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A Brief History of Netflix

Discuss about the Overview of Netflix Strategy.

Netflix is one of the most popular online streaming tools that are currently dominating in this industry. The organization is one of the oldest and it also has a great future. Netflix is a supplier of web just streaming media (Netflix.com, 2017). Then again, to place it in plain speaks, Netflix offers TV shows and films that consumer observes only on the web. In the most recent couple of years, as the world has gone on the web, and as progressively individuals are watching motion pictures and TV demonstrates on the web, Netflix has changed into a powerhouse of online diversion.

The study incorporates the background, history, rise and strategy of Netflix. To provide a sound idea on rise of the organization, the report describes the evaluation of technology, online streaming, pricing strategy and innovations in it.

Institutional Background:

Reed Hastings and Marc Randolph on 29th August 1997 founded this multinational entertainment organization. The organization is an America based and was first established at  Scotts Valley, California. The present headquarter of the organization is in Los Gatos, California. Besides providing and specializing in video on demand a streaming media, the organization sell DVD through mail (Netflix.com, 2017). Apart from that, in 2013, the organization enhanced its business by adding television and film production.

In 14th April 1998, the organization was first launch. At then Netflix had only thirty workers. Hastings was the founder of Pure software (Successstory.com, 2017). After ‘Pure software’ was sold, he invested into Netflix. The true idea of Netflix was Randolph’s. The Netflix created the monthly subscription and single rental model both in 1999 and 2000 respectively. After this, the organization has generated a business model of flat-fee unlimited rentals without late fees, due dates, handling fees and shipping, or per-title rental fees. The organization first earned its profit in 2003. The amount of profit was US$6.5 million on revenues of US$272 million (CNN, 2017). By 2005, the organization was selling out  more than one million copies of DVDs.

The next phase of the organization was to develop a specialized system that can personalize recommended videos on the basis of the consumer’s reviews and ratings. In 2006, the organization announced that if a person can generate a better algorithm in compression with the present recommendation system, he can win a ‘Netflix Prize’ worth of one million dollar (Davis 2016). A seven man team was able to get a hold on the prize. However, Netflix never used that idea in real life. After moving into the streaming in 2007, the organization had experienced a huge improvement in the subscription, the organization had more than twenty million subscribers.

The huge change that the organization made was enhancing the server performance. The organization’s R&D department was working on improving the performance of the server for four years. The server became so powerful that it could perform as the new-bandwidth saving technology (Halal 2015). These results have motivated the management of the organization to make the biggest change since the launch of online video service. The organization is depending on the project of re-encoding the entire catalog. This will allows Netflix to provide the users better visualized streams and allow to save data up to twenty percent.

The Rise of Netflix Changing Technology

Netflix has been dealing with this new innovation since 2011, when individuals from its video calculations group understood that they had missed the point. Such as practically every other organization in the online video world, Netflix had been setting up its video documents for spilling in light of the transmission capacity accessible to consumer (Carr 2014). Some Netflix supporters were getting to the administration with moderate DSL associations, a fortunate few were at that point online with super-quick fiber speeds and others had speedier link associations.

In light of these use cases, Netflix's video calculations group had built up various quality levels, or formulas, as they are brought in the realm of video encoding (Idland, Overby and Audestad 2015). Every video record on Netflix's servers was being set up with these same formulas to make numerous adaptations important to serve clients at various rates. At the most minimal end was a document encoded with a bitrate of 235 kbps, which would work even on moderate associations, additionally just convey a determination of 320 by 240 pixels. Some place in the center was a 1750 kbps petition for a determination of 1280 by 720, and the best quality was a 5800 kbps form for an awesome looking 1080p experience (Allen, Feils and Disbrow 2014).

The framework of Netflix’s systems are complex, massive and highly distributed. The system is so big that it is not possible to monitor all the systems continuously. The organization has moved to online streaming in 2007 (Huang et al. 2015). One-third of the consumers of this organization is from North America. In order to provide the services to the consumers, it owns a content delivery network or CDN. The CDN can be considered as the storage servers that is based on global network. The device cache content near to the place it will be watched (Cicco and Mascolo 2014). In 2012, Netflix stopped relying on third party providers for caching work and implemented the CDN (Open Connect) in their system. The storage hardware that the organization is currently using are all custom made. This storage devices are specially created for online streaming of videos. Nginx Web server, the FreeBSD operating system, and BIRD routing software are open source software are incorporated within the server of Netflix. At the top of all the software there is a layer of Netflix software (Shehabi, Walker and Masanet 2014).  

To explore this environment, Netflix has recently finished its shift from in-house server farms to outsider facilities. The organization's IT framework is completely situated on Amazon's cloud server farms (Cicco and Mascolo 2014). In this creation environment, Netflix has appropriated possession among its designing groups. Every group is currently entirely in charge of coding, testing and settling any issues all alone work, which boosts and has prompted to more hearty applications being assembled (Huang et al. 2015). Assist, Netflix has created apparatuses to screen and give pertinent knowledge and representations to identify, analyze and resolve issues.

The organization clarified how it does this is by offering its endorsers an assortment of value levels so they can pick the level they need. It offers more an incentive at the higher-evaluated and center levels (Baugher and Ramos 2014). The organization emphasized that it hopes to expand its ASP (normal offering cost) after some time and plans to convey more an incentive to its supporters at the cost. The fresh additions of subscribers of Netflix is slightly greater than it was expected in fiscal 2Q16. Netflix acquired net additions of only one of sixth million member within the US (Wu 2015). The result was way below that the expected. The organization expected to have half million members.

Operating Online

Figure 1: Video Streaming Pricing for All the Major Organizations

(Source: Baugher and Ramos 2014, pp - 68)

Netflix's arrangements normal around $10 every month, and Hulu's online TV administration is required to cost $35 every month. Time Warner's HBO Now and Dish Network's Sling TV are valued at $15 and $20 every month, individually (Lyons 2016).

Netflix conceded at the gathering that while it was underpriced contrasted with its companions, it trusts this under evaluating has been adjusted to some degree as far as the value that purchasers have been tied down on Netflix.3.4 Netflix’s Innovation (Balasubramanian, Bhattacharya and Krishnan 2015):

Netflix sought after huge thought, gushing video, despite the fact that it would render out of date his superbly fruitful, exceptionally tuned, mail-based framework for conveying DVDs. By difference, most organizations think little they attempt to ensure their current business regardless of the possibility that they can see a long haul danger from the Internet or other innovative disrupter. Instead of having big ideas, the organization started the business with a lot of small project (Wu 2015). After successfully establishing in the industry, Netflix could appeal to Blockbuster's center group of onlookers by giving, a more extensive determination of substance with everything you-can-watch, on request, low-value, high caliber, profoundly advantageous approach (Greenstein, Peitz and Valletti 2016).

Netflix is one of the biggest names while it comes to using disruptive innovation. This strategy can be referred to the process of sustaining innovation though modification of the present services for attracting better paying consumer.

Top of the S-curve: It is by all accounts programmed for each organization to have a S-bend that they need to adjust to sooner or later in their development spurt. For Netflix it was around the time that gushing recordings and "On-Demand" TV were beginning to wind up distinctly more conspicuous. Not at all like Blockbuster, and obscure to general society at the time, Reed Hastings had been putting millions into spilling video research and rights to stream sitcoms and films (Zhang, Wu and Wang 2014). Reed emerged ready to take care of business again with a moment membership charge that permitted clients to watch gushing recordings specifically on their TV. A contender, Hulu, permitted clients to watch on the web, while On-Demand TV cost cash for every motion picture or show, however Netflix was a month to month membership that permitted the client to watch unlimited measures of TV (Oh, Animesh and Pinsonneault 2016).

Porter’s Five Forces Analysis:

Internal rivalry: The organizations like Redbox, Blockbuster and Amazon are the most renowned competitors of Netflix and provide substantial competition and rivalry to the organization. In terms of recognizing the rivalry, levels of advertising incurred and marketing costs acquired by individuals firms are considered. In 2008, Netflix spent more than two hundred million dollars in advertising (Sadq 2013). This amount was dominated by several online advertisement and affiliate marketing deals.

Substitute services and products: In terms of most users, it is necessary to have a digital cable connection. Therefore, having film collection from cable network is not a surprising fact. The ‘On Demand’ service that the cable television providers offer can be considered as the substitute of for Netflix. However, to do so, the cable television providers need to increase their stock of movies first. For gaining success and remain in the industry, it is essential for Netflix to repeatedly change with the changing technology.

Pricing Strategy

Entry of new consumers: In order to attract the new consumers, it is important that Netflix maintain the rise of e-commerce popularity (Adhikari et al. 2015). The organization can improve their HD streaming inventory. If it fails to do so then ‘On Demand’ service can take its place.

Bargaining power of consumers: The movie rental industry can be considered as an active industry. In time of slower economic growth, the consumers have less amount to pay to the service providers. This implies that, in that time the profit of the organization will reduce simultaneously. On the other hand, in a healthy economy, the consumer are willing to pay more. Therefore, the customers in this industry has a high power of bargaining (Halal 2015).

Bargaining power of suppliers: The business of the organization is established on the contents that the studios provide. The organization first acquire the contents and after that provide the service to the consumer. The suppliers are also very powerful.

Strength: The strengths of the organization are as following.

1.Competitive

2.Existence of flexible system

The consumers can preserve low operating expenses (Halal 2015)

1.Offers services on low prices that province competitive advantage

2.It is an Electronic-commerce Expertise

Weakness: The weakness are as following.

1.In comparison with the competitors, financial resources are small

2.For getting the content, the consumers need to wait for two days

The expansion of Netflix’s business in terms of countries is limited

1.Hugely depended o UPS for proposing postage enhance and forwarding distribution channel (Sadq 2013)

2.Brand loyalty is not good

Opportunity:

1.The DVD rental industry is grossing each year

2.International expansion of internet access of DVD (Adhikari et al. 2015)

Blockbuster Corporate Headquarters has experienced small metro

Threat:

1.A wide range of technologies, viewing prices, and services are covered by the DVD video industry

2.The possible competitors can propose home video in less amount than Netflix

Firstly, the consumer in this industry does not return after a single bad experience. Instead of understanding this the organization took the decision of selecting the same business model as Amazon and EBay. Secondly, it was a huge mistake of Netflix to overlook the requirements of consumer (Sadq 2013). At the beginning, Netflix refused spend capital for attracting new consumers. Thirdly, the cost of Netflix increased with as the consumers wanted to watch the new released movies. Fourthly, consumer loss is the biggest strategic issue of the organization in terms of subscription-based service.

Netflix included about 2 million new supporters locally and around 5 million endorsers globally in the final quarter this year, the organization said today. Divider Streets desires for the final quarter fell far underneath that, coming in at 1.38 million and 3.78 million separately (Lawler and Worley 2015). The organization will address the money related parts of the organization additionally down, yet the genuine article to note here is that the endorser numbers until further notice are what Wall Street truly thinks about in light of the fact that it speaks to the future development of the organization.

Netflix’s Innovation

Netflix set itself up for a tremendous final quarter by to begin with, prior in the year, amending down its second from last quarter endorser development desires. It then, after helpfully beating those desires, pivoted and raised the desires for the final quarter for supporters (Butler, Ellinger and Armstrong 2014). That initial step back in desires stressed Wall Street a bit, yet then the ensuing beat increased present expectations for what the organization expected  a breakout final quarter.

Figure 2: Trends In Streaming Subscription

(Source: Butler, Ellinger and Armstrong 2014, pp - 336)

While Netflix's universal gushing membership vertical makes up just 30% of Netflix's assessed esteem, Netflix's worldwide endorser development has been hitherto extremely solid (Villarroel, Taylor and Tucci 2013). Netflix trust that the global memberships will keep on growing at a powerful pace in the close not so distant as the organization has a nearness in 190 nations. Netflix conveyed a phenomenal execution in the global section this quarter as its supporter base developed by a record 5.12 million clients, surpassing its conjecture of 3.75 million. The organization expects the development in endorsers of proceed and would like to include 3.7 million supporters in the universal markets for Q1 2017 (Lawler and Worley 2015). Netflix trust that Netflix can cross 80 million universal endorsers before the finish of our estimate period as a large portion of the areas that Netflix has extended to be under-served.

Nowadays, Netflix is apparently fixated on taking off more unique programming than most fans can stay aware of. In 2016 alone, the organization has arrangements to present over 600 hours of unique substance (Wu 2015). Stunningly, Netflix has additionally found a way to take into account a wide range of watchers. Today, Netflix's steady of unique substance traverses each classification possible, from kid's shows and documentaries to political thrillers and remedies and everything in the middle.

As Netflix's attention on unique programming expanded, the organization turned out to be increasingly eager to let expensive permitting bargains lapse. Most as of late, Netflix selected not to reestablish its permitting manage Epix and in the process lost access to a large number of movies, including mainstream titles like The Wolf of Wall Street and The Hunger Games: Catching Fire.

In spite of the fact that Netflix is as of now fixated on taking off unique preparations, the organization arrangements to raise the stakes extensively in the coming years. Looking ahead, Netflix imagines a future where no less than half of its substance is contained unique programming (Fortune.com, 2017).

Conclusion:

From the starting to the preset day, Netflix has been a very popular and strong organization in the online video streaming industry. The continuous research and development in the technology has made the organization stronger than its competitors. The innovation has been a great part of Netflix’s business. It is crucial for the organization to span its business other countries. Though the consumer base of the organization in US is very string, expanding to other countries will provide more opportunity. Availability of less amount of finance has always been a great headache of the organization. The pricing strategy that the organization is currently using needs to be improved with no further delay. One of the biggest challenges of the business in future will be providing services that will consume less than half of data.

References

Adhikari, V.K., Guo, Y., Hao, F., Hilt, V., Zhang, Z.L., Varvello, M. and Steiner, M., 2015. Measurement study of Netflix, Hulu, and a tale of three CDNs. IEEE/ACM Transactions on Networking (TON), 23(6), pp.1984-1997.

Allen, G., Feils, D. and 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), p.135.

Balasubramanian, S., Bhattacharya, S. and Krishnan, V.V., 2015. Pricing information goods: A strategic analysis of the selling and pay-per-use mechanisms. Marketing Science, 34(2), pp.218-234.

Baugher, D. and Ramos, C., 2014. The Relationship of Online Netflix user reviews to days to sale for new DVDs on Amazon. ASBBS Proceedings, 21(1), p.68.

Butler, T.D., Ellinger, A.E. and Armstrong, C.E., 2014. Performance Benefits of Being a Great Retailer to Work For: A Resource-Based Perspective. ADVANCES IN MARKETING, p.336.

Carr, A.S., 2014. An examination of technology and organization's change in service delivery to meet customer expectations. Journal of Applied Business Research, 30(3), p.725.

CNN. (2017). A brief history of Netflix. [online] Available at: https://edition.cnn.com/2014/07/21/showbiz/gallery/netflix-history/ [Accessed 24 Jan. 2017].

Davis, B.C., 2016. The Netflix Effect and Defining Binge-Watching.

De Cicco, L. and Mascolo, S., 2014. An adaptive video streaming control system: Modeling, validation, and performance evaluation. IEEE/ACM Transactions on Networking (TON), 22(2), pp.526-539.

Fortune.com. (2017). Here's What Netflix's Vision of the Future of TV Looks Like. [online] Available at: https://fortune.com/2016/12/06/netflix-future-tv/ [Accessed 24 Jan. 2017].

Greenstein, S., Peitz, M. and Valletti, T., 2016. Net neutrality: A fast lane to understanding the trade-offs. The Journal of Economic Perspectives, 30(2), pp.127-149.

Halal, W.E., 2015. Business strategy for the technology revolution: competing at the edge of creative destruction. Journal of the Knowledge Economy, 6(1), pp.31-47.

Huang, T.Y., Johari, R., McKeown, N., Trunnell, M. and Watson, M., 2015. A buffer-based approach to rate adaptation: Evidence from a large video streaming service. ACM SIGCOMM Computer Communication Review, 44(4), pp.187-198.

Idland, E., Overby, H. and Audestad, J.A., 2015. Economic markets for video streaming services: A case study of netflix and popcorn time. Norsk Informatikkonferanse (NIK).

Lawler III, E.E. and Worley, C.G., 2015. Organization Agility and Talent Management.

Lyons, D.A., 2016. Usage-Based Pricing, Zero-Rating, and the Future of Broadband Innovation. Free State Foundation Perspectives, 11(1).

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Oh, H., Animesh, A. and Pinsonneault, A., 2016. FREE VERSUS FOR-A-FEE: THE IMPACT OF A PAYWALL. Mis Quarterly, 40(1), pp.31-56.

Sadq, Z.M., 2013. Analysising Netflix? s Strategy.

Shehabi, A., Walker, B. and Masanet, E., 2014. The energy and greenhouse-gas implications of internet video streaming in the United States. Environmental Research Letters, 9(5), p.054007.

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Villarroel, J.A., Taylor, J.E. and Tucci, C.L., 2013. Innovation and learning performance implications of free revealing and knowledge brokering in competing communities: insights from the Netflix Prize challenge. Computational and Mathematical Organization Theory, 19(1), pp.42-77.

Wu, Z., 2015. Choice of Business Model and Pricing Strategy with Ad-Sponsor and Subscription Fee.

Zhang, L., Wu, W. and Wang, D., 2014. Time dependent pricing in wireless data networks: Flat-rate vs. usage-based schemes. In INFOCOM, 2014 Proceedings IEEE (pp. 700-708). IEEE.

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