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Netflix's Evolution from DVDs to Streaming
- 2. ahmed | engel | jim | nathan | rafik | sasan | vidhi
- 4. TIMELINE
- 5. Price Increase Split TIMELINE $300 Launched in Canada $250 $300M Stock Buyback $200 10M Subscribers $150 Netflix IPO $100 $50 2002 2009 2010 2011 NOW
- 11. NETFLIX CULTURE ‣ “Values are what we Value” ‣ Context, not Control ‣ Pay Top of Market ‣ Promotions and Development ‣ High Performance ‣ Freedom and Responsbility ‣ Highly Aligned, Loosely Coupled
- 12. HIGH PERFORMANCE “We’re a team, not a family” “We’re like a pro sports team”
- 13. GROWTH INCREASES COMPLEXITY
- 14. GROWTH INCREASES COMPLEXITY complexity
- 15. complexity
- 16. GROWTH SHRINKS TALENT DENSITY complexity talent density
- 17. complexity talent density
- 18. CHAOS EMERGES complexity chaos talent density
- 20. BUREAUCRACY EMERGES TO STOP THE CHAOS bureaucracy drives more talent out
- 22. INCREASING TALENT DENSITY IS KEY high performance employees business complexity
- 23. ORGANIZATIONAL STRUCTURE Reed Hastings CEO Andrew Rendich Neil Hunt Ted Sarandos Leslie Kilgore Patty McCord Chief David Wells Chief Chief Chief Chief Talent Service and CFO Product Content Marketing Officer DVD Officer Officer Officer Operations Officer
- 24. ORGANIZATIONAL STRUCTURE Reed Hastings CEO Andrew Rendich Patty McCord Neil Hunt Ted Sarandos Leslie Kilgore Chief David Wells Chief Chief Chief Chief Talent Service and CFO Product Content Marketing Officer DVD Officer Officer Officer Operations Officer
- 25. ORGANIZATION AT THE TOP
- 26. ORGANIZATION AT THE TOP functional divisions centralized strategic decision-making
- 27. TEAMS ARE HIGHLY ALIGNED, LOOSELY COUPLED
- 28. TEAMS ARE HIGHLY ALIGNED, LOOSELY COUPLED teams trust between understand groups strategy teams develop groups move own tactics fast
- 30. GLOBAL EXPANSION PLANS Canada 2010 UK + USA 1997 Ireland 2012 Mexico 2011 Latin America 2011
- 31. PORTER’S FIVE FORCES THREAT OF NEW ENTRANTS threat from newcomers is high
- 32. PORTER’S FIVE FORCES POWER OF SUPPLIERS power of movie studios is high
- 33. PORTER’S FIVE FORCES POWER OF BUYERS power of consumers is low
- 34. PORTER’S FIVE FORCES THREAT OF SUBSTITUTE threat of substitute is high
- 35. PORTER’S FIVE FORCES COMPETITIVE RIVALRY competition is moderate
- 36. COMPETITION PAY-PER-VIEW SUBSCRIPTION FREE + AD-SUPPORTED
- 37. COMPETITION STREAMING DVD PAY-PER-VIEW SUBSCRIPTION FREE + AD-SUPPORTED
- 39. FINANCIAL ANALYSIS Quick Ratio Debt-to-Equity Ratio 5.0 4.0 3.0 2.0 1.0 0 2009 2010 2011 NOW
- 40. NETFLIX SWOT ANALYSIS Strengths Weaknesses ‣ Market leadership in subscription-based ‣ Public relations epic fail due to streaming and DVD-by-mail price increase and flip-flop on ‘Qwikster’ had short term impact on growth ‣ Strong value proposition with “no-late- fee” DVD and streaming subscription plans ‣ Strained cash flow due to debt and new content commitments ‣ Stream content anytime anywhere on 200+ devices ‣ Limited control over content Opportunities Threats ‣ Continued subscriber growth due to ‣ Increased competition from cable, success of online streaming segment Amazon, Hulu, Redbox, etc ‣ Higher profit margin with online ‣ Escalating cost of acquiring content streaming and fixed content costs and DVD operations ‣ International expansion ‣ Internet bandwidth limits
- 41. NETFLIX SWOT ANALYSIS Strengths Weaknesses ‣ Market leadership in subscription-based ‣ Public relations epic fail due to streaming and DVD-by-mail price increase and flip-flop on ‘Qwikster’ had short term impact on growth ‣ Strong value proposition with “no-late- fee” DVD and streaming subscription plans ‣ Strained cash flow due to debt and new content commitments ‣ Stream content anytime anywhere on 200+ devices ‣ Limited control over content Opportunities Threats ‣ Continued subscriber growth due to ‣ Increased competition from cable, success of online streaming segment Amazon, Hulu, Redbox, etc ‣ Higher profit margin with online ‣ Escalating cost of acquiring content streaming and fixed content costs and DVD operations ‣ International expansion ‣ Internet bandwidth limits
- 42. NETFLIX SWOT ANALYSIS Strengths Weaknesses ‣ Market leadership in subscription-based ‣ Public relations epic fail due to streaming and DVD-by-mail price increase and flip-flop on ‘Qwikster’ had short term impact on growth ‣ Strong value proposition with “no-late- fee” DVD and streaming subscription plans ‣ Strained cash flow due to debt and new content commitments ‣ Stream content anytime anywhere on 200+ devices ‣ Limited control over content Opportunities Threats ‣ Continued subscriber growth due to ‣ Increased competition from cable, success of online streaming segment Amazon, Hulu, Redbox, etc ‣ Higher profit margin with online ‣ Escalating cost of acquiring content streaming and fixed content costs and DVD operations ‣ International expansion ‣ Internet bandwidth limits
- 43. NETFLIX SWOT ANALYSIS Strengths Weaknesses ‣ Market leadership in subscription-based ‣ Public relations epic fail due to streaming and DVD-by-mail price increase and flip-flop on ‘Qwikster’ had short term impact on growth ‣ Strong value proposition with “no-late- fee” DVD and streaming subscription plans ‣ Strained cash flow due to debt and new content commitments ‣ Stream content anytime anywhere on 200+ devices ‣ Limited control over content Opportunities Threats ‣ Continued subscriber growth due to ‣ Increased competition from cable, success of online streaming segment Amazon, Hulu, Redbox, etc ‣ Higher profit margin with online ‣ Escalating cost of acquiring content streaming and fixed content costs and DVD operations ‣ International expansion ‣ Internet bandwidth limits
- 44. NETFLIX SWOT ANALYSIS Strengths Weaknesses ‣ Market leadership in subscription-based ‣ Public relations epic fail due to streaming and DVD-by-mail price increase and flip-flop on ‘Qwikster’ had short term impact on growth ‣ Strong value proposition with “no-late- fee” DVD and streaming subscription plans ‣ Strained cash flow due to debt and new content commitments ‣ Stream content anytime anywhere on 200+ devices ‣ Limited control over content Opportunities Threats ‣ Continued subscriber growth due to ‣ Increased competition from cable, success of online streaming segment Amazon, Hulu, Redbox, etc ‣ Higher profit margin with online ‣ Escalating cost of acquiring content streaming and fixed content costs and DVD operations ‣ International expansion ‣ Internet bandwidth limits
- 45. CRITICAL ISSUES
- 46. CRITICAL ISSUES Strained Cash Flow Public Relations Epic Fail
- 47. CRITICAL ISSUES Public Relations Cash Flow ‣ Lost 800,000 subscribers ‣ Stock price dropped from $260 to $90 per share ‣ Lost investor confidence ‣ $3.5B in content commitments ‣ Potentially lose talent ‣ Highly leveraged with a debt-to- equity ratio of 4.05 ‣ Limited ability to buy back stock ‣ Scale down expansion plans
- 48. SHORT TERM RECOMMENDATIONS GROW MARKET SHARE
- 49. SHORT TERM RECOMMENDATIONS GROW MARKET SHARE ‣ Public Relations ‣ Marketing Campaign
- 50. SHORT TERM RECOMMENDATIONS GROW MARKET SHARE ‣ Public Relations ‣ Marketing Campaign
- 51. SHORT TERM RECOMMENDATIONS GROW MARKET SHARE ‣ Pricing Options ‣ Bundling ‣ Add-on Subscriptions ‣ Discounted Long Term Subscriptions
- 52. SHORT TERM RECOMMENDATIONS GROW MARKET SHARE ‣ Pricing Options ‣ Bundling ‣ Add-on Subscriptions ‣ Discounted Long Term Subscriptions
- 53. LONG TERM RECOMMENDATIONS ‣ Global Expansion ‣ Backward Integration ‣ Content Production ‣ Exclusive Content ‣ Invest in Video Compression Technology
- 54. QUESTIONS
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- Pros: Strong Economies of Scale, High Capital Requirements, Brand Power of NetFlix\nCons: Low Switching Costs, Lack of Economies of Scope for NetFlix, Weak Expected Retaliation => worry about scope players\n“Big Six” studios produce more than 85% of the market demand for movies, Few Substitutes, Threat of Forward Integration (HULU)\nThis is a B2C market, for value-oriented customers ($8/months). Switching is cheap though inconvenient (habit). Moderate differentiation. \n
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- Netflix SWOT Analysis\n\nI’m here to talk about the SWOT analysis which could be the most boring slide but it is pretty important because this is where we capture everything that we know about Netflix so far.\n\n\nFirst, let's talk about their Strengths:\n\nWith more than 25 million members, Netflix is the world market leader in the DVD by mail and streaming business.\n\nNetflix can stream their content on much more devices than any of its competitors.  This allows their customers to watch movies and tv shows anytime anywhere.\n\n\nNow, what about their Weaknesses?\n\nAs you all know, Netflix suffered after their recent price increases and the flip-flops about Qwikster.   They lost about 3% of their subscribers and about two-thirds of their market value.\n\nNow, before their stocks tanked, Netflix committed to an additional $1.2B of new content.  This brought their total debt to $3.5B.  And this will have a significant impact to their cash flow for years to come.\n\n\nLooking ahead to Opportunities:\n\nVideo streaming in general is a growing market.  72% of new Netflix subscribers chose the streaming option.  Netflix is positioned to gain from this overall growth trend.\n\nAs they expand internationally, they stand to gain not only subscribers and revenue, but also add unique foreign content into their library.\n\n\nAnd lastly, let's talk about future threats.\n\nBecause of the expected growth in the online streaming business, more and more players are jumping in.  And because there is more demand for streaming content, the cost for acquiring movies and tv shows is going up.\n\nAnd finally, Netflix is now the largest source of internet traffic in North America.  Their future growth depends on the growth of Internet infrastructure.\n\nSo here, we've identified two critical issues that should be addressed in the short term.  Here's Vidhi to talk more about them.\n\n\n
- Netflix SWOT Analysis\n\nI’m here to talk about the SWOT analysis which could be the most boring slide but it is pretty important because this is where we capture everything that we know about Netflix so far.\n\n\nFirst, let's talk about their Strengths:\n\nWith more than 25 million members, Netflix is the world market leader in the DVD by mail and streaming business.\n\nNetflix can stream their content on much more devices than any of its competitors.  This allows their customers to watch movies and tv shows anytime anywhere.\n\n\nNow, what about their Weaknesses?\n\nAs you all know, Netflix suffered after their recent price increases and the flip-flops about Qwikster.   They lost about 3% of their subscribers and about two-thirds of their market value.\n\nNow, before their stocks tanked, Netflix committed to an additional $1.2B of new content.  This brought their total debt to $3.5B.  And this will have a significant impact to their cash flow for years to come.\n\n\nLooking ahead to Opportunities:\n\nVideo streaming in general is a growing market.  72% of new Netflix subscribers chose the streaming option.  Netflix is positioned to gain from this overall growth trend.\n\nAs they expand internationally, they stand to gain not only subscribers and revenue, but also add unique foreign content into their library.\n\n\nAnd lastly, let's talk about future threats.\n\nBecause of the expected growth in the online streaming business, more and more players are jumping in.  And because there is more demand for streaming content, the cost for acquiring movies and tv shows is going up.\n\nAnd finally, Netflix is now the largest source of internet traffic in North America.  Their future growth depends on the growth of Internet infrastructure.\n\nSo here, we've identified two critical issues that should be addressed in the short term.  Here's Vidhi to talk more about them.\n\n\n
- Netflix SWOT Analysis\n\nI’m here to talk about the SWOT analysis which could be the most boring slide but it is pretty important because this is where we capture everything that we know about Netflix so far.\n\n\nFirst, let's talk about their Strengths:\n\nWith more than 25 million members, Netflix is the world market leader in the DVD by mail and streaming business.\n\nNetflix can stream their content on much more devices than any of its competitors.  This allows their customers to watch movies and tv shows anytime anywhere.\n\n\nNow, what about their Weaknesses?\n\nAs you all know, Netflix suffered after their recent price increases and the flip-flops about Qwikster.   They lost about 3% of their subscribers and about two-thirds of their market value.\n\nNow, before their stocks tanked, Netflix committed to an additional $1.2B of new content.  This brought their total debt to $3.5B.  And this will have a significant impact to their cash flow for years to come.\n\n\nLooking ahead to Opportunities:\n\nVideo streaming in general is a growing market.  72% of new Netflix subscribers chose the streaming option.  Netflix is positioned to gain from this overall growth trend.\n\nAs they expand internationally, they stand to gain not only subscribers and revenue, but also add unique foreign content into their library.\n\n\nAnd lastly, let's talk about future threats.\n\nBecause of the expected growth in the online streaming business, more and more players are jumping in.  And because there is more demand for streaming content, the cost for acquiring movies and tv shows is going up.\n\nAnd finally, Netflix is now the largest source of internet traffic in North America.  Their future growth depends on the growth of Internet infrastructure.\n\nSo here, we've identified two critical issues that should be addressed in the short term.  Here's Vidhi to talk more about them.\n\n\n
- Netflix SWOT Analysis\n\nI’m here to talk about the SWOT analysis which could be the most boring slide but it is pretty important because this is where we capture everything that we know about Netflix so far.\n\n\nFirst, let's talk about their Strengths:\n\nWith more than 25 million members, Netflix is the world market leader in the DVD by mail and streaming business.\n\nNetflix can stream their content on much more devices than any of its competitors.  This allows their customers to watch movies and tv shows anytime anywhere.\n\n\nNow, what about their Weaknesses?\n\nAs you all know, Netflix suffered after their recent price increases and the flip-flops about Qwikster.   They lost about 3% of their subscribers and about two-thirds of their market value.\n\nNow, before their stocks tanked, Netflix committed to an additional $1.2B of new content.  This brought their total debt to $3.5B.  And this will have a significant impact to their cash flow for years to come.\n\n\nLooking ahead to Opportunities:\n\nVideo streaming in general is a growing market.  72% of new Netflix subscribers chose the streaming option.  Netflix is positioned to gain from this overall growth trend.\n\nAs they expand internationally, they stand to gain not only subscribers and revenue, but also add unique foreign content into their library.\n\n\nAnd lastly, let's talk about future threats.\n\nBecause of the expected growth in the online streaming business, more and more players are jumping in.  And because there is more demand for streaming content, the cost for acquiring movies and tv shows is going up.\n\nAnd finally, Netflix is now the largest source of internet traffic in North America.  Their future growth depends on the growth of Internet infrastructure.\n\nSo here, we've identified two critical issues that should be addressed in the short term.  Here's Vidhi to talk more about them.\n\n\n
- Netflix SWOT Analysis\n\nI’m here to talk about the SWOT analysis which could be the most boring slide but it is pretty important because this is where we capture everything that we know about Netflix so far.\n\n\nFirst, let's talk about their Strengths:\n\nWith more than 25 million members, Netflix is the world market leader in the DVD by mail and streaming business.\n\nNetflix can stream their content on much more devices than any of its competitors.  This allows their customers to watch movies and tv shows anytime anywhere.\n\n\nNow, what about their Weaknesses?\n\nAs you all know, Netflix suffered after their recent price increases and the flip-flops about Qwikster.   They lost about 3% of their subscribers and about two-thirds of their market value.\n\nNow, before their stocks tanked, Netflix committed to an additional $1.2B of new content.  This brought their total debt to $3.5B.  And this will have a significant impact to their cash flow for years to come.\n\n\nLooking ahead to Opportunities:\n\nVideo streaming in general is a growing market.  72% of new Netflix subscribers chose the streaming option.  Netflix is positioned to gain from this overall growth trend.\n\nAs they expand internationally, they stand to gain not only subscribers and revenue, but also add unique foreign content into their library.\n\n\nAnd lastly, let's talk about future threats.\n\nBecause of the expected growth in the online streaming business, more and more players are jumping in.  And because there is more demand for streaming content, the cost for acquiring movies and tv shows is going up.\n\nAnd finally, Netflix is now the largest source of internet traffic in North America.  Their future growth depends on the growth of Internet infrastructure.\n\nSo here, we've identified two critical issues that should be addressed in the short term.  Here's Vidhi to talk more about them.\n\n\n
- Netflix SWOT Analysis\n\nI’m here to talk about the SWOT analysis which could be the most boring slide but it is pretty important because this is where we capture everything that we know about Netflix so far.\n\n\nFirst, let's talk about their Strengths:\n\nWith more than 25 million members, Netflix is the world market leader in the DVD by mail and streaming business.\n\nNetflix can stream their content on much more devices than any of its competitors.  This allows their customers to watch movies and tv shows anytime anywhere.\n\n\nNow, what about their Weaknesses?\n\nAs you all know, Netflix suffered after their recent price increases and the flip-flops about Qwikster.   They lost about 3% of their subscribers and about two-thirds of their market value.\n\nNow, before their stocks tanked, Netflix committed to an additional $1.2B of new content.  This brought their total debt to $3.5B.  And this will have a significant impact to their cash flow for years to come.\n\n\nLooking ahead to Opportunities:\n\nVideo streaming in general is a growing market.  72% of new Netflix subscribers chose the streaming option.  Netflix is positioned to gain from this overall growth trend.\n\nAs they expand internationally, they stand to gain not only subscribers and revenue, but also add unique foreign content into their library.\n\n\nAnd lastly, let's talk about future threats.\n\nBecause of the expected growth in the online streaming business, more and more players are jumping in.  And because there is more demand for streaming content, the cost for acquiring movies and tv shows is going up.\n\nAnd finally, Netflix is now the largest source of internet traffic in North America.  Their future growth depends on the growth of Internet infrastructure.\n\nSo here, we've identified two critical issues that should be addressed in the short term.  Here's Vidhi to talk more about them.\n\n\n
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- Global expansion of subscribers and Local content, Market integration (ie foreign movies)\nGlobal First mover advantage\nEconomies of Scale\nPremiere Brand abroad\nVideo compression - Canada example\n\n
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