through the mail strategy. This portion of the strategy allows older members of Generation Y to continue viewing movies the “old-fashioned” way. Generation Y has young families that will be accustomed to ordering DVD’s in a more traditional setting, while Netflix perfects its streaming strategy. DVDs by mail provides these consumers a low cost option with many flexible plans to entertain themselves.
 * Netflix and Generation Y **

In order to stay with competition, Netflix needs to maximize its direct streaming technology. Netflix needs to work first on improving the selection of products that they provide to their streaming customers. Netflix currently offers a much smaller online library compared to its movies by mail. Direct streaming does not have enough popular content; Netflix only offers its older and independent films for direct viewing (Apple Insider 2010). Netflix must improve its online library in order to fend of new entrants.

Cable television is Netflix's other competitor when it comes to streaming video. Comcast Cable is working hard to provide consumers with an endless supply of media options. Comcast currently has a free website where consumers can view 3,000 hours of television (New York Times 2008). Comcast is also working on improving download speeds for television in order to compete with those companies that offer movie downloads over the internet. Netflix needs to be sure they can compete with cable companies as well as more traditional competitors.

I believe that Netflix will be able to gain control over the video market place. The biggest challenge that Netflix faces is its ability to get the newest material before the competition. Generation Y consumers desire quick response to their demands. Netflix needs to solve this problem by negotiating for more titles in a more timely manner and ensure that all popular content is available at the same time as their competitors. If Netflix fails to keep up with the streaming technology it will surely struggle to keep up with the competition.

Wikipedia. (2010, January 7). Netflix. Retrieve January 8, 2010 from [].
 * References **

Warner Bros. Entertainment and Netflix Announce New Agreements Covering Availability of DVDs, Blu-ray and Streaming Content. (2010, January 6). BusinessWire. Retrieved January 6, 2010 from [].

Wikipedia. (2010, January 9). Redbox. Retrieved January 9, 2010 from [].

Engadget. (2009). //Engadget’s Netflix HD Streaming Shootout//. Retrieved January 7, 2010 from [].

Zeilder, S. (2010, January 6). //Netflix Strikes New Deal for Warner Bros. Titles//. Retrieved January 7, 2010 from [].

Arango, T. (2008, January 8). Comcast Plans to Offer Huge Menu of Films. //New York Times.// Retrieved on January 8, 2010 from [].

McLean, P. (2009, August 3). Netflix streaming video headed to iPhone, Wii. //AppleInsider.// Retrieved January 8, 2010 from [].