An assessment of Netflix Australia

Executive Summary

The two most popular services that Netflix provides, which cater the needs of its customers are providing physical DVDs for rent and airing content online, as per the demands of the customers.
Netflix started producing and distributing original content, under the name of Netflix Original. In March 2011, its chief content officer announced another leap in the services being provided at Netflix, by introducing the availability of original content to its subscribers online.
Netflix has innovated throughout the years through online streaming, the creation of original content, which included creation of their original movies and TV shows to be broadcasted by Netflix and merging with many types of companies to help it cut down the competitors. Netflix Australia has secured affordable pricing strategy ever since its launch in the local market, in order to reduce the usage of piracy in the country, which is being done at huge rates in the vicinity. Netflix has adopted the seamless set of strategies and plans of actions which helped it to gain its popularity. Future plans at Netflix Australia are majorly focused on increasing the availability of the original content to its subscribers, which will ultimately help the company experience further reductions in its costs.

 

Introduction

Netflix is an American multinational company, operating across 190 countries which distributes its services to 86 million members through movie theatres, airlines, hotels, and in-home.

Netflix’s mission statement is “…to become the world’s leading Internet subscription service for enjoying movies on TV…”

Their vision statement is engulfed in their core strategy which concludes that the company’s strategy is to grow to become the world’s best entertainment distribution service.

The two most popular services that Netflix provides, which cater the needs of its customers are providing physical DVDs for rent and airing content online, as per the demands of the customers. Both of these types of services come with a respectively unique package offered by Netflix. Although the streaming catalog is not as vast as the physical DVD catalog, the organization is constantly working upon its efficiency, in order to offer a variety of online content to its customers, which include both TV shows and movies. (Marshall, 2013)

Apart from this, Netflix has expanded by introducing video games.  They are available on Nintendo’s Wii, Wii U, the Xbox 360 and Xbox One and the PlayStation 3 and 4. (Given, 2016)

Netflix’s main competitors are Blockbuster and Comcast. Blockbuster secures the majority of the market share (52 percent), Netflix has 13 percent, and Comcast has 3 percent. However, Netflix adds the greatest value to its consumers through indulging in low capital and input costs, and through convenience of streaming video content online. (Kopytoff, 2012)

A brief history

Netflix was founded by Reed Hastings and Marc Randolph in 1997. Both of the CEOs of the company had prior experiences in successfully creating and running websites, and had traits of a technological devotee. Their idea was to create a platform for the audience which would help them buy and rent DVDs from home, instead of going through a hassle of going to a store for that, and especially to reduce the probability of the finding out that the desired type of DVD is out of stock at the store.   (Henshaw, 2012)

Hastings invested an amount of $250 million into the startup of the business, and in this way, launched it in a huge way. (Henshaw, 2012)

Along the years, Netflix has adopted innovative policies that led it towards higher growth and profitability. Especially in January 2016, it announced its expansion into 130 more countries, as a result of which, it is operating into a whole of 190 countries worldwide.

The company started its operations in April, 1998, by employing a workforce of 30 employees and proposed around 900 DVDs to be rented. The website was constructed in a way that it provided synopsis and reviews for every movie being offered for rent, ensuring that the users of it can easily make their decisions based on the information about every particular DVD being provided.

Netflix had to face a minimal number of competitors at its startup, which was a major advantage. To further attract customers, it paired up with Toshiba, Apple and HP, to promote the usage of DVD players in the domestic areas in the US, which was very less in access to them. This helped them gain an array of new customers.

In 1998, the established online retailer, Amazon, started selling DVDs online, thereby, giving a tough competition to Netflix. To overcome this, Netflix stopped selling DVDs online and instead introduced a package to the customers which offered them to rent four DVDs at a time, by making a monthly payment of $15.95. This idea turned out to be successful for them, due to which, Netflix was getting an inflow of above 10,000 orders per day.

Netflix started producing and distributing original content, under the name of ‘Netflix Original’. The first ever content they aired was the famous political drama, House of Cards.

The rise of Netflix

Changing technology

Ever since Netflix came into being in 1997, it has been affected by constant technological changes in its product, services and processes. This has helped it to grow from being just a retailer of DVDs to streaming content online, to finally become an original content producer and distributor.

One major part of the strategies which culminated in attracting interests of its consumers over the years, was adopting and installing new and advanced technology into the business.

It initiated with the concept of renting DVDs through online subscription service. The customers would order the DVDs online, and Netflix used its postal service to deliver those physical goods to the subscriber’s homes.

In 2007, Netflix launched its next step in the process of technological innovation. It introduced ‘Instant Viewing’ for its subscribers, enabling them to choose from a range of movies and TV series, and watch it online. Watching content online become a normally adopted tradition ever since YouTube came into being in 2005, the idea of which, captured the attention of Netflix. Within a year, this service proved to be immensely successful for the company, which then started to focus further into it. Consequently, it increased the amount of content being available by it and made the service available through electronic devices other than laptops and PCs. (Cook, 2014)

In March 2011, its chief content officer announced another leap in the services being provided at Netflix, by introducing the availability of original content to its subscribers online. It released its first originally created TV series, House of Cards, which provided thirteen of its episodes to the Netflix subscribers. This show received positive responses from the audience which helped it secure a major growth in the amount of its subscribers, after which, Netflix released more of the shows. Some popular instances are ‘Orange is the new black’ and ‘Stranger things’. This advancement in technology proved to be profoundly fruitful for the company, which can be evidenced by the fact that the number of streaming subscribers by the end of 2013, the year in which its original content was brought into the market, was 33.4 million. (Billies, 2016)

By constantly embracing technological changes and innovation, Netflix has achieved continuous increment in its popularity and acceptance with the unique approach to entertainment distribution that it follows.

Operating online

One of the major strategies behind Netflix getting ahead of its competitors immediately after it was launched in the market was adapting new technology in its operations. It attacked the market of Blockbuster Video which rented out DVDs and VCRs at retail stores by introducing the idea of renting these out to customers online. Customers saw themselves attracted to this strategy of Netflix, which saved them a visit to the retail store every time they needed to rent out a DVD for themselves.  Also, it started out well by proving a well-engineered delivery system to the customers.

Then came along the introduction of video streaming online. This new feature enabled the subscribers at Netflix to stream movies and TV shows in their smartphones and tablets, which ultimately came into handy ever since the usage of DVD players started to get less popular with the people.

In 2011, Netflix raised prices for the package being provided for renting out DVDs and Internet-streaming, owing to its greater influx of costs coming in due to the weak bargaining position Netflix has with the owners of digital videos. These higher costs were reflected in its financial statements for the year. However, Netflix kept up with its efforts to succeed in the online streaming market, and started creating original content. And this strategy has been paying off since its introduction with the popular show, House of Cards. Netflix’s first quarter results were much better than expected. Its stock soared 24% in after-hours trading to $215.40 — on April 22, it announced that it had gained two million new U.S. customers in the first three months of 2013 — reaching 29.2 million — which was 200,000 more than the average of seven estimates compiled by Bloomberg.

Moreover, the company constantly invests on improving their media infrastructure and user interface for the online website.  While there is significant work on the front end user-interface as well as the content creation and partnerships that are evident to the user, there is an enormous amount of work on the back-end that is done to provide a unified and refining experience for users.  For example, to provide customized suggestions to its users, Netflix accurately categorizes and tags each show or movie on its platform.  It has established over 75,000 unique micro-genres to classify its content library.

Pricing Strategies

Before Netflix officially launched in Australia in March 2015, it was estimated that over 200,000 Australians have been accessing the USA version using VPN to hide their IP address.

Ever since the launch of it in Australia, Netflix has become an essential part of the Australian streaming landscape, with an affordable asking price and huge amount of local and international content. New subscribers at Netflix Australia are offered free usage for a month. After that, provided that they are willing to continue, service plans start at $8.99 for a single standard definition stream. (Idato, 2015)

There are no contracts with Netflix which enables the subscribers to cancel the service at any time, but the credit card that was used to sign-up will automatically be charged for the service for every month.

There are three plans offered by Netflix that the customers can opt from; Basic, Standard and Premium. The one being picked will depend on the types of features desired by the subscribers with their Netflix subscription. (Idato, 2015)

According to the RBC survey, even $1 rising price may result in backlash, since 17% of customers answered that they are extremely or very likely to cancel Netflix if the price is increased even $1 (Spangler, 2013). Therefore, Netflix Australia is less keen towards decreasing prices furthermore.

According to the CFO at Netflix David Wells, a country’s piracy rate is a significant factor when determining the pricing model for new markets. In Australia, pricing for the service starts at $8.99 a month for a basic package, while when converted to AUD, Netflix starts at $10.25 in the USA and $11.50 in the UK. The prices at Australia are relatively lower, due to the competition Netflix faces there from piracy. Australia has the highest rates of piracy per capita than in the whole world, so for Netflix, that serves as a big concern. Therefore, among the factors that play a part in the rise of the usage of Netflix in Australia, is the fact that the subscription rates are set at affordable rates in the country. (Stone, 2015)

Netflix’s Innovations

Netflix was able to revolutionize the video market by involving itself into disruptive innovation, which is termed as the specific way that the smaller companies can outcompete and eventually, destroy their bigger rivals. This term was first coined by American scholar, educator and business consultant, Clayton M. Christensen, in 1995. (Berry, 2006)

In its start, Netflix launched a mail-in subscription service in the late 1990s, and did not intend to enter the saturated market majorly cover by Blockbuster during the 1980s and 1990s.

However, this fact changed when they introduced online video streaming. This strategy helped them to successfully snatch the market from Blockbuster.

“Netflix was able to appeal to Blockbuster’s core audience by providing, a wider selection of content with an all-you-can-watch, on demand, low-price, high-quality, highly convenient approach,” as Business Insider Australia puts it and continues: “And just like that, Blockbuster collapsed.”

The third way in which Netflix innovated throughout the years is through the creation of original content, which included creation of their original movies and TV shows to be broadcasted by Netflix. (Mui, 2011)

Netflix captures the market in Australia due the ability of it being able to run on almost every platform. It runs on more than 1000 different devices and device set-ups. Some examples are Blu-ray Disc players, PCs, mobile phones, tablet computers, HDTV receivers, home-theatre systems, set-top boxes. (Cohan, 2013)

Along the years, the CEO, Reed Hastings of Netflix, has proven himself to be one of the most innovative entrepreneurs in the world.

Will Netflix remain the dominate provider of online video streaming?

Netflix’s Strategy

Netflix was launched in Australia on the 24th of March, 2015. The business strategy being followed by Netflix has been a hit since a large proportion of the international members is secured by Australia and New Zealand, resulting in larger profits for the company. (Sadq, 2015)

The business strategy that it follows is to pursue market penetration strategy providing by excellent service and prices to its customers at Australia. This strategy has been the major cause behind the growing popularity of Netflix at Australia over the time. (Doughty, 2013)

In order to maintain competitive advantage over its competitors, it focuses on creating its own content. Creating original content takes in relatively less cost from Netflix, which serves as an advantage. Therefore, Netflix has decided on a long-term goal of ensuring that nearly 50% of the content streamed at Netflix is original. This may reduce the number of licensed popular shows being provided at the company, but there is a high probability of this strategy attracting users to its high-quality original shows. The company has been spending a substantial portion of its budget on the creation and distribution of its original content. Netflix has decided to expend nearly $6 billion on is original content in 2017, which ranks it second to ESPN which invested $ 7.6 billion on creating and airing its content in 2016.

Moreover, Netflix has adopted the strategy of creating more partnerships to provide perfect hardware platform for its subscribers. It has partnered with leading studios, publishers, and production companies to boost its content library.

Netflix’s Performance

The competition between Netflix and other online movie providers are high because there are already a numbers of competitor in Australia such as, Presto, BigPond Movie, Google Play, Quickflix, Mubi and many more. In spite of the huge competition it faces at Australia from these companies and piracy, Netflix has been able to secure a high market share over the years. (Cusack, 2016)

Following its local launch, only one month later, Netflix started to enjoy the stream of a million subscribers in 408,000 households around the nation. Till June 2015, this figure dramatically rose to 1.42 million subscribers in 559,000 homes.

It has gained a huge fan following as many of its followers see it as a better replacement to TV. Subscription-based video on demand leads to consumer sovereignty, enabling them to watch what they want and whenever they want.

Moreover, low and affordable price that Netflix charges from its Australian subscribers has helped it to attract customers towards its platform. Also, there are advantages to the subscribers of having to face no ads at all, and a month’s free service for new subscribers.

The secret to Netflix’s success seems to be its strong command over the airing of original content such as Marco Polo, Stranger Things and the line of Marvel hits like Luke Cage. The first reason is that these shows are immensely popular around the world, and the second advantage to the subscribers is that these shows are made available at the same day globally by Netflix, as it owns its international rights.

Netflix’s Future

The future at Netflix Australia seems to be brighter than before as they have decided on expanding their international subscribers following the global launches this year.

In January 2016, Netflix expanded its operations globally, and started providing online streaming for a whole 190 countries worldwide.

The added competition in international markets could affect Netflix’s subscriber growth trajectory, pricing and content strategy.

Pachter expects Netflix “will likely draw the majority of new subscribers for now, given that it has thousands of programs, including many originals and exclusives, as well as non-exclusives, compared to Amazon’s hundreds of programs,” but predicts that “Netflix’s international growth will slow.” His model assumes 2017 international subscriber additions of 12 million compared to nearly 13 million in 2016, but he sees a downside risk of roughly 1 million, or $50 million to $80 million in revenue., negatively impacting Netflix,” says Wedbush Securities analyst Michael Pachter. (Healey, 2015)

Also, recent deals like Netflix’s cooperation with Liberty Global, where Netflix will integrate with set-top-boxes, indicates how the company is taking a more cooperative rather than disruptive path on the international stage.

Pacific Crest has a view that with Netflix’s international expansion and its data advantage over its linear TV competitors will continue to increase by great amounts. They imagine a future overflow of international data, which will favor Netflix into building itself into an increasingly efficient and effective content machine, that will hitch many of the benefits of a market, the analysts view as owning “winner-take-all” characteristics. (Scott Roxborough, 2016)

Conclusion

Netflix is already poised as an industry leader, and will continue to do so in the emergence of a complete streaming space.

Netflix Australia has succeeded in winning the hearts of its subscribers ever since its launch in the country due to the quality services it provides at affordable subscription prices. However, in order to stay ahead of its competitors, Netflix should adopt the perfect set of strategies and plans for the future.

At its launch, Netflix’s US library was six times greater the size of Australia’s, boasting over 7200 titles, while the Australian one featured 1120.

Even in the present, that title gap is not much better, and has only improved because Netflix in the US has browsed some unwatched titles. At February 2016, Netflix Australia had just over 2000 titles, while in the US it featured a little under 5800. Anyhow, this is a difference of almost 4000. Therefore, Netflix still needs to work on eliminating this huge gap.

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