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 Q1,fixed Q2, Q1,So Q2, Q3,a material Q4, Q1, Q2, there’s very little cost Q3, in the Q4, business. that’s not cutoff of itsQ3, efficiency, it’s almost 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, Q4, Q1, the Q2, 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.