4. Netflix is a publicly traded company in the DVD, game, and video rental industry. It was originally founded in 1997
as a DVD-by-rental company in California by Reed Hastings and Marc Randolph. In 2007, Netflix began its
streaming subscription service in the United States and quickly expanded globally in 2010. Now headquartered
in Los Gatos, California, Netflix is a multi-million dollar company that allows subscribers the ability to stream
and rent their favorite tv shows, movies, and original content with the click of a button.
Media consumption is heading further and further away from the traditional means of watching TV and movies.
The trend is moving toward using Subscription Video on Demand services (SVoD) because of a high demand for
less advertisements, a cheaper option than cable television, and access to shows when and where consumers
want to watch them (1). Millennials make up over a fifth of TV viewers in the U.S. and they are among those most
influential in this change in demand (2). Netflix has become highly successful in the entertainment industry
because it is able to meet the demands that consumers desire in their TV and movie provider. Netflix has
monumentally transformed the TV entertainment market by giving viewers access to entire series of shows
without commercials and allowing people to ‘binge-watch’ TV. The market for entertainment streaming has cable
television providers worried that they will lose their market share and people will abandon live TV-watching all
together.
There is a moderate threat of new entrants. The video streaming industry is growing as more people are using
and subscribing to these services. Netflix currently has a significant market share (36% of households in the
U.S. subscribe to Netflix) (3), making it difficult for new entrants to gain a larger piece of the market. While
competitors could enter the market with a similar model as Netflix and compete at a similar cost, Netflix’s
wealth of information concerning customer preferences and behaviors act as a substantial barrier to entry.

5. It’s possible that companies could develop algorithms comparable to what Netflix has created but these
companies would be subject to the passing of time and be liable for the capital necessary to create these vast
data centers. Another significant barrier to entry is concerned with licensing. In order to stream content,
companies need to obtain the rights to use third party intellectual property which could pose a serious
complication, especially in a market that is already occupied by home-entertainment giants who have sourced a
great deal of licensing agreements.
Netflix customers have low buyer power. With many buyers and few sellers operating within this industry,
consumers hold little power when it comes to dictating price. Since the customers within this industry can
neither purchase in large volume nor negotiate their monthly subscription cost, they do not hold very much
power over companies within the industry.
Threats of substitutes are moderately high. Alternative streaming services continue to provide benefits that
Netflix does not. For instance the ability to watch shows hours after they’ve aired is available on several other
platforms while Netflix members fail to gain access until months after the initial air date. In addition to paid-for
streaming services there are a number of online sites that provide viewers with a large library of shows and
movies that Netflix does not have the rights to. Many of these sites also offer content at either a lower price
point or are completely free.
Supplier power is moderately high due to the fact that Netflix, in order to deliver a quality product to the
consumer, is reliant upon the successful licensing of supplier content. Additionally, many suppliers are beginning
to form their own streaming services, cutting in on Netflix’s ability to obtain sought after content. Supplier
power may increasingly diminish though as streaming services continue to produce popular original content,
thereby invalidating the need for purely third-party content providers.

6. The video streaming market is a highly competitive one. Switching costs are relatively low because, while Netflix
customers risk losing their curated streaming library or perhaps access to well-liked original content, similar
content for similar prices are available through an array of other companies. Additionally, with more and more
video streaming services appearing, it becomes increasingly difficult for these services to differentiate
themselves from their competitors. Netflix has been able to differentiate themselves on some level, despite the
fact that these features don’t constitute a substantial switching cost, through the creation of special algorithms
that aid in content suggestions for their users as well as through their very successful line of original content.
Netflix has yet to offer its subscribers complements in the physical sense, but one complement Netflix does offer
that many other streaming sites do not, is their own algorithm. Netflix’s algorithm provides viewers suggestions
based on their previously watched shows/movies, their watching and site navigation habits, and a number of
other factors. In addition to this, Netflix has been able to dominate the original content movement. Using their
collection of data to create shows and movies based on the preferences and habits of their subscribers.
Competitive intensity is the most important force within this industry. It is the force that has the biggest impact
on any given company. With many different players in the game, it can be hard for consumers to differentiate one
service from another. Consumers care about price, quality of shows and the width and depth of content provided
to them; This means they are less brand loyal and can easily switch to another streaming service. With this in
mind, companies have to be able to differentiate themselves from other competitors in order to hold on to their
current customers as well as attract new ones. This industry is not particularly attractive considering the
barriers involved in obtaining the proper licenses and securing those contracts necessary to provide consumers
with the best streamable content.

7. Amazon Prime Instant Video:
Amazon Prime Instant Video is a Subscription Video-on-Demand (SVoD) service that provides its almost 15
million subscribers with a catalog of television shows, movies, and original content. (4). Subscribers have the
option of two price plans; the $8.99 a month plan includes the streaming of television shows, movies, and
original content, whereas the $10.99 a month plan includes all the streaming benefits and the added bonuses of
free 2-day shipping on Amazon orders, music streaming, and other services (5).
Hulu Plus:
Hulu Plus, a Subscription Video-on-Demand (SVoD) service, is mutually owned by 21st Century Fox, the Walt
Disney Company, and Comcast-NBCUniversal. As of 2015, Hulu Plus has nearly 12 million subscribers (6).
Subscribers pay a subscription fee of $7.99 per month to access Hulu’s recently aired television content, in
addition to a library of past movies, TV episodes, and Hulu’s very own original content. Unlike Netflix, Hulu does
insert commercial ads during the streaming of their content and unfortunately does not allow for the skipping of
these ads, unless consumers choose to upgrade to Hulu’s ad-free version for $11.99 a month (7).
HBO GO:
HBO GO is a free exclusive Subscription Video-on-Demand (SVoD) service for those who are currently subscribed
to HBO’s cable service.
HBO NOW:
In partnership with Apple, HBO NOW is a paid for Subscription Video-on-Demand (SVoD) service, which differs
from HBO’s HBO GO, which is a free SVoD service exclusive to current HBO cable customers (8). As of 2016, HBO
NOW has about 800,000 subscribers who currently pay a monthly rate of $15 to access HBO television shows,
movies, and more (9).

8. Comcast:
Comcast is the largest cable company in the U.S. based on number of subscribers. Comcast offers Internet, home
phone services, and cable to over 22 million people (10).
DirecTV:
DirecTV is a close competitor behind Comcast with just over 20 million subscribers.
Redbox:
Redbox provides consumers with a cheap way to rent movies at kiosks located in grocery stores across the
country. They offer new movies that have just come out of theatres, cost $1.00 and can be returned at any
Redbox location. Redbox also has a mobile app that allows people to reserve and pick up their DVDs.
DVDs:
There are a large number of DVD distributors that sell movies in traditional DVD form that people can view using
Xbox, DVD players, computers, and laptops. In addition, many DVDs are now coming with a code that can be
entered into a computer to obtain a free digital version of the movie.
YouTube:
YouTube is a website that allows people to view movies, listen to music, upload videos, and watch video clips for
free with Internet access. While there are many limitations to what is made available on YouTube, the ease of use
coupled with the fact that the content is ad-supported, and therefore free to the consumer, means that it is an
alluring option within the industry.

9. Movie theaters (Regal and AMC):
Movie theaters compete against Netflix when consumers are choosing what type of entertainment they want.
Although movie theaters offer a very different cinematic experience than Netflix does, both are competing for
consumers’ dollars that are going towards entertainment in the movie and television sector.
Currently Hulu is offering a promotional subscription price of $5.99 for new subscribers for the first year (11).
Hulu is also allowing customers to try out their subscription for free for one week. This gives potential
customers an incentive for subscribing. Not only do they get it at a discounted price if they “act now,” but they
also get to keep that price for a full year. Hulu also markets itself as the service that provides access to all your
favorite shows after they air, differentiating themselves from services like Netflix that only air shows seasons at
a time.
In the past, Hulu has held similar promotions to entice potential subscribers to try out Hulu. Hulu also used
similar marketing messages that communicate that they are the service that will not only allow their customers
to watch past episodes, but will also allow them to watch new episodes of their favorite television shows.
Currently Amazon allows customers to start a 30 day free trial of Amazon Instant Video. Amazon also provides
much more content for free if you are a Prime member (12). Therefore, a lot of their strategy is to get people to
become Prime members. Prime members have to pay a monthly subscription fee of $10.99 per month. However,
Amazon presents potential customers with all the benefits that come along with the monthly payments,
including Instant video.

10. Amazon’s past strategies are similar to what they are now. They want their customers to subscribe to Prime, so
Amazon has offered exclusive content that is also commercial free for its Prime members. Amazon also has
positioned itself as the true one stop shop, especially for Prime members. Setting them apart from the
competition, is the fact that they not only offer content, but free shipping and other great deals all wrapped up
into one subscription cost.
Redbox’s current strategy is to be in convenient locations for their customers. While they are out shopping, they
can also bring home a DVD. Redbox has also recently made the transition into providing video games. Since
Redbox is losing its share because of other streaming sites, they have started to reposition as a convenient
place to rent games (13).
In the past Redbox’s main marketing strategy was to be the more affordable convenient place to rent movies.
This was a time when Redbox was competing with chains like Blockbuster. Redbox was able to leverage their
kiosks competitively against physical stores that incurred the typical costs associated with brick and mortar
locations.

11. Hulu is not a publicly traded company. Therefore, all of the following numbers come from previous research and
not financial records. It is speculated that Hulu retains about $1.5 billion. Hulu gains sales by gaining more
subscribers, as well as selling ad slots to companies (14).
At the end of 2015 Hulu Plus held 10% of the subscriptions from all United States households (15). As opposed
to Netflix, who had 44% of all subscriptions. Meaning that Hulu holds a very small place in the market. However,
this also means that they are still a top competitor.
From 2014 until the fourth quarter of 2015 Hulu had increased its percentage of subscriptions from 6% to 10%
(16). With the popularity of online streaming increasing so is the market share for Hulu Plus.
Hulu will continue to make profits as long as people continue to subscribe to their service. Since Hulu also keeps
a large percentage, roughly 50-70% (17), from selling their ad slots it is also essential that they remain relevant
so companies will want to advertise through Hulu.
As mentioned below in profitability, Amazon is a fairly successful business. From 2014 to 2015 domestic sales
went from $50,834 (million) to $63,708 (million) (18). Amazon Instant Video is also increasing it’s share of the
market place (see Amazon market share). Meaning that every year more people are subscribing and spending
their money on Amazon streaming services.

12. Currently, Amazon is second place to Netflix when it comes to online streaming. They hold 19% of all household
subscriptions (19). While they still may not beat out Netflix, Amazon is a top contender in online video
streaming.
From 2014 until the fourth quarter of 2015 Amazon went from holding 13% to 19% of subscriptions. While this is
not exactly the market share, it does demonstrate how much of the market they are reaching. Again, making
Amazon one the top competitors to Netflix in terms of online streaming.
Amazon can be profitable with Amazon Instant Video. Especially, if people continue to pay every month and
subscribe to their Prime services. As a whole, Amazon is quit profitable, increasing their net income from year to
year (20).
According to IBISWorld Redbox sales have decreased each year from 2013 until now. People are making the shift
towards online streaming. Meaning that they tend not to buy or rent physical copies anymore. In 2013 Redbox
had revenue of $1684.2 (billion) and so far in 2016 they have seen revenue of $1145.2 (billion) (21).
Redbox competes in the same industry as Netflix. According to IBISWorld Redbox is the top market shareholder
at 33.8% (22). Meaning, that Redbox may not have a majority of the market share, but they do have more in
comparison to Netflix at 21.5%.

13. Due to the rise in online streaming services, Redbox has remained relatively stagnant in their market share
growth. Customers are using physical DVDs less and less, meaning that the demand for services like Redbox is
declining (23).
Since 2013, Redbox has seen a loss in revenue, and in turn a loss in profits. Redbox relies on rental and late fees
to produce revenue, however with the decline in demand the dollar amounts they receive from every customer
also declines (24).
Being able to deliver episodes of current TV shows the day after they’re aired is one of Hulu’s greatest strengths.
While Netflix won’t receive current television shows until a season, in its entirety, is released, Hulu is able to
provide viewers with content that allows cord cutters to still stay up to date on their favorite shows. These
viewers who want to view content where they want and when they want, no longer need to feel tied to their cable
package with the advent of next-day viewing on Hulu.
Another strength of Hulu’s, that can also be counted as a weakness (detailed below), is their basic package price
of $7.99. Along with Netflix, this is one of the lowest-priced offerings in the industry. This means that for those
consumers who are satisfied with the level and diversity of content offered on Hulu’s website, subscribing to the
basic package can save a couple bucks a month, which will add up over time.

14. While Hulu does offer a subscription option that is two dollars less than the price of Netflix’s standard streaming
selection, there are some caveats. For starters, $7.99 a month will only buy a subscriber around 1,650 shows and
2,500 movies, on top of which there will be ads. If a subscriber were looking for the ad-free experience (the basic
package can be bought for $7.99 from Netflix) they would need to pay $11.99 a month, or $48 more a year.
Simply put, there is greater bang for your buck with streaming services other than Hulu.
Relatedly, another weakness of Hulu’s is the simple lack of titles available, especially when compared to Netflix.
While Hulu provides a total of around 4,150 titles, Netflix has over 100,000 movies and TV shows available
through their streaming and mail-order services (25) .
While Hulu is able to attract a large number of viewers with their next-day content, many broadcast channel
websites also offer the ability to view shows the day after they air. For example, Fox opens up all of its content,
next-day, to those who have a cable subscription. Eight days later, content is made available to the masses. Just
like people share subscriptions to Netflix and Hulu, so too do people share access to these websites, expanding
the reach that these isolated broadcast network sites have. Several of these sites also typically offer a one-hour
free trial period in which viewers can squeeze in at least one episode of a show. While this is meant as a one-time
offer to incentivize viewers to subscribe to a TV provider, the sites often are unable to track who has been
offered what and many audience members are able to continually watch a show with their “one-time only” free
access pass. Hulu, in this sense, has not differentiated itself enough from the competition and is susceptible to
being overtaken by the offerings of broadcast network sites.

15. As a streaming service that is essentially advertised as just one item on a list of benefits for Prime members,
Amazon Prime Instant Video provides a good deal for all that it offers. When users subscribe to be a Prime
member, they gain access to the lauded free 2-day shipping that Amazon has become known for. In addition,
users gain access to kindle books for rent as well as access to Instant Video, from which they can stream movies
and TV shows, all for the price of $10.99 a month. So while the content may not be as popular as the content
provided on Netflix, there are several other types of benefits provided by Amazon that users may place greater
value upon.
Another strength of Amazon Prime Instant Video is their ability to encourage subscription among their existing
customers. While Netflix and other streaming services constantly need to seek out and convert new customers,
Amazon Prime Instant Video is able to use Amazon’s existing customer base as an audience of potential
consumers of Amazon’s streaming services.
The graphic on the right, produced by LifeHacker, compares the number of shows from the IMDB “Top 250
Shows” list, a list determined by user rating, that various streaming providers carry (26) . Regardless of the
number of options available for viewing, the quality of the content is critical to financial success. What
LifeHacker found was that Netflix provided 122 of these ‘top 250’, while Amazon Prime Instant Video only
provided 58. Despite the fact that Netflix has over 50,000 more titles than Amazon, it would appear that the
quality of the content is also higher according to this qualitative measurement.

16. Another weakness of Amazon Prime Instant Video is the layout and organizational structure of their offering is
confusing to customers (27) . Amazon offers both Amazon Prime Instant Video as well as Amazon Instant Video to
consumers, something many people don’t know the difference between. This lack of knowledge on the part of the
consumer could be attributed to a lack of advertising or, potentially, a result of over-diversification.
Redbox is known for providing consumers with the most up-to-date selection of films. Unlike many other
streaming services, which don’t gain the rights to new releases until months after their DVD debut, Redbox has
them within weeks, if not days. Redbox has the market almost completely cornered in regards to new release
DVDs.
Another strength of Redbox is their pricing structure. With ‘pay-as-you-go’ being their only available payment
option, this allows consumers to only put out money when there is a title they are particularly interested in
renting. This type of pricing structure may be appealing to those who feel they wouldn’t get their money’s worth
out of a monthly subscription.
Finally, Redbox has an advantage over other DVD-rental services because they provide consumers with
immediate access to the physical DVDs they rent out. Other companies in this industry who have a SBU that
encompasses renting actual DVD discs, typically mail the product out to the viewer which can take anywhere
from two to four days for the product to reach the renter. While picking a movie up from Redbox is not faster
than streaming it online, those DVDs that are only available through mail order will be second best to Redbox’s
ability to deliver said DVDs immediately.

17. As a provider of purely physical forms of movies, Redbox cannot compete with the other streaming services
discussed in this paper. Therefore, in relation to competing within this industry, they are at a disadvantage.
Redbox is unable to supply instantaneous entertainment, instead requiring users to seek out a kiosk in order to
rent a film. The fact that they are not a streaming service is related to another weakness of theirs, the Redbox
kiosks.
The kiosk system that Redbox employs creates two serious limitations. First, the physical size of the kiosk
means that the number of DVDs it can hold is finite. While streaming services do not hold an infinite number of
titles, they are able to hold many more than a Redbox kiosk. Additionally, Redbox’s capacity is largely taken up
by copies of the titles it is renting, further limiting the total number of different titles available. Having physical
kiosks from which consumers can rent movies also means that customers need to travel to reach their renting
destination. This acts as a further barrier to usage of the product as these kiosks may often be at inconvenient
or hard to reach locations. Unlike streaming, where titles are available instantly, and unlike rentals through the
mail, where films are delivered to the door, dvd-dispensing kiosks requires more effort be exerted by the
consumer.
Finally, Redbox, as a purveyor of physical DVD rentals, has to deal with theft and loss of product in a more
tangible sense than streaming services do. While streaming services have their own host of issues in relation to
pirating, Redbox has to handle the actual physical replacement of any product that is stolen. This manifests in an
array of policies that regulate rental and usage of Redbox DVDs. Time limits, late fees, and the risk that a disk
received from the kiosk may be damaged and unwatchable are all issues that consumers need to be mindful of
when renting from Redbox.

18. Hulu will most likely continue to utilize its presence on various social media platforms to target their consumers.
Through these platforms Hulu can continue to connect with consumers and keep a close watch on what is
relevant and interesting in the entertainment world.
Most advertising for Amazon Prime Instant Video bundles the streaming service together with the other benefits
provided by being a Prime member. As seen in the image below (28) , the instant video perks are just ⅓ of the
overall selling point. This method will most likely continue to be used unless Amazon decides to isolate the Prime
streaming service or further amend the existing Amazon Instant Video service.

19. Redbox has found a lot of success through their current strategy, wherein they utilize SMS/email marketing and
promotional tactics such as coupons and free movie discount codes (29) . As the company continues into the
coming years, it is likely they will continue to utilize these past strategies as well as further engage with their
consumers over their mobile application. Pushing further forward with the mobile application could potentially
help increase usage of Redbox kiosks as the process becomes more streamlined.
Hulu’s ability to post episodes the day after they air, as opposed to Netflix where current episodes can’t be seen
until the following season, provides a not inconsiderable amount of competitive advantage for Hulu. If Netflix is
unable to obtain rights to release episodes the day after they air, and Hulu simultaneously continues to add
greater quality content, it’s possible that Hulu could begin eating up some of Netflix’s market share.
Additionally, Hulu, as one of the few streaming services that still has ads, will be cashing in as digital advertising
spend is expected to surpass television by 2017 (30) . More ad revenue for Hulu could mean more money to
spend on producing original content or purchasing highly sought after movie licenses. This has the potential to
put them ahead of the game.
Amazon Prime Instant Video Impact is strongly linked to the rest of the Amazon universe and with 55% of all
online shoppers beginning their search at Amazon.com (31) , this means there is a wide platform from which
Amazon can advertise their streaming and rental service. As Amazon continues to grow bigger, Netflix may be
facing a competitive retail giant turned home entertainment guru.

20. Availability of movies that other streaming services don’t have access to for months, puts Redbox ahead of the
competition in this regard. If Redbox can leverage new releases with greater ease of use, they could potentially
make renting DVDs from other companies obsolete. And, if Redbox is successful in their second attempt at
offering a streaming service (32) , they could become staunch rivals of Netflix in the coming years.
Netflix competes in an oligopolistic market due to the high start-up costs and the fact that there are a relatively
small number of direct competitors. TV and movie streaming via Netflix offers benefits that are similar to those
offered by their main competitors HBO Go, HBO Now, Amazon Prime Instant Video, and Hulu Plus. Their pricing
strategies are similar in order to remain competitive with each other and each company makes up a significant
share of the market for digital streaming.
Netflix appears to be equally popular amongst females (45%) and males (45%), but seems to differ amongst
age groups. According to Global Web Index, 65% of 18-24 year olds have used Netflix in the last month, followed
by 25-34 year olds at 58%, and at the end of the spectrum 55-64 year olds at 24%. Despite the unpopularity
amongst the older age groups, Netflix continues to dominate in the United States with almost twice as many
American users as subscribers. The reason for the continued growth in Netflix users is partly due to the
shareability of the service; about 35% of subscribers are the only users on the account, whereas 30% actually
share their account with another person (33).

21. Of all Netflix subscribers 31% are between the ages of 18 and 24. People aged 18-34 are also 30%-38% more
likely to subscribe/use Netflix than any other age group. University Reporter also suggests of all the people who
use Netflix, majority of them either attend college or have graduated college. Meaning that the biggest target
market comes from young adults who are or have received a college education.
People who average $75,000 as an annual income or above are 30-40% more likely to subscribe to Netflix. This
could be due to the large number of subscribers who share their account information with family and friends.
Since there is a large number of college students who use Netflix, it is possible they are still using their account
information tied to their parents or relatives back home.
This report also suggests that approximately 43% of all Netflix subscribers in the past year also pay for cable
television services. People, who subscribe to Adult Swim and ABC family, are also more likely to use Netflix.
Some subscribers may use Netflix as a supplement to their cable services, as a way to “binge watch” their
favorite shows. The target customer may also be more inclined to watch television purely for entertainment
value (34).
According to University Reporter, there are nearly 239,298,000 million SVoD users in the United States, as of
2015 (35). Netflix being the leader in streaming video-on-demand service in the United States with a household
penetration of 44%, followed by Amazon Prime Instant Video at 19% and Hulu Plus at 10% (36). Netflix is
undisputedly the market leader and is projected to continue its reign with close to 124 million subscribers by
2020, contributing $18 billion to the projected $26.7 billion SVoD industry for that year (37).

22. When moving through the purchase decision process, buyers are evaluating a number of factors. They are
comparing price, network availability, device compatibility, title selection, and personalization options. When
selecting a plan through Netflix, buyer go through the typical five stages of the consumer decision process. First
they recognize a need for the service. This recognition could arise from a need or want to view content on a
schedule that works for them or it could be related to the want to test out a new show without purchasing a
whole season on DVD. Next, consumers will conduct an information search to discover what is available that
could meet their needs. They may do this by tuning into advertisements, searching for various streaming
services online, musing over their own past experiences in relation to these types of services or talking to friends
to find out what they recommend. The third step involves taking all of the information collected in stage two and
evaluating the alternatives. This may manifest in the consumer comparing the pricing plans of Netflix vs. Hulu.
They may look at the difference in the number of available titles or the type of original content created by these
companies or they may also subscribe to the various free-month trials made available by these organizations.
After figuring out which service best suits their needs, consumers will commit to a purchase decision. The final
step in this process is the consumer’s post-purchase behavior. After purchasing a plan with say, Netflix, the
consumer can reevaluate their needs, see if the selected service is providing the benefit they sought out in the
first place and make a decision based on those evaluations.
Netflix places the power in the hands of its subscribers, allowing them dictate how, where, and for how long they
want to view their favorite shows and movies. Netflix’s customers opt out of other streaming services for the
added benefits of being able to binge watch entire seasons of television shows versus watching shows on an
episode- per- week basis like many other SVoD providers currently allow. But where Netflix changes the industry
is with its sophisticated algorithm, that provides each individual viewer with their own lineup of suggested
shows and movies based on what they’ve previously watched and their viewing behavior. In addition to this,
Netflix allows for the ability to create lists of shows and movies for a later viewing time. All of these added
benefits are included in all three of Netflix’s different subscription plans that range from $7.99 (Basic) to $11.99
(Premium).

23. When customers subscribe to Netflix they expect fast streaming and high quality resolution images across all of
their viewing platforms. Not only is the quality in which they view these shows important, but the shows
themselves are of great value to subscribers. Netflix users expect the ability to catch up on their favorite shows
and movies at their own pace and on their own schedule. These customers are also seeking the ability to test-
drive new content without committing to a more concrete purchase. Netflix consumers expect a wide range and a
large quantity of titles and are banking on the promise that Netflix will continue to add new and exciting content
throughout the life of the user’s subscription.
The legality surrounding the transference of intellectual property plays a huge role in the success or failure of
Netflix. In order to provide consumers with content they will be interested in, and be willing to pay monthly for,
Netflix has to secure the necessary licenses and copyrights. As such, any changes in copyright law that would
affect how intellectual property is sold and shared will directly affect Netflix’s ability to supply a quality product
to the consumer (38).
Another legality issue surrounds piracy laws. As a provider of coveted content that exists on a platform that can
easily be made vulnerable by hackers, Netflix has to be aware of any and all instances of their content being
pirated. If this is not closely monitored and maintained, the product could lose value and there would be no
consumers left who would be willing to pay a monthly subscription for something they can find for free
elsewhere online.
Finally, net-neutrality is a hotly contested regulatory issue that Netflix has been actively involved in. Just this
past June, an appeals court in Washington D.C. upheld a set of net-neutrality rules that were passed by the FCC
back in 2015 (39). What this means for Netflix is that internet service providers will no longer be able to regulate
or restrict access to any content on the internet, thereby eliminating the ability for say, Comcast, to slow down
the connection speeds on Netflix’s website. Netflix, as of 2015, accounts for 36.5% of U.S. internet traffic (40).
With the advent of net neutrality rules, Netflix may be able to continue to increase traffic and, by extension,
subscribers.

24. Netflix is considered by many to be a luxury item; something that is not necessary to survival and therefore falls
into the discretionary spending category. As such, Netflix is dependent on the wealth of the consumers. If times
are hard economically for users of Netflix’s service, there exists the very real potential that subscriptions will be
canceled and Netflix will lose massive profit.
Also of importance to Netflix within the economic arena are exchange rates. As a global company, monitoring the
fluctuations in the value of other country’s currency is imperative if Netflix wishes to maintain and improve upon
their current earnings.
In the world of television, there has developed a customer type called the Cord Cutter. The Cord Cutter is
someone who is discontinuing cable television service, in favor of cordless alternatives such as Netflix, Hulu and
Amazon Prime Instant Video. This is a change that is largely in favor of Netflix, as they can provide that which
Cord Cutters are seeking - access to content when and where they want to view it.
While the rapidly changing world of technology is exciting for many, there is a growing fear centered around
privacy concerns. Netflix, well known for its extensive collection of consumer data, will need to tread lightly and
strike just the right balance between observation that leads to helpful suggestions and excessive scrutiny which
could result in backlash.

25. It goes without saying that the environment has become a key policy issue on which people continuously argue
about. In regards to Netflix, it will be important for them to stay apprised of upcoming policies and regulations
that will affect the logistics of their operation. While Netflix was able to greatly reduce their carbon footprint
through the creation of their streaming service and the gradual move away from the mail-order portion of their
business, there have now arisen new challenges to tackle in regards to energy usage. The data centers that pull
and deliver information from and to the consumer are using a lot of energy and that is in addition to all the
energy being utilized by the viewers themselves, whether they’re watching on their phones, their laptops, their
TVs or their tablets (41). In order to remain in the good graces of the public and maintain a position of ethicality,
Netflix may need to plan how to best utilize renewable energy in their current and future operations.
Netflix operates within a technology-heavy industry. As a result, Netflix will need to keep apace with the rapid
growth of the industry if they are to remain relevant. As new video-viewing devices become available, Netflix will
be facing the challenge of adapting their content and platform to suit the new device’s needs.

26. Netflix’s founding in 1997 by Marc Randolph and Reed Hastings was initially sparked by the frustrating
experience Hastings had when he was forced to pay over $40 in late fees when returning the movie Apollo 13 well
past its due date. This was shortly after the two former employees of Pure Software decided that they wanted to
start a company that sold items over the Internet, but didn’t necessarily know exactly what they would be selling
(42).
At the time of their launch in 1998, Netflix had a small team of 30 employees, as of 2015 their team has increased
to 3,700 employees. Many attribute this to their efforts in creating a company culture much different than what
many are used to. In 2009 Sheryl Sandberg and Reed Hastings created the “Netflix Culture Deck”, a 124-slide
presentation that demonstrates the key factors to their company’s continued success.
One of which is the hiring of what they call “fully formed adults,” seeking out individuals who are not only highly
skilled, but who also demonstrate the 9 behaviors and skills Netflix values: judgment, communication, impact,
curiosity, innovation, courage, passion, honesty, and selflessness. Unlike many companies, Netflix wants their
employees to rely on logic and common sense instead of on formal policies. This not only allows employees a
sense of freedom but an added sense of responsibility, often resulting in better outcomes and lower costs (43).

27. Netflix was introduced in 1997 as a DVD rent-by- mail service that provided customers the opportunity to select
an unlimited amount of DVDs to rent for a fee of $19.95 a month. Netflix successfully attracted more than
26,000,000 subscribers to its library of over 100,000 DVD titles within its first few years. Then in 2007 Netflix
introduced us to the world of online streaming, allowing users to view movies and TV shows online instantly,
ultimately changing the world viewed home entertainment (44).
As of 2011 Netflix has offered its DVD rent-by-mail and online streaming service as two completely different
products, no combination of the two currently exists. Netflix has even gone as far as creating two separate sites
for each of these services; www.dvd.netflix.com for its rent-by-mail service and www.netflix.com for its online
streaming service.

29. The main goal for Netflix is to give their customers an exceptional, personalized experience every time they sign
in. Netflix has built a great business model that allows them to do just that. They can and are achieving this goal
by providing their customers with a unique set of offerings not currently available with other streaming services.
By evaluating what movies and televisions shows receive the highest ratings from the viewer, Netflix is able to
craft an individually curated selection of titles. Netflix also works to secure licensing to popular and relevant
content in order to supply the user with the most up to date selections of films. Finally, Netflix has created
original content to further meet the needs and desires of the consumer.
With Netflix gaining market share in the United States, they also have set a goal to expand into China. This
decision comes from their gaining popularity in their original content in other international markets (45). They
also want to make sure that with these expansions, they remain respectful of cultural differences and tastes
(46). With Netflix aspiring to be global, they have created original content from non-English countries. Making
the transition to the international market a little smoother.
One of the reasons Netflix has been so successful is because they have been very specific in identifying what
constitutes their unique and exceptional product offering. As they write, Netflix is about “the freedom of on-
demand and the fun of binge viewing. We are about the flexibility of any screen at any time. We are about a
personal experience that finds for each person the most pleasing titles from around the world (47).” Netflix’s
commitment to the quality of their selection, providing a commercial-fee service as a flat rate, and creating a
cancellation process free of punishing fees has all worked to help Netflix achieve its foal of increasing customer
revenue.

30. During the late 1990’s, the movie rental industry was still largely dominated by brick-and-mortar retailers like
Blockbuster who thrived on making movies accessible for people in nearly every city around the U.S. Their
business model relied on people renting hard copy DVDs from a limited selection. Netflix originally broke away
from this model in 1997 when it introduced an online service that sent DVDs directly to customers’ homes via
mail. Netflix was able to send movies for little cost and charge similar prices compared to those found in
traditional movie rental retailers. Netflix provided a vaster selection of DVDs to choose from and eliminated the
need to travel to a store to rent a movie. The target market started out as “people who just bought DVD players”
and the Netflix website allowed customers to find movies using a search engine wherein they could select a list
of movies to be sent after each movie was retuned (48). A customer could rent up to 4 movies a month. In 1999
Netflix offered unlimited rentals with the purchase of a no-late-fee monthly subscription because customer
acquisition costs were too high for people who only rented once. A year later, Netflix created an algorithm to
better recommend movies to customers by having them take a survey when they subscribed. In order to
represent when titles are out of stock, a filter was put in place to only show available movies for rent on the
website (49) .
Netflix’s current strategy resembles the one that took effect in 2007 with the introduction of streaming, which
allowed users to watch movies on their personal internet-connected device. Netflix still offers DVD rental by mail,
however their streaming services are more popular due to such a large market for video on demand. Streaming
can now be done through computers, laptops, video game consoles, iPhones, tablets, etc. and with the
subscription, and it allows customers to watch unlimited shows and movies with the click of a button. A Netflix
subscription currently costs between $7.99 and $11.99 to stream, depending on the number of screens
customers wish to stream to. Netflix has used competitive pricing models, their unique algorithm for matching
customer preference to show titles, and Netflix original shows like Orange is the New Black to differentiate itself
from competitors in the streaming industry (50) . Netflix is now available worldwide as a part of their "core
strategy to grow our streaming membership business globally within the parameters of our consolidated net
income and operating segment contribution profit (loss) targets (51)."

31. Currently Netflix holds about 21.5% of the market share within the DVD, game and video rental industry. Netflix
comes in second right behind Redbox who currently holds 33.8% of the market share (52). While Netflix may
not have the number one spot, they still have almost a quarter of the market. With that said, Netflix is shifting
more toward online streaming as opposed to DVD rentals. This means that in the future, their market share for
the industry they are currently in may decrease as their focus is shifted. Relatedly their share in other markets
such as online streaming may increase, as they are able to capture more viewers and subscriptions.
At 2015 year-end Netflix had revenues approaching $7 billion, a large jump from $3 billion at the end of 2011 (53).
This demonstrates that as a company While Netflix may be consistently bringing in greater amounts of money
each year, their net income has been more variable. In 2011, Netflix had an income gain of about $226 million, but
in 2015 if fell to about $122 million (54). This may be attributed to their increasing spending in advertising, or
technology, among other things.
As the 2016 second quarterly report shows, Netflix’s contribution margin, a key indicator of company
profitability, has seen substantial domestic growth over the past year. The contribution margin was 34.3%,
which was 33.1% higher than that of the second quarter in 2015. It is clear that Netflix is generating enough
revenue to pay off their expenses, at least in the United States, and their contribution margin is even predicted
to reach approximately 40% by the year 2020. Internationally however, Netflix is actually losing money due to
their expenditures on growth into markets in new countries. Netflix had a contribution loss of 9.1% in the second
quarter of 2016, which is equivalent to a loss of $69 million. The projections for the upcoming quarter are no
more promising with an estimated loss of another $95 million. While Netflix is in the red in many international
markets, they are in this state because they are continually reinvesting as part of an aggressive international
growth strategy, one they believe will pay off in the end, as they point to the success they have found in other
international business (55).

33. Strong Business Model:
Netflix operates with an internet-based subscription model. This means that Netflix is able to provide their
customers with a great deal of content without incurring the types of significant costs typically associated with
a brick-and-mortar operation. They do not have to rent retail space, and they do not have to utilize the space they
have with just the new releases. Netflix can provide the user with unlimited viewings of content through
streaming and they can supply an extensive number of DVD titles, new and old, through their mail-order service.
Additionally, all of this can be delivered to the consumer without having to even think about shelf space (56).
Data on Customers:
Netflix is able to utilize technology to their advantage. They have the ability to collect and store information
about all of their subscribers which subsequently allows them to provide a more customized service. A
technology referred to as Cinematch is what allows Netflix to be able to take customer data, in the form of past
viewings and content rating, and turn it into viable recommendations that the consumer will find value in. These
suggested searches are made to give every customer a better viewing experience as well as reduce the churn
rates. The copious amounts of data that Netflix possesses is part of what makes them unique and gives them a
competitive advantage over their rivals, all of whom are vying for a larger piece of the market.
Netflix Originals:
Netflix has created what are called “Originals.” These are movies and television shows that are exclusively
created by Netflix for Netflix. In other words, people cannot watch this content unless they are subscribed to
Netflix. By becoming a streaming service that doesn’t just simply act as the middle man for the content creators
to the consumer, but instead has worked hard to provide users with original content that they will enjoy. Netflix
has been able to further differentiate themselves from the competition (57).

34. Inability to control password sharing:
Currently, subscribers to Netflix are able to share login information and set up their own profiles. This means
that one person may pay for a subscription, but three other people may use it. Netflix therefore loses out on
three potential subscriptions. The company at this point has not attempted to control much of this issue.
However, there is a limited number of screens that can be watching content on one account at the same time.
Losing Money in International Markets:
Currently Netflix is expanding into international markets as mentioned above under “current performance.” In
the second quarter of 2016 Netflix lost around $70 million. They also project that they will continue to lose
money in the quarter following. In order to grow, Netflix has had to make a large investment to expand into these
new markets. Only time will tell if this risk will pay off.
Growing Demand for Streaming Services:
Right now Netflix has a big opportunity to expand their market share. People are spending less on cable and DVD
rentals, and more on subscription packages. Netflix has a competitive advantage over their rivals as a result of
their pricing structure, original content, their utilization of their Cinematch technology and the elimination of
advertisements from their content. The company provides more than just a service, they encapsulate the
audience in a cinematic experience, immersing them in a library full of inspiring, engaging, and moving titles.
Strategic Partnerships:
Netflix has the ability to partner with big companies like DreamWorks in order to gain rights to originals, such as
the DreamWorks kids animations (58). Building upon these relationships can also help ensure future licensing
and content contracting opportunities. If Netflix can continue to build these relationships, they can use it to
strengthen their competitive edge. Essentially, if Netflix can gain access to exclusive content through these
partnerships, competitors will be unable to provide potentially critical content to their users, which may
encourage the shifting of a customer base over to Netflix.

35. International Growth:
While expanding internationally has been a financial challenge for Netflix, there is a great opportunity for an
exceptional return on investment. If Netflix can enter into the market and gain as much share as they can before
other competitors follow, they have the opportunity to offset their costs as well as make a profit. Netflix can use
their competitive advantage and special differentiating features to attract new customers to their business.
Increased Customer Interest in Original Content:
Netflix has huge opportunity to expand their business through their “Netflix Originals.” As mentioned above,
Netflix uses their original content to create an air of exclusivity around their business; only Netflix subscribers
can watch shows like “House of Cards” and “Orange is the New Black.” With the growing popularity of old and
new shows alike, Netflix has the opportunity to gain more subscribers by continuing to promote existing content,
and by continuing to create new material. With streaming subscriptions becoming more and more homogenous,
the creation of original content that is inaccessible to non-subscribers, will help to differentiate Netflix form the
competition and encourage a greater number of subscriptions.
Entry of New Competitors:
Subscription based online streaming is becoming increasingly more popular among consumers, making it an
attractive market to compete in. While it may not be likely that a completely unknown entity would spring into
existence into this field, it is quite possible that more and more TV networks will follow the footsteps of the
channels like HBO and Fox who have begun streaming online and, in the case of HBO, even creating their own
original content. With a moderate threat of new entrants who may soon be ale to more closely copy Netflix’s
infamous internal algorithm, Netflix will need to continue to be innovative within the industry in order to retain
market share.
Existing Companies Growing Market Share:
It is difficult to maintain a competitive advantage when there are little to no points of differentiation amongst
available streaming services and when these services are operating within a constantly evolving industry. It also
means that customers may look at just price, since there is less brand loyalty it this type of market. For example,
it is possible that Netflix may lose out on subscriptions because customers want to watch shows as they air. This
is a feature that Hulu offers that Netflix does not.

36. Netflix will need to find a way to attract those customers who place value on day-after viewing, in order to attain
a greater market share.
Net Neutrality Laws:
Netflix has been a central player in the net neutrality arena for a while. On June 14th, Netflix had a major win as it
was ruled that the FCC can now regulate internet service providers as “common carriers” meaning that ISPs can
no longer block or restrict types of content or access to particular websites (59) . Previously, ISPs were able to
charge certain services, such as Netflix, for access to “fast lanes”. Fast lanes allow Netflix to provide content at
better quality and higher speeds than their competitors. But, because ISPs charge for access to these fast lanes,
Netflix and other companies would potentially need to pass their costs down to the consumer. The removal of
this power means that Netflix will no longer be restricted in how they provide content to the user. While this
initial ruling appears favorable, AT&T is currently drafting an appeal. Should the ruling be reversed, Netflix is one
of the companies poised to lose the most. If the decision is reversed, it could mean that Netflix would either have
to drive up its prices to pay for access to these aforementioned fast lanes, or they would be subject to the
decisions of ISPs who may restrict access to Netflix’s website or slow down the bandwidth, impacting the
experience the consumer has with the content. While it would appear that Netflix would benefit most from
AT&T’s appeal being denied, they will still have to navigate the continual changes that will arise as a result of the
FCC’s decision.

37. Netflix’s domestic DVD mail-order service revenues have slowly been decreasing, indicating that it may be
entering into the decline stage of the product lifecycle. As pictured below, revenues from their DVD mail-order
service decreased by half between Q1 of 2014 and Q5 of 2015. Netflix has also lost 863,000 mail subscribers in
2015 alone (60) . Since Netflix split up their mail and streaming services into separately purchasable products in
2011, streaming has become the service of focus while the mail-order market has been steadily shrinking.
Over the past year, as detailed in the graph above, international streaming revenue has been slowly increasing
while domestic streaming has stayed relatively steady. Between international and domestic streaming users
combined, Netflix added 17.37 million new subscribers in 2015. Netflix’s streaming offering is currently in the
maturity stage as they have firmly established their service and are currently trying to maintain market share.

38. Netflix’s newest branding technique has been termed “The Stack”, and is supposed to be imagined as a stack of
cards printed with various images associated with Netflix - their characters, a movie screenshot or their logo. The
company Netflix partnered with to develop their rebranding strategy is called Gretel. Gretel is a design and
branding strategy studio located in New York City. Gretel has worked with companies such as Apple and
Rockwell Unscripted to help them create more visually arresting and relevant representations of their brand. As
they describe it, the stack is, “a visual metaphor and an identity system in one. It implies both the infinite, ever-
changing catalogue and the custom-curated selections that make up the core of the Netflix service (61). ” In
essence, the stack is supposed to represent the unlimited possible viewing experiences that Netflix presents to
the consumer. While this rebrand seems heavily centered on Netflix’s streaming service, it is also widely
applicable to their DVD-mailing option as it still focuses on Netflix’s carefully compiled and extremely extensive
video library.
The Stack is simple and streamlined, intended to represent the simplicity with which viewers can access and
utilize Netflix. This particular style was settled on as a result of Netflix’s increasing globalization. With a growing,
diverse consumer base, Netflix needed to be able to present something that would be accessible across cultures
and not alienate any one particular group. The Stack, as imagined as a deck of cards, is also supposed to imply
this constant peeling away, a continual revelation of new content made available to the user. Visually this
branding strategy has manifested itself in several ways; the flexibility of the concept has allowed Netflix to
portray this idea through various mediums including print advertisements and video. The below images are
examples of how Netflix is visually portraying The Stack. By creating a brand, simplistic in nature yet incredibly
dynamic, Netflix is able to use The Stack to represent their extensive catalogue of titles, the multiple ways in
which viewers can watch their content, and the absolute certainty that Netflix will be able to continually grow
and further extend the depth and reach of their product offering.

39. Netflix’s recommendation algorithm known as Cinematch is a central aspect in the company’s ability to provide
the best content for its customers. Cinematch processes information collected from Netflix’s database to
recommend a subscriber with a selection of shows and movies to pick from. These suggestions are said to take
into consideration: “the films themselves, which are arranged as groups of common movies, the customers’
ratings, rented movies and current queue, and the combination ratings of all Netflix users.” Around 75% of the
time, Cinematch’s suggestions were accurate within half a star, but in 2006 Netflix launched a contest to help
find a new algorithm that could beat Cinematch. The contest “Netflix Prize” challenged coders to create an
algorithm that would recommend movies based on the viewer’s preferences. This new algorithm would help
improve Cinematch by 10% in addition to continuously updating itself and making recommendations to viewers.
This constantly evolving and improving algorithm means that consumers will continue to be provided with the
most relevant and engaging content available.
One of the reasons Netflix has found such great success through the use of its Cinematch technology is because
of the wide breadth of content that already exists within the Netflix library. Netflix’s ability to constantly update
and make recommendations based upon user preferences is aided by the depth and width of their product
offering. When a consumer likes a film, the plethora of existing similar titles within the Netflix repertoire
provides an abundant selection from which consumers can find their next favorite title (62) .

40. To this day, Netflix’s algorithm continues to surpass the abilities of other streaming services in providing their
viewers with relevant content. Content that viewers know they will like and that closely matches what that
individual would normally enjoy. According to Netflix, 60% of their subscribers select movies and TV shows that
Netflix’s algorithm suggests to them (63). Unlike other streaming services, Netflix has been able to craft an
algorithm, using a consumer’s watch history, ratings, and viewing habits, that has found greater success in
providing the most relevant and engaging content to customers.

41. Netflix has done a remarkable job of building brand identity and conveying to people what the brand stands for
and what it is trying to accomplish. Customers understand that Netflix is a provider of “all-you-can-watch, ad-free
movies and TV shows for about $10/month ” and it has differentiated itself from the competition in a number of
ways (64). Netflix has successfully been providing ad-free, streamlined, tailored content in a way that often
makes it difficult for competitors to gain market share.
While this may seem simplistic, Netflix’s streamlined offering makes it an attractive option for users who don’t
want to evaluate and debate amongst a multitude of different viewing options. Netflix, having a small number of
products in the form of a mail-order and streaming service, has been able to firmly establish itself as the go-to
streaming option for consumers. Companies like Hulu, on the other hand, have somewhat diluted their brand by
introducing what may be perceived as too many options (65). They’ve introduced, "multiple tiers, some with ads,
some without, some with free programming, others with a cost” that has created a hierarchy of available content
that becomes difficult to navigate. Amazon, likewise, offers ad-free movies and TV shows for Prime members, but
also rents out content on an individual basis that isn’t free with a subscription. According to a study conducted
in 2015, Netflix’s brand identity was rated as much stronger than either Amazon’s or Hulu’s and, “their name has
become inseparable from streaming” (66) . By keeping it simple and not bothering with a multitude of
extraneous viewing packages, Netflix has been able to avoid confusion amongst its customer base and develop
Netflix as a term synonymous with its product offering.
Related to its streamlined product offering, Netflix has been able to differentiate itself by making all of its
content completely ad-free. While other companies such as Amazon and Hulu provide ad-free content, their
additional offering of ad-supported content works to, as previously stated, create a hierarchy of content that can
make the purchase decision process for the consumer more difficult. This also works to develop Hulu Plus and
Amazon Prime as brands that yes, provide streaming, but that are closely aligned with advertising (67).

42. Another way in which Netflix is able to differentiate itself from competitors is through its massive scale and
superior technology. Their scale allows them to provide content that is unique and that targets people who are
typically underserved in the video streaming industry. Netflix can afford to provide “niche content” that is not
popular amongst the majority of subscribers because the cost to do so is minimal in comparison to the revenue
that Netflix has amassed from their core customer base (68). Competitors such as Hulu Plus and HBO Go often
cannot curate this “niche content” as successfully as Netflix can, giving Netflix a competitive edge. Netflix is
therefore able to address, and profit from, these smaller segments while still maintaining mass appeal.
Perhaps most significantly, Netflix has been able to differentiate itself from the competition by utilizing the vast
amount of data they have collected on their customers’ viewing habits, analyzing it with their Cinematch
technology, and then making licensing and production decisions based on the evaluated results. Netflix, well
known for its famous algorithm, has been able to largely outpace its competitors because it always keeps its
finger on the pulse of consumer preferences (69). This attention to detail and constant action-reaction interplay
with the consumer should result in their favor as they continue to expand into new territories where they will
find a range of customers with new tastes, desires and preferences.

43. Within the video-streaming industry, there are a number of ways in which the market can be segmented. The
following four segments illustrate some of the key benefits sought and include: access to complete television
series, the ability to stream anywhere and anytime, availability of niche content, and the ability to view content
without interruptive advertisements. While each of the segments is related to a various subset of features and
benefits, they are all representative of the market in which Netflix is operating. As such, Netflix will need to
evaluate each segment on an individual basis to determine whether or not they represent a viable market
segment that is worth pursuing.
This segment of the video-streaming market is comprised of consumers who want access to their favorite TV
series in their entirety. These individuals want accessibility to all current and past seasons of TV series versus
the more traditional method of episode -per- episode distribution of seasons. This approach to content
distribution allows viewers the ability to ‘binge’ watch new and past seasons of television series, an ability that
typical cable services do not provide to its viewers.

44. According to a 2015 study, 86% of Millennials and 33% of those over the age of 69 engaged in binge watching,
now this by some is defined by the hours watched or in more extreme cases the number of episodes or seasons
completed (70). For Netflix, the most important competitor for this segment is Hulu Plus, which not only offers
entire past seasons, but next day distribution of new episodes for current seasons as well. Although Hulu Plus
has the added benefit of new episode distribution shortly after airing, they unlike Netflix fail to provide viewers
with the distribution of entire new seasons all at once.
This particular segment of the video streaming industry is made up of consumers who are looking for a means to
watch their content anywhere at any given time. Streaming services allow consumers to sign into their profile on
all of their streaming devices. This allows users to access all of their content wherever they are, home or on the
go. This feature also gives consumers the ability to start a show on their television, stop, then pick it up right
where they left off on their phone or laptop.
According to a report conducted by Nielsen, more people are spending more time online and streaming content
than ever before. In 2014, 2.6 million households did not subscribe to cable, or pick up any broadcast signal (71).
According to the same report, 40% of households subscribed to services like Netflix, Hulu, and Amazon Instant
Video (72). Within this particular segment, Millennials are the largest demographic ‘cutting the cord’. In 2015,
Nielsen conducted more research that found one fifth of the young adults aged 18-34 used streaming services
over broadcast. More specifically, Millennials who live on their own in urban areas with a white-collar job tending
to use streaming services (73). Overall, people are spending less time watching television and more time using
streaming services. The most important competitor to Netflix in this segment is Hulu Plus. Hulu Plus also offers
similar features to this market allowing them to watch anytime anywhere.

45. Another segment of the video streaming industry is comprised of consumers who seek out niche movie and
television show content. These people are searching for video entertainment that is less conventional and more
specialized to their unique viewing preferences. Oftentimes, this segment is made up of people who want
content that their current cable provider is not offering them and they want an alternative to mainstream
television. A study revealed that “63 percent of U.S. adults say original content is a key reason why they select a
particular subscription service over another”, which indicates that there is a growing demand for niche content
in the video streaming industry (74).
A survey found that Netflix Originals “accounted for at least half of the viewing time of 38% of Netflix
subscribers and more than 75% of subscribers watch at least some of Netflix's original content (75).” This
reveals that the majority of Netflix subscribers are viewing the unique content that Netflix offers. Netflix’s
largest competitor within the niche segment of video streaming is HBO. According to this year’s an annual
streaming video survey by Morgan Stanley, Netflix has surpassed competition in regards to who has the best
original content for the first time since the survey began five years ago (76). Not only does Netflix have as much
original content as their largest competitor within this segment, HBO, but Netflix is also perceived as having
better quality niche content.

46. The final identified segment of the video-streaming market is made up of consumers who are looking for content
that is free of advertising. These users are looking for a viewing experience that is uninhibited by jarring and
disruptive video or static advertisements that appear in the middle of their content. Ad-free content provides
users with movies and TV shows without pre-rolls, banner and other display ads, or interruptive mid-roll
commercials. By providing this type of content, companies can target this segment more effectively.

47. A recent study done by Adobe reports that 68% of consumers find online advertising annoying, 51% calling it
distracting and 38% believing it to be invasive (77) . With streaming subscription revenue set to rise nearly five
billion over the next five years , it is increasingly important to pay attention to what the customer wants (78). For
Netflix, the most important competitor for this segment would be Amazon Prime Instant Video, which also offers
access to ad-free content. While Amazon is becoming a staunch competitor within the industry, they will need to
be mindful of the confusion that continues to arise in conjunction with their service (79) . If Amazon is unable to
clarify that their prime offering is for ad-free content, Netflix may not need to worry about Amazon nearly as
much, when targeting this segment.
These four outlined segments are a jumping off point from which companies within the industry can evaluate the
benefits that are being sought out. Once these are established and understood, companies such as Netflix can
work to better create, communicate and deliver value to the consumer.

48. Of all the segments within the home-streaming market, one segment that is of particular interest to Netflix is the
Complete Series Segment. This segment seeks to have access to all current and past seasons of TV series,
enabling them to binge watch their favorite shows. Netflix’s most direct competitor for this segment is Hulu Plus
which, similar to Netflix, also provides complete series to their users. Therefore, our goal is to determine a way
for Netflix to grow subscription revenue by creating more value for complete series-seeking consumers than Hulu
does.
The following table shows the various factors that the complete series segment consider when choosing one
offering over another. In this case, customers are choosing between Netflix and Hulu. The table also breaks down
the importance of each factor on a scale from 1-10, with 10 being very important. Following this, is an estimate of
how customers think each company is doing at providing these benefits* (80,81).

49. *With Netflix and Hulu over-serving this segment in some areas and under-serving in others, the resulting totals
for the two companies wound up as equal to or greater than the total importance to the customer score.

50. The following table depicts ten of the key features that characterize the offerings of Netflix and Hulu Plus (82).

52. Looking at the three circles diagram, it is apparent that some key opportunities for growth for Netflix include
curating a greater selection of international, older or lesser-known TV series. Additionally, being able to secure
licensing agreements that would deliver newly released movies faster than their competitors would be
advantageous for Netflix.
After evaluating the three circles diagram, Netflix’s mail-order DVD subscription service may need to be
eliminated in the coming years. As almost all of the customer segments within this market shift towards
streaming exclusively, mail-order DVDs may become irrelevant and create a financial burden on Netflix. By
planning ahead and securing digital licenses for their existing physical DVD library, Netflix can prepare for a time
when their mail-order feature is no longer profitable.
It would be wise within this segment to promote their multiple user profile option and the ability to watch on
different screens. Currently, these are features that Netflix offers that are not high on the priority list for the
complete series segment. With that said, these are important features unique to Netflix that other segments
value. By emphasizing the fact that multiple user profiles and multiple screen viewing options would open up the
ability for the complete series segment to further engage with their content, Netflix may be able to claim greater
market share by turning these POI’s into POD’s.
Hulu Plus’ POD’s which include licensing content from large networks, providing newly released movies and new
episodes of current TV shows the next day are differences that would be best assimilated into points of parity.
These three features are important to the complete series segment and it would therefore be beneficial for Netflix
to match Hulu Plus in this offering. By changing these POD’s into POP’s, Netflix can help to capture some of the
market share from Hulu Plus.