first presentation

Report
A Network View of Netflix
How Partners, Competition, and
Opportunities Dictate Strategy
Changing How We Watch
Netflix began as a DVD-by-mail service,
using the web to improve the rental
industry with recommendations, queues,
and automation.
$14m in Q3 2011
Figures based on Netflix Q3 2011 Financial Statements
However, increasingly streaming of
video online has become one of
Netflix’s core strategies for
delivering content to viewers.
$21.5m in Q3 2011
Focusing More on Streaming
Dollars Invested (Thousands)
Netflix Investment in Streaming vs. DVD Content
700,000
600,000
500,000
400,000
300,000
200,000
Netflix is constantly adding new content to its
streaming library, including new partnerships
with AMC, CBS, DreamWorks, and Warner Bros.
“Our core strategy is to grow our streaming
subscription business within the UnitedStreaming
States
and globally.”
DVD
- Netflix Annual Report
100,000
“[The DVD-by-mail business] will probably be something like AOL dial-up from 2002 through to
0
today, where it’s a steady decline every year a little bit, but there’s a long-term residual market. And
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Q4, Q1,
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in the Q4,
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that’s not
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1
2009
2009
2010 aspects.”
2010 2010
2011 2011 2011
all variable cost.
The2009
postage,
the2009
labor,2010
all of those
- Netflix 10K
Figures based on Netflix Q3 2011 Financial Statements
1“Netflix’s
CEO Discusses Q3 2011 Results.” http://seekingalpha.com/article/301738-netflix-s-ceo-discusses-q3-2011-results-earnings-calltranscript?part=qanda.
Pulling Content From All Around
Netflix purchases DVDs or holds
content agreements with countless
production studios and distribution
companies. These are just a few of
the partnerships Netflix currently
holds.
A constant concern for Netflix is
gaining new content and holding
onto the content agreements it
already has. Just recently, Starz
opted not to renew its agreement
with Netflix, meaning that in
February Netflix will lose a great
deal of its streaming content. This
is a growing concern as other
companies enter streaming.
Others Catching On
Subscription Service
Á La Carte
Advertising Subsidized
Freemium
One Price, Unlimited Viewing
Pay Per View
Free Viewing with Ads
Some Content Free, Other Paid
“I think in the long-run, the long-term margin structure for
streaming will be ultimately determined by the competitive space,
and how many competitors we have. In the short run, we’ve been
aggressively adding streaming content at the same rate of
subscriber growth, and we continue to anticipate investing in
2012.”1
- David Wells, CFO, Netflix
Competitors like Amazon, YouTube, Hulu, Blockbuster (now partnered with Dish
Network), Facebook, and Apple are getting in on the action too. All six
companies have revenue generation models based on either selling digital
content to consumers or using advertisements to subsidize viewing.
1“Netflix’s
CEO Discusses Q3 2011 Results.” http://seekingalpha.com/article/301738-netflix-s-ceo-discusses-q3-2011-results-earnings-calltranscript?part=qanda.
Getting Content to You
Rather than just getting content to viewers through DVD players, Netflix has partnered with
numerous other device makers to help turn any screen into one that can stream Netflix movies and
TV shows from the web.
Nintendo Wii
Microsoft Xbox 360
Gaming Systems
Sony PlayStation 3
Getting Content to You
Rather than just getting content to viewers through DVD players, Netflix has partnered with
numerous other device makers to help turn any screen into one that can stream Netflix movies and
TV shows from the web.
Apple iPad and
iPhone
Windows Phone
Mobile Devices
Google Android
Getting Content to You
Rather than just getting content to viewers through DVD players, Netflix has partnered with
numerous other device makers to help turn any screen into one that can stream Netflix movies and
TV shows from the web.
Roku Box
Tivo
Apple TV
Web-Enabled TV and Devices
Getting Content To You
Netflix’s vast array of partnerships
allow it to be available on a
plethora of platforms, meaning
that Netflix’s streaming services
can reach just about everyone—
either on the computer through a
browser, through web-enable
televisions, gaming consoles, or
mobile devices.
However, a growing concern is the
exclusivity of these relationships.
Hulu is already available on many
of these platforms, as is access to
Apple content. What exists to
ensure that Netflix with continue
to enjoy its proliferation?
Area For Concern - Content
While its content partnerships
are among Netflix’s strengths,
they are also one of its
weaknesses. The growing
standard of exclusivity means
that content may soon only be
available in one place, rather
than across multiple websites.
Will content creators and
distributors continue to partner
with Netflix and give it the
content it needs to exist, or will
they find greener pastures,
possibly even focusing on their
own online distribution to build
revenue?
Area For Concern - Delivery
Another area for concern for
Netflix are the platforms that
deliver its streaming services.
While browsers on computers
will always be able to access
Netflix.com, what about the
numerous devices that make
Netflix so easily accessible?
What happens if they decide to
partner with Hulu or Amazon
exclusively for streaming
services? Maintaining
partnerships with these device
makers is vital—especially
considering the numerous
connections Apple already
holds for content.
Looking Forward
Dollars Invested (Thousands)
Netflix Investment in Streaming
vs. DVD Content
Netflix will continue to build up its streaming
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
library, maintaining a DVD selection that will
eventually be slowly phased out.
Because of this need for new content, Netflix
has to maintain content rights with a growing
variety of content providers. Exclusivity rights
and new partnerships will constantlyStreaming
be threats
and opportunities for Netflix.
DVD
Netflix must also keep relationships with
platforms that allow Netflix to stream its
content via apps. With many new streaming
Q1, Q2, Q3, Q4, Q1, Q2, Q3,
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Q3, it is vital to
options
entering
market,
2009 2009 2009 2009 2010 2010 2010
2010
2011 2011
remain
ubiquitous
and a2011
well-known brand
name across platforms.

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