The success of a company or any organization is affected by how the management approaches internal and external factors. In every organization, the management encounters multiple beneficial factors because they help achieve organizational objectives or detrimental because they adversely affect organizational performance. Companies handle detrimental factors by adopting effective strategies and priorities to maximize their success and reduce detrimental factors that might affect their operations. Netflix is a multination corporation that has adopted effective strategies that easily blend with its accounting procedures and business decisions to achieve its organizational goals. This paper seeks to discuss the key success factors and risks that affect Netflix's operation and performance.
Netflix Success Factors and Risks
Netflix has different financial and strategic proprieties that enable it to achieve its business goals. The company's top financial and strategic priorities blend with its accounting procedures and business decisions. First, Netflix's generic strategy aims at maximizing the competitive advantages of high operational cost efficiency and operational efficiency (Cherla et al., 2020). The strategy incorporates different methods that have enabled Netflix to run its business activities more efficiently and effectively. For instance, the strategy has helped the company to improve its competitive advantages in the global markets. A generic strategy is flexible, thus can easily accommodate changes made in accounting procedures and business decisions (Cherla et al., 2020). As a result, this has enabled Netflix to perform its accounting and business activities to achieve its organizational goals.
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Secondly, Netflix's intensive growth strategies need aggressive marketing to expand the company's multinational streaming operations. An intensive growth strategy allows incorporating new accounting and business decision methods to enhance the smooth running of the company’s activities (Levy, 2020). The strategy is flexible and accommodative, thus can adopt accounting and business decision-making trends. For example, over the last decade, Netflix has adopted various accounting procedures to achieve its business goals. The adoption of such policies has been supported by the flexibility of the company’s intensive growth strategies. Therefore, the former implies that Netflix’s financial and strategic priorities do not adversely affect its accounting procedures and business decisions.
In addition to using multiple strategies to run its business activities, Netflix is a growth-oriented organization. The company has explored different development strategies to achieve its business goals and objectives (Levy, 2020). For example, Netflix sticks to producing original content that satisfies the desires of its customers. Over the past decade, the company has continued to expand its innovation and creativity to improve the quality of its products and services. Generally, nothing attracts many consumers from all parts of the world than movies and shows. As such, this has encouraged Netflix to adopt effective strategies to expand its global market share. Lastly, Netflix aims to increase its annual financial and business performance by trying better management approaches, such as using cost-effective methods to minimize cost and maximize its profits.
Netflix’s Approach to Risk and Short- Versus Long-Term Planning Horizons
Netflix has used various approaches to address its risks and short versus long-term planning. Over the last five years, the company has increased its services' prices and acquired debt finances to fund the production of original contents to improve its performance in the industry (Anderson, 2019). Consequently, this approach has increased the company's ability to integrate domestic and international subscribers into their services. For example, in 2018, the company announced a note worth $ 1.6 billion to expand original content production. Acquisition of the $ 1.6 billion debt increased Netflix's long-term debt to $ 3.3 billion. The company's $ 3.3 billion debt has increased its capital base, enabling Netflix to offer its subscribers quality services. A large capital base has provided the company's subscribers long-term benefits because of its going concern (Anderson, 2019). Netflix's debt value targets increasing its current and future operations to reduce future debt acquisitions. This decision will help to improve customer benefits and going concern of the company.
Nonfinancial Factors
Netflix mainly focuses on expanding its domestic and international growth to increase its market share in domestic and global markets. Technological advancement in developing countries has improved internet infrastructure, increasing its subscribers (Anderson, 2019). Netflix primarily depends on network coverage to reach many subscribers. The company's target for streaming business has boosted its performance and success in the industry.
Increased use of high internet speeds like 3G and 4G networks and mobile technology has boosted Netflix's operations and performance in the industry. The company has expanded its market coverage targets to countries with high internet speed networks and is widely connected to Wi-Fi and cellular networks (Anderson, 2019). The availability of reliable network infrastructure has boosted Netflix's online streaming business because many customers subscribe to its services. For example, the company's subscription revenues have increased significantly over the past decade from $ 2.163 billion in 2010 to $ 6.44 billion in 2020.
Figure 1
Netflix, Inc. annual subscription revenues from 2010 to 2020
The table above shows a progressive increase in the company's annual revenues generated from online users of its services. Due to the upward trend, the company has increased its online expansion to expand its global market operations (Tseng, 2020).
Over the past decade, Netflix has been committed to providing quality online services that satisfy customer needs and desires. The provision of quality services to its customers' has improved Netflix's reputation both in domestic and global markets because its online subscribers give positive reviews and comments (Tseng, 2020). As a result, this has enabled Netflix to report a progressive increase in subscription revenues because many subscribers’ needs are met.
Furthermore, Netflix has a variety of programs for adults and children. Different categories of the company's plans enable subscribers, especially parents, to restrict their children from accessing only children's contents (Tseng, 2020). As such, this has enabled the company to expand its performance in both local and international markets because the company services provide quality services to all age groups.
Internal Risk Factors Facing Netflix
Statista states that about 50% of consumers subscribed to Netflix in 2017. The number of Netflix subscribers in the U.S. in 2017 moved past 50 million (Statista, 2020). These statistics imply that over 54% of T.V. households in the U.S. had Netflix accounts. Besides the high number of subscribers, the company faces multiple challenges. For example, the subscribers have become tired of paying a lot of money for the movie theatre and cable service (Tseng, 2020). The streaming services promise reduced expenditure by the content consumers, who are unwilling to purchase the services. In the current market, consumers are required to buy cable T.V. with all sorts of movie packages at various price breaks. The charges are comparable to the single price with enormous library services.
Services. More streaming services have emerged in the past few years. Consumers can subscribe to virtually all more services. This phenomenon has slowed down the growth of Netflix in the U.S. As a result, the company's revenue in the local market has also reduced drastically (Yahoo Finance, 2020). However, the company has been expanding internationally. Hence, the organization focuses on the international market as a sensible way of increasing the subscription base. However, attaining this goal will take some time because the subscribers share the accounts logins with multiple family members and friends who have not subscribed for the company's services. Nonetheless, the company should work on a way of limiting account sharing by adding security measures on subscribers' accounts.
Netflix also risks over depending only on subscription as the only source of revenue. Unless the company creates other revenue sources such as advertisement, it can reach the subscription limit, and experience stuttered growth in profit and revenue. Furthermore, the company also faces international business growth risks (Yahoo Finance, 2020). This risk exposes the fluctuation of currency in the local market. The growth of subscribers should be strong enough to prove that it can pay for the company's capital expenditure and support its growth. Any failure in this ground would force Netflix to increase the prices of the subscribers' services, which might make some subscribers consider other service providers that provide the same services at low prices.
Conclusion
In summary, Netflix uses various strategies to increase the quality of its services and performance in the industry. The company prioritizes different strategies that accommodate its financial procedures and business decisions to run all its organizational activities more effectively and efficiently. Besides, Netflix is also focusing on expanding its domestic and international growth to increase its market share in domestic and global markets.
References
Anderson, D. (2019, November 10). Netflix, Inc.'s organizational structure & its strategic implications. Record Society. https://www.rancord.org/netflix-organizational-structure-design-organizational-chart-characteristics
Cherla, A., Howard, N., & Mossialos, E. (2020). The ‘Netflix plus model’: Can subscription financing improve access to medicines in low-and middle-income countries?. Health Economics, Policy and Law, 1-11.
Levy, A. (2020, January 29). 3 factors that could lead to sustained Netflix subscriber growth in the U.S. and Canada. The Motley Fool. https://www.fool.com/investing/2020/01/29/3-factors-that-could-grow-netflix-us-subcribers.aspx
Statista. (2020). Streaming video subscription revenue in the U.S. in 2016. https://www.statista.com/statistics/560395/streaming-video-subscription-revenue/
Tseng, A. (2020, March 30). Why Netflix's Financial Position Is Strong and Getting Stronger. NASDAQ. https://www.nasdaq.com/articles/why-netflixs-financial-position-is-strong-and-getting-stronger-2020-03-30
Yahoo Finance. (2020, December 18). Netflix, Inc. (NFLX). Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/NFLX/cash-flow?p=NFLX
