Authors: Lisa Bauman, Nina Deal, Peter Ishak, Steven Johnson
Netflix, a company that specializes in DVD rentals and video streaming, has been in business since 1997. Being one of the first to enter the online video rental industry, Netflix dominates market share at 55 percent (Chang). Still, market share is declining from its peak market share of nearly 60%. The company made 3.54 billion in revenue in 2012 with a 32.92% three-year growth rate (Netflix Revenue).
Even though Netflix doesn’t have an official published mission statement, it does have vision. Co-founder and CEO Reed Hastings described the future of Netflix at the Dublin Founders conference in October, 2011. He said that Netflix aims to become the best global entertainment distribution service; licensing entertainment content around the world. Netflix desires to create markets that are accessible to film makers and expand services to a global audience (Netflix Movie Rentals Mission Statement).
BCG Matrix and Findings Summary
The Star, Cash Cow, Question Mark, and Dog
The BCG Matrix (Fig. 1) shows for distinctive sections: the star, the cash cow, the question mark, and the dog. On the left side we see the star and cash cow; products that bring the most profit to Neflix. Netflix's streaming service is clearly the cash cow. Available on devices such as internet connected TVs, Blu-ray disc players, game consoles, computers, smartphones, and tablets, Netflix's streaming service is accessible to 30 million members globally (Company Timeline).
Netflix's star, originally developed in 2000 and massively enhanced in 2009 by the Netflix prize-winning BellKor's Pragmatic Chaos team, is its recommendation system. This crowd-sourced program uses past viewing preferences to anticipate viewers' likes and dislikes. It will soon be integrated with Facebook sharing; allowing even more personalized and accurate suggestions for patrons (Company Timeline).
On the right side we see products that are less profitable, but may serve a purpose in the market: the question mark and the dog. Netflix's question mark is the development and licensing of exclusive streaming content. New deals with Time Warner and Disney makes popular television shows and films available to patrons (Pepitone). With the upcoming premier House of Cards, Netflix appears determined to grow from a content delivery company to a full-fledged content provider. Hastings characterized Netflix as "a leading global Internet TV network" and he expects to double to triple the audience of HBO (Roettgers).
Lastly, Blu-ray and DVD mailing services are Netflix's dog. In 2011 subscriptions were separated from streaming services and have since been experiencing a decline (Nakashima). Further diminishing the value of this service, Netflix competitor Redbox will be launching Redbox Instant that offers streaming service combined with DVD or Blu-ray rentals for a lower price (Will Redbox Instant Be a Netflix Killer?).
Plan of Resource Allocation
Streaming and new content are the main services customers desire. Physical DVD's and Blu-ray rentals are becoming outdated. Netflix's recommendation system adds value for both customers and content licensers. It provides a sustainable competitive advantage over competitors like Hulu and Crackle and an avenue for marketing (Kalogeropoulos). It delivers information to customers; making content accessible. Still, without streaming and fresh new programming, this program is extraneous. Netflix should allocate the majority of its resources to streaming and secondly to programming. Netflix should continue to invest in modernizing the recommendation system to change with the market so that it communicates and delivers content to members; especially as Redbox and other competitors are putting more pressure on Netflix to offer value to its customers.
Growth Strategy and One-Year Press Frequency Analysis
Netflix has been focusing bringing attention to all four areas of growth strategy, but the frequency analysis shows that Netflix's market strategy is strongly focused on product development (found in Appendix A and B). Netflix shared 29 press releases between 2012 and 2013 that related to its growth strategy. Four articles relate to market development and diversification, and seven articles relate to market penetration. But, thirteen articles relate to product development. Half of these articles showed a focus on offering new content or services to current patrons (Netflix: Media Center). The overall number of product development articles that were issued by Netflix in the last year supports the conclusion that Netflix is focused on offering new, exclusive programming to their target market of streaming subscribers.
The original shows and movies provided by the Time Warner and Disney partnerships and offered though newly developed streaming technology creates greater value for current customers, but Netflix has also began offering current services through new forms of media to diversify. Netflix has expanded to Europe and Latin America and reached out to the hearing impaired community to develop new markets. Meanwhile Netflix is attempting to deemphasize physical media and shift toward a media streaming. In conclusion, Netflix has a strong product development strategy but does not lose sight on other aspects of growth in the process.
Chang, Veronica. "Netflix Could Sink $40 By 2014." Seeking Alpha: Read. Decide. Invest. Seeking Alpha, 24 May 2012. Web. 24 Jan 2013. .
"Company Timeline." Netflix. Netflix. Web. 15 Jan 2013. .
Kalogeropoulos, Demitrios. "Facebook Are About to Get Tight." Daily Finance. AOL Money & Finance, 14 Jan 2013. Web. 15 Jan 2013. .
"Netflix Revenue." Macro Axis: Simple Personalized Investing. Macroaxis.Inc. Web. 26 Jan 2013. .
Nakashima, Ryan. "Redbox Instant streaming plan takes on Netflix." CNN Today. CNN, 12 Dec 2012. Web. 15 Jan 2013. .
"Netflix: Media Center." Netflix. Netflix Inc. Web. 26 Jan 2013. .
"Netflix Movie Rentals Mission Statement - A Vision, A Promise and Nine Values." About.com: Retail Industry. About.com. Web. 24 Jan 2013. .
Pepitone, Julianne. "Netflix scores Cartoon Network, Adult Swim and more Time Warner content." CNNMoney: A Service of CNN Fortune, & Money. Cable News Network, 14 Jan 2013. Web. 15 Jan 2013. .
Roettgers, Janko. "Netflix aims for 90M U.S. subscribers." GIGAOM. GIGAOM, 14 Feb 2012. Web. 15 Jan 2013. .
Sandström, Per. "Netflix Mission Statement." Brand Research: Research into the market strategy and techniques used by successful and failing brands. WordPress.com, 04 Oct 2012. Web. 24 Jan 2013. .
"Top Entertainment Web Sites, 2010." Market Share Reporter. Ed. Robert S. Lazich and Virgil L. Burton, III. 2012 Ed.
"Will Redbox Instant be a Netflix killer?" MSN Money. TheWeek.com, 13 Dec 2012. Web. 15 Jan 2013. http://money.msn.com/top-stocks/post.aspx?post=05e69905-37eb-4995-8cb8-9de649023c33.
Media Headline Examples
1. Netflix "Just For Kids" Now Available on iPad
2. Instant Access to Large Variety of Streaming TV Shows and Movies Chosen Especially For Kids 12 and Under Now on iPad
3. Netflix Brings TV Shows and Movies to Windows Phone in Latin America, UK and Ireland
4. Windows Phone Users in Latin America, UK and Ireland Can Now Enjoy TV Shows and Movies on the Go With Netflix
1. Turner Broadcasting and Warner Bros. Television Group Announce Multi-Year Agreement with Netflix
2. License Agreements Include Complete Previous Seasons From Cartoon Network, Warner Bros. Animation, Adult Swim and the TNT Drama Dallas from Warner Horizon Television
3. "Hemlock Grove" Eli Roth's Gothic Thriller Developed By Brian McGreevy & Lee Shipman Available Only On Netflix
4. All 13 Episodes of Original Series, Based on Brian McGreevy's Novel, Will Be Available Simultaneously in All Netflix Territories
1. Netflix Launches in Sweden, Denmark, Norway and Finland
2. Continuing International Expansion, Leading Global Internet Movie and TV Subscription Service Arrives in Nordic Countries
3. UK And Ireland Embrace Netflix
4. Fastest Territories to Reach One Million Netflix Members
1. Netflix "Open Connect" Delivery Network Gains Widespread Global Acceptance
2. Cablevision Most Recent Major Provider to Join Open Connect
3. New Super HD and 3D Video Formats Available on Open Connect
4. Netflix and the Walt Disney Studios Announce Multi-Year Premium Pay TV Window Agreement in the United States
5. Netflix Members to Enjoy Watching High Quality Films from Disney, Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios and Disneynature
6. Netflix and National Association of the Deaf (NAD) Reach Historic Agreement to Provide 100% Closed Captions in On-Demand Streaming Content Within Two Years
** For BA311, Marketing Management, Portland State University, Winter Term, 2013