On-demand and over-the-top television and movie content streaming services have replaced free-to-air broadcast television and cable television. Netflix is arguably one of the pioneers of this global trend with its transition from a mail-based rental business to a streaming service provider in 2007 and further to an actual entertainment production company in 2013.
The success of the company can be attributed to its timing and innovative use of available technologies. There are other streaming services introduced prior to Netflix but what sets it apart from the rest is that it maximizes the deeper market penetration of smartphones, advancements in wireless communication technologies, and developments in mass communication.
Of course, a number of other on-demand and over-the-top streaming services backed by media giants and established production companies have emerged in recent years. This article provides a concise situational analysis of Netflix using the SWOT framework, thus outlining its key strengths and weaknesses, as well as the opportunities and threats in its surroundings.
A Situational Analysis of Netflix Using the SOWT Framework: Strengths, Weaknesses, Opportunities, and Threats
Internal Situational Analysis of Netflix
Strengths: First-To-Market Advantage, Technological Capabilities, Netflix Original Productions, and Other Competitive Advantages
1. Leading Industry Player: One of the strengths of Netflix is that it achieved a first-to-market advantage because it was the first on-demand and over-the-top streaming service provider that maximized the emerging digital communication revolution in the late 2000s while providing an expansive library of television shows and movies.
This leadership has allowed the company to get a hold of millions of subscribers in its initial years, especially with the explosion of smartphones beginning in 2008 and advancements in wireless communication technologies such as the introduction of 3G network and 4G network connectivity in key regional markets around the world.
Furthermore, its success has been demonstrated by its strong branding which has made it a household name within a short period. Its popularity has afforded it a strong bargaining power and a considerable level of influence over production companies and studies, internet service providers, and media organizations and independent journalists.
2. Utilization of Technology: Note that the company is not just a provider of streaming services. It is also considered a technology company similar to larger companies such as Amazon and Apple. Innovation and the utilization of the latest technologies are integral to its operations and the quality of its entire streaming service.
For example, it uses adaptive bitrate streaming technology to adjust video and audio quality to match broadband connection speed and network conditions, thus avoiding lags or buffers. It also uses a content distribution network or CDN through its Open Connect program that localizes traffic using the resources of internet service providers.
It also takes advantage of third-party service providers such as Amazon Web Services to improve further its CDN architecture and supplement the capabilities of its own Open Connect program, thereby allowing it to stream content across millions of subscribers around the world while maintaining streaming speed and content quality.
3. In-House Content Production: Another strength of Netflix, especially when compared to smaller and emerging streaming services providers, is that it has also evolved to become a movie and television production company. It has produced a range of TV series and movies that are exclusively available on its streaming platform.
Some of the notable Netflix Original productions include the science fiction series Sense8 and the Emmy award-winning drama anthology Black Mirror. The British coming-of-age series Sex Education has also received a critical nod for its portrayal of sexual intimacy. The company has also expanded further to produce K-Drama series and Japanese anime.
The original TV series and movies give Netflix an advantage over its competitors. Because of the rave, existing subscribers tend to retain their subscription plans despite the emergence of other service providers while attracting new subscribers. These original shows have become one of the defining unique selling and value propositions of the company.
4. Other Strengths and Capabilities: Remember that the company has a large library of content on its platform with over 3600 movies and more than 1800 TV shows. The entire library has over 50000 titles that include all episodes of every series. This number keeps on expanding with the addition of new shows and movies each week and every month.
Because of its first-to-market advantage, as well as its existing customer base that numbers to almost 200 million subscribers, it can convince production companies to give it the license to stream their shows or movies. Its existing market share and expansive global reach collectively represent one of its unique selling and value proposition.
The multi-tier pricing scheme of the company is also another advantage. Through the free trial sales promotion, it can secure new subscribers in emerging markets while the basic pricing bracket is a penetrative pricing strategy that can move existing subscribers of this plan to high-tier pricing brackets or subscription plans.
Weaknesses: Intellectual Property Issues, Mounting Operational Costs and Liabilities, and Other Internal Issues Within the Company
1. Intellectual Property Rights: One of the pressing problems of Netflix is that it does not own most of the TV shows and movies it streams. The company has distribution rights but these deals have a limited tenure. Production studios or entities that hold the ownership rights to these materials can decide not to renew these deals once their term expires.
Furthermore, it is also possible for these entities to grant other streaming services providers distribution rights, thus making their materials unexclusive to Netflix. Prime examples are Japanese anime shows such as Naruto and Bleach that also appear on different and less expensive online streaming such as Hulu and Crunchyroll.
Note that the company has also removed several well-known titles from its library due to their owners refusing to grant the streaming services provider distribution rights. For example, The Walt Disney Company removed several movies from Netflix to include titles from the Marvel Cinematic Universe franchise with the launch of its own streaming platform.
2. Notable Financial Issues: The company has spent heavily on expanding its technological capabilities to serve millions of people across the world. Remember that it uses different technologies such as a content delivery network architecture to ensure that it remains fast and accessible regardless of geographic locations and network speed.
It has also been spending on acquiring exclusive distribution rights and producing its own TV shows and movies. The company has partnered with numerous production studios in different countries to deliver localized content to a global audience. These materials give the company a competitive advantage over other streaming service providers.
However, its technological and content push have increased its operational costs. Note that the company raises capital through the stock market and debt offering. The total debt of the company stood at USD 14.5 billion at the end of March 2022. This can be a considerable weakness of Netflix if it fails to generate substantial returns to cover its obligations.
3. United States Market: Another weakness of Netflix is that most of its subscribers are concentrated in the United States market which accounts for more than 50 percent of its revenues. Brazil is its second-largest market followed by the United Kingdom and Germany. The U.S. market is still bigger than the combined numbers of these three countries.
The company is fundamentally dependent on the U.S. market. This can be a source of future problems and possible unsustainability from an income-generation perspective because its financial performance is tied to the performance of the U.S. economy. Its revenues will decline if spending among Americans decreases due to macroeconomic factors.
Furthermore, the dependence on the U.S. market suggests that it still fails to capture a considerable market share in developed and developing countries despite being one of the largest on-demand and over-the-top streaming services providers in the world and notwithstanding its substantial spending on its technological and content production push.
4. Other Weaknesses and Issues: Aside from the fact that it is dependent on the U.S. market, another problem with the company is that it lacks original TV shows and movies that would appeal to the local tastes of other countries, especially in regional markets where there is a strong sense of regionalism and cultural identity.
Remember that it has been investing in producing original content for different geographic audiences, as well as for bringing homegrown materials to the greater global market. However, the titles are not as expansive when compared to local counterparts such as local TV networks and homegrown streaming services providers.
Another problem is the apparent absence of solid customer service support. Remember that it serves millions of subscribers across the world. Despite its large customer base, the company still falls short in providing relevant after-sales services such as an on-demand customer care communication channel and an accessible technical support representative.
External Factors Affecting Netflix
Opportunities: Taking Advantage of Its Establish Branding Further and Building Partnerships With Local Companies
1. Demand For Streaming: Th demand for on-demand and over-the-top television and movie content streaming services has increased in recent years due to the deeper penetration of smartphones and other consumer electronics products such as smart televisions, as well as advancements in digital communication technologies.
Note that the introduction of 5G networks in developed and developing countries, specifically the wider roll-out of mmWave 5G and sub-6 5G networks have made mobile devices more practical and online-enabled or internet-dependent services more accessible even for on-the-go customers or those with no access to wired internet connections.
The slow demise of free TV and cable TV services signals a further transition to digital streaming. Netflix can take advantage of its strong brand equity, as well as its expansive library of TV shows and movies and technological capabilities to aggressively promote itself to emerging markets in Latin America, Europe, and Southeast Asia, among others.
2. Building Partnerships: Another opportunity for Netflix is to strengthen further the appeal of its content library by adding more materials either through distribution rights or original content. It can strengthen further its partnerships with local production studios to grant it rights to distribute their materials, thus increasing its appeal to local audiences.
In addition, the company can also partner with these local studios and even talent agencies to produce original and exclusive TV shows and movies for its platforms. There are a lot of content creators and even existing materials that can take advantage of the reach and capabilities of Netflix. The key is deploying marketing campaigns tailor-fitted to local audiences.
There is also the possibility of tapping into the existing customer bases of local internet service providers and network carriers. The company can utilize suitable sales promotion tactics that give the existing customers of these internet and mobile network companies exclusive perks and privileges such as discounted plans and other freebies.
3. Pricing Strategies: Considering the possibility of strengthening its partnerships with local internet service providers and network carriers, Netflix can also expand its utilization of a penetration pricing strategy in emerging markets, especially in developing countries. It can arrange discounted plans exclusive to the customers of its partner companies.
It can also experiment with a freemium pricing strategy in selected markets in which it will provide potential subscribers free but limited access to its platforms. The subscription plans can be flexible. For example, it can provide these freemium subscribers an option to upgrade their plans for a week rather than an entire month.
There is also an opportunity in a revenue model based on online advertising. Note that companies such as Google and its YouTube streaming platform, as well as Meta and its Facebook and Instagram social networking platforms, generate billions of revenues from an advertisement-based model. Netflix can explore this option in certain markets.
Threats: Competitive Forces and the Intensity of Rivalries in the Industry, and Regulatory Issues in Certain Regional Markets
1. Existence of Competitors: The intensity of the rivalry in the entire on-demand and over-the-top content streaming services industry is one of the major threats to the continued success of Netflix. The threat of new entrants remains present because the barriers to entry are at the medium level and due to the increasing market demand and market trends.
Note that production studios such as The Walt Disney Company and HBO have also launched their own streaming platforms. These are Disney+ and HBO Max. In addition, part of the marketing mix of Apple and its specific product strategy is its own streaming services platform and content production arm coursed through the Apple TV brand.
There are also other streaming services platforms owned and operated by local production studios and smaller technological companies. For example, in East Asia and Southeast Asia, there is an expansive market for dedicated platforms offering curated Asian TV shows and movies that include Japanese anime and Korean drama series.
2. Prevalence of Privacy: Of course, streaming services providers duffer from content piracy that remains prevalent online. Even shows and movies that should appear exclusively on Netflix are available for download via peer-to-peer file-sharing networks or on free streaming websites found in the deep pockets of the world wide web.
Estimates from numerous analysts noted that the company is losing around USD 150 million each month in revenues due to the illegal online distribution of its licensed and original materials. Of course, because it is the largest provider of streaming services, its financial losses are bigger than other major providers such as Hulu and Amazon.
A considerable number of internet users still prefer downloading and consuming pirated content because they are readily accessible at no cost. Some find the plans of streaming services providers too expensive or an added burden to their regular expenses. There are those who are not too keen on spending each month on a service they rarely use.
3. Government Regulatory Issues: There are several markets in the world in which regulations related to online-enabled services and specific streaming services affect the operations and profitability of companies or service providers. A prime example of this is China wherein western companies cannot operate due to restrictions on foreign content.
Note that Netflix is also not available in Russia and Crimea. Furthermore, in countries in which it is available, there are TV shows and movies that are not part of the localized libraries. Each jurisdiction has different laws and regulations around intellectual property. Furthermore, some distribution rights are geographically limited due to issues with royalties.
The platform is also more expensive in other countries. For example, basic monthly subscription plans in Denmark, Switzerland, and Belgium are almost twice as higher as similar plans in Argentina and Colombia. The cheapest plans are in Pakistan, India, and Turkey. Regulations such as taxes and other fees influence end-user prices.
Governments can also pressure online-enabled companies to limit their utilization of communication infrastructure. In March 2020, at the height of the COVID-19 pandemic, the European Union asked Netflix to reduce its streams down to standard definition for 30 days because it strained its network infrastructure due to high demand.
