Netflix: An Overview Of Its Business Model, Operations, Revenue Essay.

Netflix Business Model and Operations

Question:

Discuss about the Effectiveness And Features Of Netflix.

Netflix is an entertainment company based in USA. The founder of the company is Reed Hastings and Marc Randolph. The function of this company is to offer streaming media, online video as per audience demand and mailed DVD. The company was established in 1997 and it was expanded in 2013 to TV and film production along with online distribution. The company is headquartered in California. It also specializes in rental and sale of DVD. It had retained its services of DVD and Blu- ray while expanding on an international level. In 2016, Netflix was already operating in 190 countries all over the world (Netflix.com 2018).

This particular report on the business activities will include the recent operations of Netflix and its customer segment. The revenue model of Netflix will be considered to focus on their earning. A SWOT analysis will be included to shed light on the current situation of the company.

In the earlier days, Netflix business model consisted of sale and rental of DVD. Gradually it started to shift its attention to the rental of DVD via mail. As Netflix started to expand its business on a global level, it introduced streaming media and at the same time, it still carried on with its initial DVD and Blu- ray rental service. In the year 2012, Netflix started content production and the first series was Lillyhammer. It had modified its business activities by providing Netflix Original through online streaming of films and television. By 2016, Netflix had successfully released approximately 126 TV series and films in their original form which was not done by any other channel or cable network (Aversa and Haefliger 2017).

Netflix has experienced major success in January 2018 when the number of paid subscribers reached to 117.58 million. Among these paid subscribers. 54.75 million subscribers belonged to the United States. The unique strategy of the company pertaining to new content production has paved the way for securing rights for additional content. Its expansion in around 190 countries resulted in the paying off debt by $21.9 billion in September 2017. This amount had increased from $16.8 billion in a gap of one year. The company had long ago introduced the concept of monthly subscription in the year 1999. However, this specific rental model was not used anymore from 2000 Gomez-Uribe and Hunt 2016). The company had started using flat- fee unrestricted rentals which was not limited to any date, shipping charges rental or any other fees.   

The company provided the offer online movie streaming but in 2000, the customers could afford to download movies from the internet. The actual idea of the company was to introduce Netflix box for downloading movies within a night and they had acquired movie rights for the same. Moreover, Netflix had always organized and maintained an extended video recommendation system for customer ratings and reviews. In 2007, the company could successfully launch its billionth DVD, which let them to shift from their original business activities. They also introduced a new activity of playing video on audience demand over the internet. The sale of DVD started to deteriorate within 2006 to 2011 and it was the peak time for the growth of Netflix. The company’s success was also dependent on the wider range of options available to choose by the audience. In comparison to the blockbuster rental outlets and the DVDs, which were available earlier, the audience got plenty of options to make their selection (Massa, Tucci and Afuah 2016).

Netflix Revenue Model and Customer Segment

The remarkable business activities of the company earned them revenue of $945 million with an increase of 8%. Their outstanding role in distributing original content helped in the growth and development of the company.  It was already leading in the market as compared to other websites. The company had excelled in mailing 190,000 discs every day to 670,000 monthly subscribers. This is a noteworthy feature of the company to show concern about their customers. It helped in increasing the number of their monthly subscribers. The affordability of DVD players by every household resulted in the growth of Netflix DVD sale. Their operational activities on online affiliated program helped in the establishment of their online DVD rentals. They also take care about employee satisfaction by providing them with a long vacation with salary and permit them to withdraw any amount on their paycheck stock.

At present, Netflix is the world’s largest internet television network that consists of original series, documentaries and feature films. To know about the current business activities of this company a SWOT analysis is provided below-

Table: SWOT analysis

(Source: Created by author)

As per the contemporary scenario of the company, the target market of the company is any individual who can afford an internet connection. The customers get attracted to the company because of their unique value through original content distribution, varied options in viewing and the reasonable price. The channels through which customers are able to view the video content are the website Netflix.com and the mobile app. They have modified their business model in order to meet the market demand.

A revenue model is a structure responsible for creating revenues. This model helps in identifying the definite type of revenue source, which will be useful for the business activity, the value offered against that model, pricing on the value and the individual who will pay for the value. A revenue model forms the base of a company’s business model. There are different types of revenue models such as markup, arbitrage, licensing, commission, rent or lease, subscription, advertising, fee- for – service, interest and donation. For the business activity of Netflix, subscription is the suitable revenue model. This is because the online video streaming of Netflix operates on a model based on subscription. The subscribers of the company pay a certain amount and they get the opportunity to watch shows, movies, documentaries and feature films (Voigt, Buliga and Michl 2017).

This leading internet television network has 100 million members in 190 countries all over the world where the customers can enjoy 125 million hours of entertainment shows on a daily basis. The target market of the company is both male and female in the age group of 17- 60 and possess an income range of $30,000 (Wayne 2017). The wider range of target group of Netflix business gives a clear idea that they segment their customers based on psychographic rather than demographic. Based on psychographic, the target group was segmented on three categories- the busy group of people who cannot go outside for buying movie DVDs, people who are addicted to movies and entertainment shows and  the third group of people who want to utilize the full amount of money. Subscription is the key source of revenue for Netflix. The monthly subscribers pay an amount to get access to the website content and get the DVDs mailed to them.

SWOT Analysis

According to McCoy et al. (2017), e-business disrupts the boundaries of that aid in the exchange of information. The information transacted is based on the interactions that exist between the customers and suppliers. The main aim of e-business is to transfer information between people that apply in-house system along with remote users and public. The e-business owners aim at growing the business with the application of information and technology. The features of e-business can be analysed below:

Seamless integration with the accounting management: One of the main features that e-business can provide to Netflix is the fact that accounting can be possible with the application of information and technological resources. Relevant information such as the products, pricing and the type of customers can be obtained with the application of accounting. King et al. (2016) stated that in the case of Netflix, these three factors are important for conducting the business in a proper manner. The television shows that are offered by Netflix come at a monthly subscription for people that enjoy good entertainment. This can help the network to maintain its customer base and ensure that the revenue model selected by the company generates proper finances.

Effective display of product with information: One of the main features of e-business that is applied by Netflix in an appropriate manner is the effective display of products along with relevant information. The shows offered by Netflix are properly detailed so that customers can understand the details of the show and subscribe based on the preview. This can help in attracting the customers, as they can be aware of the things to expect from Netflix. Such categorising can help customers gain an easy access to the website and select the best entertainment television show (Laterman, Arlitt and Williamson 2017).

Business to consumer: In the modern world, it is important to appeal to the customers as they form the main stakeholders of a company. For a website like Netflix, developing a business to consumer relationship is important for the success of the website. This can help the website to continue its business and attract customers. The customers need to login with the subscription i.d that is provided and then select from the products that are available for viewing. This helps in maintaining the business to consumer transaction and the website charges regular prices for viewing the shows that are selected by the customers.

Thus, Netflix can use these e-business features to enhance the website and ensure that proper business is maintained. According to Gomez-Uribe and Hunt (2016), each of the feature of the e-business can help the business to continue to grow and ensure that more subscriptions are available. The application of the business to consumer feature can help the company maintain proper relationship with the customers by collecting feedback from them as well. The effective display of the products can also contribute to understand the feedback of the customers about the shows that are aired by the company. Thus, the feedback of the customers can help in the growth of the business. It can also ensure that Netflix gain a proper recognition in terms of the shows that they project and the manner in which these shows can be provided for the betterment of the audiences.

Target Market

According to Bryman and Bell (2015), popular websites may lose its presence in the market due to lack of proper maintenance of resources. Apart from this, competitors may also be present that can threaten the existence of the market. To understand the manner in which a popular website can be made to cease existence, the example of Orkut can be taken into consideration. Orkut was one of the most popular social networking sites in the early part of the 20^th century but slowly faded due to the emergence of Facebook. The options provided by Facebook and the innovative manner by which the company had developed itself led to the loss of customers of Orkut and consequently to the stoppage of its existence. Thus, developers need to keep in mind such competition and mismanagement factors to ensure longevity of the websites.

In the case of Netflix, the website needs to continue its innovative nature so that it can provide customers with the entertainment. Cavusgil et al. (2014) was of the opinion that Netflix need to ensure that the popularity with the customers is maintained by proper hosting of the websites. Hosting of websites signify the manner in which websites manage to maintain one or more files. Usually this is done by the websites that borrow files or products from another website. However, in the case of Netflix, the website needs to ensure that the shows provided by them are categorised in a manner that makes it convenient for the customers to search and view it. The fact that such hosting can help in arranging the shows is one of the manner in which the website can beat its competitors. In this regard, some of the competitors of Netflix can be analysed to understand the strategy that they obtain to ensure longevity in the live streaming industry.

Websites like NBC, Amazon Prime and Fox are some of the main competitors of Netflix. These websites may pose the appropriate hardware and software tools that are necessary for conducting the business and prolong its existence. The development of the software of a particular website can help it to gain necessary feedback from the customers. According to Veit et al. (2014), running server software can help companies like Netflix to maintain its hold on the audiences. This can help Netflix to share files with the customers and provide an opportunity to mail any type of concerns that may arise. Thus, these measures can help Netflix to continue with the effective serving of the customers and maintain collaboration with the entertainment industry. As stated by Soto-Acosta, Popa and Palacios-Marqués (2016) for Netflix to continue in the entertainment market it is necessary for the website to develop these features. This can ensure that the business features and the relevant business model help in the existence of the website for a lengthier period.

In the modern day, e-mail marketing is used to maintain communication with the customers via the use of mails. According to McElheran (2015), every email that is sent to the customers is considered as email marketing. In this regard, it can be said that for a website like Netflix that provides information and allows audiences to continue live streaming of shows, the email marketing can help it to maintain its customer base. The customers that subscribe to the website need to be made aware of the type of services that is provided by the company. In the case of Netflix, the company need to ensure that relevant information is provided to the customers about the type of shows that are made available to them. This can help Netflix organise its customers and the shows by ensuring that the interests of the customers rises.

Conclusion

According to Strauss (2016), sending email about updating a product or service is another form of email marketing. This can help customers remain aware of the manner in which the products and services that they use are innovated and updated. In the case of Netflix, updating the products usually consists of introducing new seasons of the favourite television shows of the customers. For example, last month Netflix launched the new season of Jessica Jones that allowed the website to update its database and sent mails to the customers about the shows. Thus, followers of the show and the Marvel Universe can be made into an important stakeholder for the success of the network. The strategy used by Netflix in this regard is that monthly sending of email to the customers so that they remain aware of the upcoming shows (Chaffey and Ellis-Chadwick 2016). Thus, the development of the new features and new series can help Netflix to maintain an effective e-marketing strategy.

Another important form of e marketing that Netflix can adopt is the co-marketing email strategy. According to Mata and Quesada (2014), co-marketing email is beneficial at the time when two companies sent emails to the customers for the mutual benefit. The main aim of co-marketing is for one company to leverage the customers while the other expands its reach. In the case of Netflix, the website can adopt this particular e marketing strategy while collaborating with Marvel. This can provide Marvel and Netflix with an opportunity to gain popularity among the customers. Such a tactics is required for Netflix so that it can help in promoting the Marvel Cinematic Universe in television (West, Ford and Ibrahim 2015). Thus, the co-marketing of the two networks can help Marvel to continue with the promotion of the shows that they have and hope to gain an advantage in the market. At the same time, Netflix can also benefit by this and ensure that the competitors do not get to replicate the strategy. Thus, it can be said that e marketing can help Netflix in a number of ways to understand the possibilities of gaining customer satisfaction.

Conclusion

Thus, it can be concluded that e-business is one of the major strategies that organisations need to develop in the current market. Without proper analysis of the business, managers cannot implement the e-business models to its advantage. In the case of Netflix, the company need to ensure that the application of subscription model can help the website develop the required finances. The reputation that the website has in the live streaming video industry need to be protected by the application of certain strategies. These strategies can help Netflix gain more customers and at the same time collaborate with other studios to gain more television shows. E marketing is one of the innovative ways by which the website can gain information about the customers and use it for its advantages. The recommendation provided in the case of the application of the e-business features can provide Netflix with an opportunity to be the number one and most popular live streaming media for a long time in the business.

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