The business model of Netflix is to let people keep the videos as long as they and pay a flat fee monthly for a such service. Netflix provides its consumers with monthly pricing plans:
Basic, $7.99 per month. Netflix’s basic plan doesn’t include high definition viewing and programs can be watched only on one screen at a time.
Standard, $10.99 per month. The Netflix standard offers HD videos and allows for two simultaneous viewings.
Premium, $13.99 per month. The offering includes the ability to watch four screens at the same time and offers a 4K viewing option.
The Ultra service, $16.99 per month. This is a ‘test’ model. Netflix is offering a new high-end streaming service option in select cities only that offers four Ultra HD viewing streams and/or content viewable in HDR format.
It is worth noting that increase in the rate fee in $1 made the stock price jump $30 in 2018.
Relationships With Local Companies
Netflix has partnered with local US and international companies to make win-win relationships. For example, in case with Apple alliance, Netflix gave an opportunity for the owners of the Apple TV set-top box to sign up for Netflix directly and pay for the service through their iTunes accounts. Therefore, Netflix was able to access Apple’s large customer base. On the other side, Apple was able to provide their customers with more content in a more convenient way.
Netflix has partnered with international cell phone and cable operators to make its content available as a part of their existing video-on-demand offerings. For example, with Vodafone launching a TV service for its customers in Ireland, it included a dedicated Netflix button on its remote controls. In 2018, Netflix announced a multi-year partnership with Telefonica, one of the largest providers of integrated telecommunications services in Europe and Latin America. In this case Telefonica customers were be able to access Netflix from the Movistar Play Video OTT service, pay their Netflix subscription via their Telefonica bill, and add Netflix to some mobile video data plans. Another partnership was announced in 2018 with KDDI in Japan to offer NETFLIX services together with au-brand mobile phone service for a flat-rate fee. ‘In addition to documentaries, dramas and other Hollywood-centered entertainment content with worldwide popularity, we also offer a rich lineup of original content,’ said Netflix Chief Product Officer, Greg Peters. ‘We are focusing efforts on developing a range of technologies that will make it possible to optimize services for comfortable mobile phone viewing. Through this partnership with KDDI, we hope to provide au customers with a wealth of carefully selected content that will provide a thrilling viewing experience.’
Netflix’ current strategic focus is on producing its own original content. The reason for developing its own original content is to lower its long-term costs by saving on licensing costs. Netflix says content comes at a 30% to 50% markup when outside studios are used.
Netflix has also implemented a high-volume approach to producing original movies and series. According to an article by Variety, 85% of its new spending will go to originals production. However, the quality does not seem to be the critical criteria for the developments, which users have indicated. Netflix produces both high- and low-quality content focusing on the volume. Netflix focuses on producing local content with collaboration with local studios. This content is available worldwide. Some examples of such originals include “13 Reasons Why”. “Narcos”, “Stranger Things”, “Bright”, “La Casa de Papel”, “Lost in Space”, “Club de Cuervos”, “3%”, etc.
Netflix carefully somewhat manages its relationships with the local governments. However, the actions are more of a reactive then a proactive fashion. One example can be removing an episode from Netflix in Saudi Arabia of Patriot Act With Hasan Minhaj, in which Minhaj heavily criticizes Saudi prince Mohammad bin Salman. Netflix spokesperson said about the incident: ‘We strongly support artistic freedom and removed this episode only in Saudi Arabia after we had received a valid legal request – and to comply with local law.’ Another spokesperson told CNN, ‘It doesn’t mean we agree with these laws.’
Reporting Structure of Technology Function
In 2009 Netflix moved from a monolithic to microservices architecture. It gave them possibility to implement a continuous delivery model where each microservices could be develop and deployed independently from others. Continuous delivery is done through adding microservices into containers. In light of the fact that Netflix moved from AWS machine images (AMIs) to Docker containers, it makes size of images much smolder as a Docker container only contains source code and libraries. Smaller containers improved uploading speed and as a result deployment speed is updated to seconds. At Netflix, the conceptual framework for continuous development and delivery is an Observe Orient Decide Act (OODA) loop.
Top Management’s Commitment
At Netflix, board members attend monthly and quarterly senior management meetings. Communications to the board include an approximately 30-page memos that are heavy on analysis and contain links to all relevant data on the company’s internal computer systems that can be easily accessed. The company CEO, Reed Hastings says, “The board members aren’t going to have the confidence to make hard decisions unless they really understand the market and the company.” Because there is a lot of information to process before the meeting, the board members have to spend more time preparing to the meeting.
Outstanding Success Stories
Streaming services are extremely popular today, however, it was not so in the past. Being prepared and ready by looking into the future helped Netflix to commercialize streaming. The CEO of Netflix, Hastings noted, “In 1997, we said that 50% of the business would be from streaming by 2002. It was zero. In 2002, we said that 50% of the business would be from streaming by 2007. It was zero… Now streaming has exploded… We were waiting for all these years. Then we were in the right place at the right time.”
Netflix has learned from AOL failure to adopt to the changes in the industry and has committed to not repeating it. Therefore, Netflix is always looking at what are the possibilities of the changes in the future and learned to adopt.
The technology development at Netflix is always customer-focused. For example, due to consumer issues with browsing through large variety of movies and spending a lot of time to pick just the right movie for them, Netflix has implemented a recommendation engine that is powered by machine learning and AI that help to reduce the time spent on searching and reduce the frustration. the by capturing the user past experience. As a result, about 60% of the content added to the watching queues are from the recommendations.
In the first phase of the expansion, the strategy of Netflix was to stay safe and learn. Netflix carefully selected its initial adjacent markets in terms of geography, psychic distance, and perceived differences between markets (for example expansion to Canada in 2010).
During the second phase, Netflix extended to about 50 countries. The markets were chosen based on the availability of internet, their degree of attractiveness, and the presence of affluent consumers. The investment started going towards big data and analytics to understand the preferences of these markets.
In the third space, Netflix focused on adding more languages, payment partnerships, optimizing its personalization algorithms. For example, six months after Netflix entered Turkey and Poland in 2016, Netflix added the local languages to its user interface, subtitles, and dubbing. By adding more convenient features in the local markets, the company was able to cross the chasm from primarily supplying early adopters to serving much broader audience.
Global Management Competitor Analysis
Hulu is one of the Netflix competitors. Hulu is a joint venture between Walt Disney Co., Twenty-First Century Fox Inc, and Comcast Corporation each holding a 30% stake. AT&T Inc. unit WarnerMedia holds the other 10%. At the end of 2018 the service had around 23 million subscribers. Hulu streaming services are only available in the US or Japan. In December 2018 Hulu announced that Disney will invest in more original content and will proceed to expand internationally. Hulu poses threat to Netflix because it is supported by stakeholders who are very experienced in producing quality content. Netflix needs to watch out for Hulu’s international expansion in terms of developing quality content.
YouTube is one of the biggest competitors. In the latest shareholder letter Netflix said, “YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time.” YouTube has a lot of original content created by the users around the world. YouTube has also streaming services for movies and series. YouTube is known for being a place where artists can break through to the mainstream music scene and find a global audience. YouTube has a lot of knowledge how to connect to the local communities and bring out that content globally.