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.
Company Competitors:
Amazon Prime Video, Apple TV+, Disney+, HBO, Hulu, Vevo, YouTube
Share of video streaming – US market
Netflix Financial Performance 2019
How Netflix Makes Money – The Netflix Business Model
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 Strengths
Netflix Weaknesses
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.
Content
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.
Content Portfolio
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.
User Experience
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.
Netflix Opportunities
International Growth
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.
Localised Content
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.
Content Library
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/VR Technology
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.
Acquisitions
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!
Netflix Threats
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.
