At the end of 2019, and after only been launched for a few months, Disney already had a reported 26 million daily subscribers within its first months of launch.
Besides Disney, you have some big powerful tech companies also after some of Netflix’s recurring revenue.
Netflix Financial Performance 2019
Netflix has shown consistent growth across all regions. What’s interesting is that despite several difficulties Netflix is gaining ground in emerging economies. Although, it is far from being a complete success story as Netflix struggles with content in India.
The Netflix SWOT Analysis
The Netflix SWOT analysis is a quick way to understand how Netflix is competing in its business environment and whether it will be able to sustain its current performance.
Netflix seized the opportunity of growing bandwidth and instantly became a popular success based on its range of content.
Since its launch, Netflix has become synonymous with video streaming and consistently it has held the largest global share of the video streaming market.
A library of original content is a critical factor for differentiating between the main video streaming providers. As an example, with a strong portfolio of content in 2017, Netflix was able to grow by 17M in one quarter.
Netflix invests heavily in original content not only in the US but it also produces local content and distributes this globally. The idea of this is simple, people can experience interesting international content, and people who live in other Countries get to experience homegrown content.
In early 2020, Netflix raised a cool one billion pounds to fund more content development and possibly further acquisitions.
Netflix has a substantial global presence. At the end of 2019, Netflix grew its subscriber base to over 167 million.
However, those numbers have grown significantly as a result of people being confined to their homes during COVID lockdown.
Netflix relies on a large global technology infrastructure to be able to store and deliver videos on demand.
Additionally, it needs to operate across different languages and offer personalised recommendations through its machine learning and AI technology
In 2019, Netflix invested over $1.5 billion in technology and development. The overall service focuses on quality, consistency and availability across a broad range of devices and browsers.
n 2019, Netflix’s marketing expenses amounted to 2.65 billion U.S. dollars, up from 2.37 billion in the previous year.
Netflix uses a blend of marketing methods, from advertising online to billboards to tie in with major brands, including Coca-Cola and Burger King, to promote content.
Additionally, they use social media especially Twitter, they don’t even sponsor tweets—instead, they simply craft a teasing tweet about a forthcoming show and within seconds it goes viral.
Business Model Easily Replicated
If you take away the unique content then there is little to differentiate video streaming offers. The content dictates the audience and the degree of difference.
The Netflix Business Model is increasingly dependent on production of a range of local and global content that is unique. The company has brought in top directors like Steven Soderbergh and Fernando Meirelles to bolster its need to produce.
Netflix has a substantial balance sheet of loans and investments that have been used to fund content. In 2019, its content obligations amounted to over $19 billion.
Rising costs in operations, marketing and content are leading to a substantial amount of long-term debt.
Netflix faces increasing pressure to rely less on debt to fund its content. Yet at the end of 2019, Netflix had increased its long-term debt by over $4Bn.
With over two-thirds of Netflix content is licensed – that is content that Netflix doesn’t own but pays for.
Netflix has an ageing portfolio of hits that drew in its subscriber’s in the US market e.g. Frankie and Grace.
However, faced with stiff competition in the US market Netflix has to strengthen its position or face losing out to newcomers.
Other big tech companies like Facebook, Amazon and Google have made strategic acquisitions in Artificial Intelligence. It’s no surprise that these giants with all that user data can transform the customer experience and offer more personalized suggestions.
Netflix seems to be lagging in behind though making many people question the sophistication of its technology and choice of investments.
Sustainability Track Record
Netflix has only just recently started to offset its global energy footprint and by using renewable energy certificates.
Asia Pacific and Latin America are huge opportunities for Netflix.
China has already hasan equivalent entertainment platform called iQiyi Inc.
An interesting comparison here is that Spotify has partnered with Tencent to improve and open up possibilities in Asia market. Netflix needs to either acquire a contender, or create a strategic partnership. It has already signed a deal with Alibaba which might deliver this potential for growth.
Netflix is focusing heavily already on its own content. However, it has had mixed results in many markets. CEO Reed Hastings admitted in 2019 that the company was unable to attract new users, as it lacked strong content in India.
To compete with other established players in big markets, Netflix needs to have award-winning content that catches the attention of people and pulls them to their platform in new and emerging markets.
Working with the best producers in these countries will be critical.
Can Netflix balance buying quality content from distributors and studios as well as unique content.
The unique content undoubtedly will bring in an audience but there isn’t enough volume of content to keep an audience. Netflix needs to refresh its library and buy content that gives people to come back.
AI in the future could even analyse and recommend stories and themes for production. Implementation and production of content though will always remain as an art and therefore in the human domain.
Even if Netflix focuses on improving its recommendation engine, then this will help surface new and relevant content to users.
Another opportunity for Netflix is to work with VR technology and look at how Netflix can innovate the customer experience. Netflix isn’t a hardware manufacturer and would need to partner with a company like Samsung to achieve this.
Originally Amazon was an eCommerce store but has since expanded to now provide video streaming, ebooks and is aggressively looking to move into health.
A possible strategy for Netflix is to move into another adjacent market and harness its infrastructure. An obvious comparison would be to acquire a music streaming company!
The competition is increasing through Asian video streaming companies moving west, new entrants e.g. Disney and existing players expanding e.g. Amazon, Hulu, HBO, and YouTube.
New entrants like Disney with their blockbuster portfolio of content and family appeal will make inroads into the market.
Even companies like Facebook could be a danger, they already have the distribution channel and could easily buy content to gain traction, plus offset costs through advertising.
China is a critical market for many of the tech giants. However, China is heavily regulated and fosters brands that comply with and adhere to how the way the government works.
Netflix is unlikely to be given access to the market unless it forms a strategic alliance with an existing player. The threat then is that a Chinese player can grow significantly, dominate the market and make it unpenetrable for Netflix.
Netflix in the last few years has raised its pricing in the US. With the advent of COVID and the rising levels of unemployment, it will remain to be seen if this causes a backlash post lockdown.
This probably is no surprise when you consider that Netflix in India starts at 199 rupees (roughly $2.80). On the other hand, a Hotstar subscription can be had for 999 rupees (just over $14) a year, much cheaper than Netflix’s mobile-only plan.
Piracy of the licensed content is still an issue worldwide and is particularly prevalent in emerging economies.
Summary of the Netflix SWOT Analysis
The Netflix business model has been highly successful and shows no sign of slowing down. In fact, COVID has bolstered its subscriptions. However, this isn’t to say Netflix isn’t without problems. Juggling the complexity of a global organisation and competing in multiple markets, each with their own dynamics creates significant challenges.
The biggest risks are associated with unique content and the high level of competition. First of all, investing in the content that will keep existing subscribers hooked and bring in new subscribers is vital for Netflix’s future. Secondly, its a tough and highly competitive market and unless Netflix creates a stronger competitive advantage it could be vulnerable in the long run.