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Business Issues

When Blockbuster, Amazon, and Walmart started their own mail-delivery video rentals, Hastings recognized that Netflix was in competition with “the biggest rental company, the biggest e-commerce company, and the biggest company, period.â€Â With investors expecting it to fail, Netflix's stock price dropped precipitously to $2.50 a share. But with an average subscriber cost of just $4 a month compared to an average subscriber fee of $15, Netflix, unlike its competitors, made money from each customer. Three years later, Walmart abandoned the business, asking Netflix to handle DVD rentals on Walmart.com. Amazon, by contrast, entered the DVD rental business in Great Britain, expecting that experience to prepare it to beat Netflix in the United States. But, like Walmart, Amazon quit after four years of losses. Finally, 13 years after Netflix's founding, Blockbuster declared bankruptcy. With DVDs mailed to 17 million monthly subscribers from 50 distribution centers nationwide, Netflix is now the industry leader in DVD rentals.

However, its expertise in shipping and distributing DVDs won't provide a competitive advantage when streaming files over the Internet. Indeed, Netflix's Watch Instantly download service is in competition with Amazon's Video on Demand, Apple's iTunes, HuluPlus at Hulu.com, Time-Warner Cable's TV Everywhere, and DirectTV Cinema, all of which offer movie and TV downloads. Moreover, unlike DVDs, which can be rented without studio approval, U.S. copyright laws require streaming rights to be purchased from TV and movie studios before downloading content into people's homes. And that creates two new issues. First, does Netflix have deep enough pockets to outbid its rivals for broad access to the studios' TV and movie content? Second, can it convince the studios that it is not a direct competitor? HBO, for instance, won't license any of its original shows, like The Sopranos, for Netflix streaming. It also has exclusive rights for up to eight years for content from Twentieth Century Fox and Universal Pictures. HBO co-president Eric Kessler says, There is value in exclusivity. Consumers are willing to pay a premium for high-quality, exclusive content. If other studio executives think this, Netflix will not acquire the video content it needs to satisfy its customers. Planning involves determining organizational goals and a means for achieving them. So, how can Netflix generate the cash it needs to pay the studios? How can it convince them it's not a competitor so they will agree to license their content?

Netflix must also address the significant organizational challenges accompanying accelerated growth. Hastings experienced the same problem in his first company, Pure Software, where he admitted, “Management was my biggest challenge; every year there were twice as many people and it was trial by fire. I was underprepared for the complexities and personalities.â€Â With blazing growth on one hand and the strategic challenge of obtaining studio content on the other, how much time should he and his executive team devote directly to hiring? Deciding where decisions will be made is a key part of the management function of organizing. So, should he and his executive team be directly involved, or is this something that he should delegate? Finally, what can Netflix, which is located near Silicon Valley, home to Google, eBay, Apple, Hewlett-Packard, and Facebook, some of the most attractive employers in the world, provide in the way of pay, perks, and company culture that will attract, inspire, and motivate top talent to achieve organizational goals?

If you were in charge of Netflix, what would you do?

Business Issues

Netflix came up with an innovative idea of renting DVDs to the subscribers. Even though, they have already established competitors such as, Walmart and Amazon, but still they came out victorious due to their innovative and updated approach (Sherman & waterman, 2016). Eventually, Netflix was handed over the DVD rental business of the Walmart. On the other hand, internet came in the market in late 2000 and changed the entire scenario of business (Zentner, Smith & Kaya, 2013). Netflix quickly reacted with the change and started to offer online streaming of video content to its subscribers.

This report will discuss about some issues facing by Netflix in recent time regarding their business policy and organizational strategies. Recommendation will also be discussed accordingly to overcome those issues.

With the boom of internet in the market, Netflix offers online streaming of video content to its customers. However, some issues had been originated from their online streaming service (Allen, Feils & Disbrow, 2014). This sector is also not free from competition rather this market already have renowned companies such as , Apple and Warner brothers already operating. Another issue is that, in the case of DVD rental business, Netflix only have to pay for the first DVD to the respective studio and then attract revenue from renting it to the customers repeatedly. However, according to the U.S. copyright act, it is mandatory to pay per streaming and download of the video content. Therefore, Netflix has to pay for every download of the content by the customers. Now, from the perspective of Netflix, DVD rental service was more profitable for them than the online streaming service. However, DVD is now became a back dated product in the market. Thus, Netflix have to implement a sustainable plan to generate profit from the current trend in the market.

It is been seen that in the DVD rental business, Netflix incurred a cost of nearly $240 million for buying the new DVDs. In addition, shipping cost for the DVDs is estimated at $1. It would cost Netflix nearly $600 million in distribution of the DVDs to and from the customers. However, the cost of online streaming service is only 5 cents, which is nothing in front of the cost of DVD rentals (Chao & Zhao, 2013). Therefore, by opting to online streaming service, they can invest the money of busying and renting the DVDs in acquiring the streaming rights from the studios. On the other hand, the customers will download the particular video content several times and it will be a continuous process. The more video content to be downloaded, the more will be revenue of Netflix (Li, Wang, Liu & Zhu, 2013). Therefore, following this business model will not create any cash crunch for them. Moreover, these business models can double the revenue and the profit. Internet is the new sensation in the global market and it is increasing rapidly. Thus, customers will be there for the downloading the video content.

Marketing Issue

There is another issue originated for Netflix regarding their marketing strategy. Various studios such as HBO have their own streaming facilities. They may not be interested in granting the streaming rights to the Netflix in the fear of losing their own market (Allen, Feils & Disbrow, 2014). Therefore, it is up to the Netflix to convince the studios that they are note their competitors rather than they are the complementary for them. Huge payouts for the streaming right is one of the strategies to attract the studios, however, the long run profit margin of the studios may be higher than the one time lump sum payment for streaming. To overcome this issue, another implemented strategy for Netflix is delayed access of streaming.

According to this strategy, Netflix will have the streaming access after 28 days of release of any video content in the market. It may vary from 28 days to 3 months. The advantages of this strategy are that, studios can earn from selling the DVDs of the new releases in the initial stages. It is seen that, 75 percent of the total DVD sales come in the first month of the release. Thus, studios can generate their majority revenue from the initial months and then garner additional returns from Netflix. It is a win-win situation for both the parties. Therefore, Netflix can act as the complementary revenue-generating model for the studios rather than being their competitors. After the initial months of the new releases, the buzz surrounding the content diminishes. Thus, studios also require some platforms to offer their contents directly to the customers in order to continue the revenue generation (BlackBurn-Cabera, 2014). Netflix can serve this opportunity effectively. Hence, there will be no such issue of contradiction between the studios and Netflix.

Netflix is also facing management issue regarding the challenge of managing the existing workforce and decision-making process (Allen, Feils & Disbrow, 2014). Key issue they are facing is whether they should delegate the task of hiring to others or it will be the responsibility of the top-level managers. Top-level managers of Netflix have several complicated tasks to accomplish in order to maintain the market growth. Responsibility of hiring new employees is the extra burden on them. However, Netflix maintain different approach from the silicon based organizations in terms of hiring. Netflix hires more experienced talent, who will be matured enough and can able to take decisions independently rather than hiring young and energetic talents like the other companies do (Chaneta, 2014).

Therefore, it will be effective for Netflix if they delegate the responsibility of recruitment from the top-level managers to the middle-level and the lower-level managers. It will help them to employ right people for the right job because, lower level and the middle-level mangers knows better about the practical requirement in the organization. However, top-managers of Netflix should employ some time like 2-3 hours per day in overseeing the hiring process. It is because, Netflix is not a good old company and thus it is the responsibility of the top-level managers to maintain the organizational culture (Alvesson & Sveningsson, 2015). Top-level managers will have the more knowledge about the organizational culture than the lower-level managers will. Therefore, they should devote some time in hiring process and make the lower-level managers aware about the organizational culture.

Netflix is situated in Silicon Valley, where organizations such as, Google, EBay and apple are situated. They are known as the most attractive employers in the world. Thus, Netflix should also have certain policies regarding human resources, which will attract and motivate the employees to achieve organizational objectives. Netflix maintain three approaches regarding human resources, which include competitive pay scale, mature adult culture and freedom (McCord, 2014). Netflix do not offer any yearly bonus for their employees rather than their salaries are adjusted according to the eligibility of the employees every year (Osibanjo, 2014). The compensation structure of Netflix always remains as one of the top in the industry. This strategy of higher compensation attracts more talents. They are also very liberal regarding the organizational culture. They do not follow any dress code for the employees. They do not have any fixed work timing. Rather than they encourage their employees to work independently (Elnaga & Imran, 2014).

According to them, they employ only the experienced talents and thus they expect that they will be good at managing their own work. It motivates the employees to work freely and effectively (Timms, 2015). Netflix provides their employees the highest possible freedom. Their employees do not have any fixed rules regarding vacations. According to Netflix, employees have all the freedom to work provided they meet all the requirements regarding their respective jobs. They are all accountable for the assigned tasks. These all strategies help Netflix in attracting, retaining and motivating the employees.

Conclusion

Having analyzed several issues that Netflix is now facing, this report concludes that Netflix have effectively implemented strategies in overcoming these issues. They have changed the approach of their marketing policy. They have initiated several measures in order to motivate their employees. All of these strategies proved fruitful because, latest report shows that, Netflix showed a growth of over 34 percent in the market. They have also acquired more than 7.7 million new subscribers in last one year.

Reference 

Allen, G., Feils, D., & Disbrow, H. (2014). The rise and fall of Netflix: what happened and where will it go from here?. Journal of the International Academy for Case Studies, 20(1), 135.

Alvesson, M., & Sveningsson, S. (2015). Changing organizational culture: Cultural change work in progress. Routledge.

BlackBurn-Cabera, J. A. (2014). Streaming Movies Online: The E! True Hollywood Story. U. PUERTO RICO BUS. LJ, 5, 59-86.

Chaneta, I. (2014). Recruitment and Selection. International Journal of Management, IT and Engineering, 4(2), 289.

Chao, C. N., & Zhao, S. (2013). Emergence of Movie Stream Challenges Traditional DVD Movie Rental--An Empirical Study with a User Focus. International Journal of Business Administration, 4(3), 22.

Elnaga, A. A., & Imran, A. (2014). The Impact of Employee Empowerment on Job Satisfaction Theoretical Study. American Journal of Research Communication, 2(1), 13-26.

Li, B., Wang, Z., Liu, J., & Zhu, W. (2013). Two decades of internet video streaming: A retrospective view. ACM transactions on multimedia computing, communications, and applications (TOMM), 9(1s), 33.

McCord, P. (2014). How netflix reinvented HR. Harvard Business Review, 92(1), 70-76.

Osibanjo, A. O., Adeniji, A. A., Falola, H. O., & Heirsmac, P. T. (2014). Compensation packages: a strategic tool for employees' performance and retention. Leonardo Journal of Sciences, (25), 65-84.

Sherman, R., & Waterman, D. (2016). 22. The economics of online video entertainment. Handbook on the Economics of the Internet, 458.

Timms, C., Brough, P., O'Driscoll, M., Kalliath, T., Siu, O. L., Sit, C., & Lo, D. (2015). Flexible work arrangements, work engagement, turnover intentions and psychological health. Asia Pacific Journal of Human Resources, 53(1), 83-103.

Zentner, A., Smith, M., & Kaya, C. (2013). How video rental patterns change as consumers move online. Management Science, 59(11), 2622-2634.

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