Introduction: The Company
Netflix plays a major role in the stream media industry, globally streaming movies and TV series (Netflix.com). The company is extremely popular in the US and has turned its attention to the global market, according to a recent article on Forbes (Trefis Team, 2015). The Forbes article further stated that over half of the US people use services from Netflix, due to its competitive pricing and fresh content that ensures quality delivery on a consistent basis. These ensure information flow and availability of required entertainment to the customers. Netflix had started the business back in 1997 and provided DVD-by-mail service. In 2007, it began streaming videos and TV shows over the internet. The company has since experienced many challenges on the market as it grew from strength to strength as a service provider in entertainment (Lusted, 2012). It has a strong global appeal globally and its influence in entertainment cannot be undermined. Ferrel (2008) pointed out that between 1997-2007, Netflix’s customer base grew strongly to a commendable 10 million subscribers. Revenue of nearly $2 billion was reported back in 2007. Already, a lot of potential and opportunities to be exploited presented themselves in the stream media industry, especially in entertainment content.
Discussion on the future of Netflix
a. Likely Future Investment
In the future, Netflix will involve developing its original content (Ferrel & Hartline, 2013). There has been a rapid change in the business environment, especially with rapid advancement in technology. The entertainment industry has since shifted, especially in ways consumers received the movies. According to Ferrel and Hartline (2013), the DVD would decline in the future and present a problem for an alternative competitive service. Rubinstein and Firstenberg (2014) mentioned that Netflix had announced a plan to split into services, which brought about a public outcry that forced the company to hold back its strategic plan to a later date. They had purported to split their services into Quickster, which would cater for mail DVDs; and Netflix into streaming of movie series and TV shows. It could be argued that the management of Netflix saw the challenges ahead and the opportunities in the future in streaming hence that announcement. Anyway, it had to back down since would have complicated how consumers made movie orders and were served.
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A critical look into the future reveals a decline in the disc business, as explained by Ferrel and Hartline (2013). Netflix built itself around the DVD mail business or movies and established a successful niche market. However, with the global changes that push demand for faster information due to the rapid advancement of technology and more opportunities on a global market, better cost effective approaches need to be deployed. DVDs by mail would be faced out, and better business streams developed. Ferrel and Hartline (2013) elaborated that the continued development and growth of streaming options make it a better future investment. Already, competition is fast growing in this specialty in entertainment. Companies such as Google Play, Amazon and Redbox should be considered as threats with the investments and influence they potentially show over the years. Netflix continues to dominate in streaming, video rentals and DVD mails. Developing own original content would give it both control of the market and product, besides a competitive edge.
b. Costs and Benefits of Developing Own Original Content by Netflix
Although costly, developing original content would benefit Netflix in the long-run (Trefis Team, 2015). In the Forbes article, Trefis Team (2015) explained that even though the development of original content would in the short term increase operational and other overhead costs, the strategy would prove beneficial and profitable in the long term. Netflix needs to differentiate itself from the other players in the streaming industry. This could be through developing and providing quality content to consumers, both consistently and at competitive rates. The best strategy that could then be adopted could involve gaining considerable market share globally based its original content provision. The high costs of developing original content could be worked out basing on economies of scale, whereby the cost could be spread over a high number of new subscribers obtained, over a considerable period to break even then make a profit. An initial expenditure of approximately $10 billion would be required in 2017.
As mentioned earlier, there is increased competition from other equally influential market players such as Google Play, Amazon, Comcast, HBO and others. Online streaming space is a lucrative business, and new players would strive to penetrate the market and cut a market share for their advantage. Trevis Team (2015) mentioned that in a bid to improve its subscription service, YouTube applied for streaming rights or movies and some TV series. Since it is a known fact that cost of developing new content is high, investment and strategies need to be put in place to increase its number o subscribers. Already, the company has a global appeal with favorable statistics that would make most consumers in other parts o the world prefer it to other online streaming providers. Netflix seems to have taken an aggressive stance on subscription with the introduction of its premier service worldwide, with Canada, Latin America, Europe and Africa (Ojer & Capapé, 2013). Working on a subscription of 70 million would be appropriate to balance the business scales of cost sharing.
Developing original content would enable Netflix to continue to benefit from the competitive advantage it already has on the market. As established by Ferrel and Hartline (2013), Netflix had developed its competitive advantage over other market players in years it has been operation. The same could be applied once the original content is developed so that the strategies could be improved upon. Some of the advantages mentioned include more selection of movies and content available, including international films, documentaries, television shows and series. Developing own content would enable the company to maximize on what it could offer best beyond what competitors such as HBO, Wal-Mart, Sony and others offer. Using
Poggi (2014) of AdvertisingAge mentioned that the future television would not have commercials. Since Netflix would be developing own content, there would be more personalization in TV programs and content. Television commercial would become a thing of the past. Such content that allows consumers to stream choose from a variety and select what best suits their occasion would make the content favorable And Netflix service preferable. This would present Netflix with a new opportunity to differentiate their service provision and gain competitive advantage through adopting new ways to tell stories. As such, this would bring more democratization in the future. According to Poggi 2014), Netflix is investing in using consumer data available in its vast resources to learn what consumers wish to watch and consume as an audience, then generate personalized content that would fit across the demographic divide. Individualization and personalization developed and presented through quality, and relevant content would surely increase subscription to the services provided by Netflix, and continuous recommendations for more subscribers and content.
Therefore, as far as the future investment in content development is concerned, it would be an expensive and risky venture with no guaranteed rate of return in the short run. Many factors are into play, and competitors are equally investing and working on their strategies to gain market entry and build their market share. An investment cost of $ 10 billion would go a long way t establish structures and systems or profitable global audience. A considerable amount should go into developing the content and working with the stakeholders in content development to ensure quality and reliable supply are in place. This could cost about $4 billion on the lower end. The other amount would be required in the development of means to acquire more subscribers through marketing and promotional campaigns. At least $$300 million would go towards the development of seamless advanced technology in online streaming of entertainment content. Kalogeropoulos (2015) mentioned of Netflix long-term view, especially where business was headed. Most of the expenses were to be focused on content development, marketing, and development o technology. Since the cost estimates provide are not up to date, more approximate costs and projections were suggested or consideration, as provided.
c. Effects of the Potential Investment on Budgeting and Related Business Decisions
As provided above, such huge capital outlays on the business require a lot of deliberations, research and pragmatic leadership to achieve the desired goal. The investment involves spending from the starting financial year 2017 where the funds would be spent in phases in planned for and agreed cost centres. Reviews would be continuously be made on a quarterly basis with financial reports on the appropriation of the funds, results achieved and future action. It is agreeable most of the desired results would take the time to reflect, estimated two financial years. There are issues that require constant monitoring through marketing and R&D. Subscription to Netflix is of utmost importance, considering a record 70 million subscribers required by mid of the coming financial year.
The spending priorities of the allocated investment would be based on a need and result basis. The fact that fixed and variable costs would be involved on a global scale, with many variables expected to come into play that would influence the outcome of actions implemented; careful consideration would have to be looked at. The investment funding would be a continuous exercise, with a substantial amount invested into feasible projects that would enable a wholesome review o the final works achieved, based on set objectives, each quarter and each financial year. Encouraging though, and if continuous pragmatic financial and resource management would be considered, the benefits of such an investment would outweigh the costs incurred. The world is turning global, and investing ahead in structures and mechanisms to enable efficiency in business operations would be a considerable and advisable act.
Netflix’s future plans to develop own content is well thought of a strategic business plan. There is a lot of competition in the streaming industry and for a major player to have things work out require continuous developing of strategies that ensure the competitive advantage is appropriately applied. A huge outlay of almost over $1 billion would be required for Netflix to develop own content, set up systems and ensure high subscriptions to its services. Such a huge investment requires proper planning and visionary leadership for success to get achieved.
Ferrell, P.A. (2008). Marketing . Ohio: Cengage Learning.
Ferrell, O.C. & Hartline, M. (2013). Marketing Strategy, Text and Cases. Ohio: Cengage Learning
Kalogeropoulos, D (2015 Sept. 22). How Netflix Inc. Plans to Spend $7 Billion Next Year. Retrieved from http://www.fool.com/investing/general/2015/09/22/how-netflix-inc-plans-to-spend-7-billion-next-year.aspx
Netflix. (2016). Retrieved from www.netflix.com
Ojer, T. & Capapé, E. (2013). Netflix: A new business model in the distribution of audiovisual content. Journalism and mass communication , 3(9), 575-584.
Poggi, j. (2014, May 19). AdvertisingAge. The Future of TV? No More Commercials, Says Netflix Chief Product Officer . Retrieved from
Rubinstein, M. F. & Firstenberg, I. R. (2014). Extraordinary Outcomes: Shaping an Otherwise Unpredictable Future . New Jersey: John Wiley & Sons.
Trefis Team. (2015 Dec 14). How Increasing Original Content Will Benefit Netflix In The Long Run . http://www.forbes.com/sites/greatspeculations/2015/12/14/how-increasing-original-content-will-benefit-netflix-in-the-long-run/#5dd97ead7b13