The Online Entertainment Venture

Online Entertainment Distribution

Technological changes and cultural changes of the global community that has led to the over dependency of technology has changed all sectors and way of life. Entertainment industry being one of the areas that are over-reliant on the internet has also changed leading to traditional entertainment industries to improve their business strategies for them to survive the changes. These changes are evident in the transformation of Netflix.com Inc. The company began the new venture of online DVD rentals due to the embracement of the internet that meant that for the company to remain in the business of rental DVD distribution, it had to transform and ensure it remained the biggest and most dominant DVD distributor (In McDonald, & In Smith-Rowsey, 2016). The venture discussed in this paper is adapted from Netflix.com Inc. which demonstrate the need of undertaking unknown risks for the growth of an organization. The paper explores the online entertainment venture.

Online entertainment venture is a local investment as it originated in America following the need for the organizations distributing either music, TV shows, movies, and other entertainment services and products had to transform as the consumers were no longer interested in pay TVs. The venture is currently in the entertainment industry in the sector of goods and services distribution. The goods are mainly DVDs which are delivered following online purchases or renting. The services are online streaming whereby the subscribed customers can view the movies or TV shows by connecting to the internet through the accepted networks. Due to the embracement of internet and innovations of suitable devices, more companies are currently investing in the venture (Hitt, Hoskisson, & Ireland, 2013). The venture has been in operation for the last decade as more subscribers, and global population favors online streaming rather than purchasing DVDs and also due to the need to cut shipping costs that are incurred when distributing the DVDs to international markets.

Description and Challenges of the Online Entertainment Venture

The chapter describes the products/ services of the venture, the business model used, the customers, competition, challenges, and briefly discusses the history and current status of the investment. Since the investment is derived from the Netflix.com Inc. business strategy, the paper thus describes the categories in this section.

Product/ Services 

Although the population is becoming dependent on the internet, there are still people who still want to access the movies, TV shows and other forms of entertainment via DVDs thus the products mainly provided under the venture are DVDs. The subscribers can either order via phone or through online websites. With the increasing number of people favoring or preferring online streaming, the enterprise becomes more of a service industry as most of the movies and TV series are provided via the internet. The venture entails providing an available library to the subscribers for viewing their preferred TV shows or movies (In McDonald, & In Smith-Rowsey, 2016). The subscription is also via the Internet and other customer services, for instance, customer care and guidelines on the homepage of the company’s website. These services are accessible via different devices, for example, TVs that can connect to the internet, computers, and smartphones or any other device that can access the internet.

Business Model 

The business model of the venture is both vertical and flat in that the organization providing the services must gain access to intellectual property rights from the entertainment producers to distribute their productions. They must also interact or associate with the network providers to ensure that they can deliver high-quality products and the customer’s privacy is maintained. The horizontal business model entails production and sale of original movies and series and distributing them.

Customers 

Unlike other product and service industries where some businesses can purchase and sell in bulk, the venture’s customers are the consumers who pay or subscribe to access the movies. Although the sector is changing where some online streaming websites allow the customers to download the contents, Netflix does not offer such services hence the customers are the people who pay for the entertainment.

Competition 

The venture is risky due to the extent of competition mainly from HBO, Hulu, Blockbuster, and Amazon which are currently selling the same products (In McDonald, & In Smith-Rowsey, 2016). Although the market has high entry costs that limit the entry, there are fears of large enterprises, for instance, Google entering the market. The primary strategy used to succeed in the market and gain a competitive advantage in a market where there are no long-term contracts is to ensure high-quality online streams at a relatively low price. The distribution channels are also critical in enabling that the subscribers remain with the company rather than move to other providers.

Challenges 

The primary challenge is piracy whereby some illegal websites allow people to access and download the movies and TV series for free. The TV show, Orange is the New Black, which was originally produced and distributed by Netflix, was sold by such websites thus leading to massive losses for the company. The other challenge is based on peer-to-peer sharing that limit the number of subscribers. External factors, for instance, poor network connections or slow connections during the peak hours affect online streaming as they influence the quality of videos. The rapid changes in the market are becoming too difficult for the companies to catch-up leading to high capital in enabling access to the websites via smartphone apps which are always changing (In McDonald, & In Smith-Rowsey, 2016). These issues compounded with the problem of short-term subscriptions makes it a huge challenge to maintain subscribers while also targeting new customers. The industry is also affected by economic constraints.

Brief History and Current Situation of the Venture 

Online entertainment distribution sector was mainly dependent on DVDs, but as internet embracement and changes of the customers’ preferences, the industry started to embrace online transactions. In the past entertainment distributors mainly focused on merging or engaging in businesses with TV producers to ensure they would produce DVD devices but since 2002, the trend has been changing with more organizations joining or making agreements with online sites to enable advertisement and easier access to their main websites (In McDonald, & In Smith-Rowsey, 2016). Agreements to share profits gained from online streaming with the producers are currently the primary strategy used to sell the services. The customers during the early stages of the venture subscribed certain amounts of money, and once their money was over, the connection would stop. These strategies were unsatisfactory and did not provide an extensive library for the subscribers. The organizations thus changed to unlimited access to channels that would ensure that following subscriptions the subscriber would be able to access as many services as possible without fear of subscription ending before the end of the month after subscription. The quality of movies was also of low quality hence the current investments in improving the quality by merging or operating together with the network and innovative digital companies to enable increased quality. Lastly, the level of competition and rivalry has increased with more companies joining the market.

The Summary of the Main Points, Models, or Ideas from Academic Articles.

The challenges discussed above have also been addressed by various academic articles that try to determine the context of the challenges and the best way to solve the problems. According to Nicole (2016), technology changes have affected the entertainment distribution market. The research analyzes the changes from cable TV that have been hit by Netflix and Hulu since their move to online streaming. The paper noted that the internet which is the primary determinant of the modification had changed the preference of the general population thus making them prefer to stream videos rather than pay for cable TVs. Although the success of companies like Hulu and Netflix, the author claims that the rapid changes in technology pose the biggest threat to the entertainment distribution market (Nicole, 2016). The issue of quality has also been broadly discussed to determine the factors that lead to the choice of one online streaming company over another. According to the article, the increase computers ownership where it rose to 84% in 2013, led to increased subscription of cable television at a decreasing rate unlike earlier that it was growing rapidly. The article concludes that although there is a limitation in the research to determine the main changes due to data issues and contexts, online streaming has increased rapidly and with more companies providing the services, consumers can enjoy a wide variety of entertainment at the lowest possible prices (Nicole, 2016). These claims portray that customers’ preferences and cost of subscription are some of the main challenges of the industry since they do not have long-term contracts.

According to a retrospective view of internet video streaming, online video streaming for the last two decades have drastically changed. The article discusses the major issues affecting online streaming that namely, quality issues, piracy, peer-to-peer, and subscriptions (Li, Wang, Liu, & Zhu, 2013). The paper claims that for the last two decades the innovations and changes in technology have led to the modification of faster internet connections that have benefited the growth of online entertainment streaming. The authors claim that changes from the second generation to the third generation and the digital device improvements have enabled companies in the venture to provide quality videos to their subscribers but have also increased the rate of piracy and peer-to-peer sharing that has continuously reduced the gains of licensed online video providers. Piracy in entertainment have been a huge barrier to the success of the ventures since the illegal sites that provide the videos for free have limited security risks for the users. These issues and the limited government security in most of the international markets on piracy and cyber securities have contributed to massive losses by the legitimate websites or companies (Li, Wang, Liu, & Zhu, 2013). The article also enlightens the reader on the peer-to-peer issue by explaining that the peer or the first person not only downloads the video, but they upload the video to their peers, or they might store the video and share it offline. The act leads to increased suppliers and with the lack of payments for the new uploads, the online streaming companies are exposed to negative price competition.

Ways Online Entertainment Distribution can be Improved

According to Nicole (2016), it is clear that although the trend of preference of cable television is changing, there are still many people who still value the cable television but the younger generation is more dependent and prefers online video distributions. This issue demonstrates that for an online video streaming company to be successful both in the short-term and in future, it has to target both the old and young generation. A company, for instance, Netflix is still continuing its DVD rental distribution, and Hulu offers both online streaming and cable television thus demonstrating the importance of maintaining traditional business strategy and integrating them with new strategies that favor online distributions (Nicole, 2016). The article also claims that with the change of technology comes a change in customer preferences thus online entertainment distributors should undertake broad strategies to determine the best strategy to ensure they maintain their current subscribers before employing strategies to increase their clients.

The various changes discussed in the second academic article illustrate that changes and evolution of technology have both positive and negative consequences. The positive impacts, for example, improved bandwidths should be used to enhance the quality of the videos to the satisfaction of the customers. The negative consequences are threats thus the online providers should determine the best way to decrease downloading of the videos which are only possible if the producers and distributors should be more vigilant in ensuring there are no leaks that can be used by the illegal free online sites that increase the suppliers. These improvements will reduce peer-to-peer challenges that promote piracy (Li, Wang, Liu, & Zhu, 2013). Entry of market strategies is also critical in enabling that the company’s site is only accessible in countries that have laws against theft. Lastly, the need to reduce prices and discounts for long-term subscriptions or long-term subscribers will ensure that the companies can focus on targeting rather than preserving customers.

References

Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. (2013).  Strategic management: Competitiveness & globalization : cases . Mason, OH: South-Western, Cengage Learning.

In McDonald, K., & In Smith-Rowsey, D. (2016).  The Netflix effect: Technology and entertainment in the 21st century .

Li, B., Wang, Z., Liu, J., and Zhu, W.. (2013). Two Decades of Internet Video Streaming: A Retrospective View. ACM Trans. Multimedia Comput. Commun . Appl. 2, 3, Article 1 (October 2013), 20 pages. DOI = 10.1145/0000000.0000000 http://doi.acm.org/10.1145/0000000.0000000

Nicole A. P., (2016). "The Impact of Technology on the Entertainment Distribution Market: The Effects of Netflix and Hulu on Cable Revenue". Scripps Senior Theses. Paper 746. Retrieved March 17, 2017, from, http://scholarship.claremont.edu/scripps_theses/746