Prepared by: Group 1B
In 2011, Reed Hastings founder and CEO of Netflix announced splitting their company brand between their DVD Rental services and their streaming services. They would rebrand their DVD Rental services as “Qwikster” and leave their streaming services as “Netflix”. This abrupt announcement left customers with increased fees, and extra time spent managing the two separate services. Was splitting DVD service and Streaming the best decision? How has this change affected existing customers? And how does Netflix communicate their strategy going forward? This has caused a loss of 805,000 subscribers, which led to their stock prices to drop over 50%. Hastings realized the execution of this change was not communicated properly and later released an apology to all his subscribers.
Situational Assessment Findings:
SWOT Table in Appendix 1
Key External Findings:
Disruptive Technology: These advancements in technology make it difficult for businesses to stick to single products and services. Without keeping on top of technological trends certain services and products will no longer be necessary; therefore, companies must anticipate these changes and evolve with consumer demands. So what should companies like Netflix do to keep up with technological changes? Was splitting the two businesses the right decision? Increased competitors for both DVD and Streaming services, as well as potential new entrants for the streaming business pose as a difficult obstacle for the company to overcome. There is little differentiation between competitors, as well as little to no switching costs for customers to look elsewhere for their streaming services, which will make it difficult for Netflix to maintain their competitive advantage over their rivals.
Key Internal Findings:
Netflix offers a large variety of movies and television shows and offers competitive pricing for subscriptions. They are well-established in the DVD rental and streaming business and is available in several countries giving them a global customer base. Through strong leadership, Netflix made it through the 2008 recession with exceptional results. Their recent decision to split the company has resulted in a loss of 805,000 customers who were unhappy with the new two website, two billing account layout. Their new brand, Qwikster does not align with the Netflix image. Another problem is their lack of new content due to the inability to secure flat fee contracts with suppliers.
Key Financial Findings:
Stock Price drop does not mean they made the wrong decision
Net Profit & Operating Margins show good performance, with room for growth
ROE decreasing - less able to generate profit on shareholder investment
P/E Ratio increasing with stock price increase, we can expect it to lower in coming quarters as stock price fell
Must address rising costs of debt, so they can generate capital for future investments
Calculated Ratios - Appendix 2
Identification & Analysis of Strategic Options:
1. Porters 5 Forces - Appendix 3 Netflix is in an extremely competitive and price sensitive industry. They cannot afford to lose anymore customers as a slip up for them opens up the door for their competitors or new entrants to swoop in and take their business. The bargaining power of buyers is high, due to low switching costs so Netflix must be aware of this and work on creating a customized experience to improve brand loyalty. Supplier bargaining power is also high, as movie distributors or television networks can provide or withhold their content from Netflix.
2. Competitor Analysis - Appendix 4
Netflix offers a large variety of movies for a cheap monthly rate. Though there are competitors who show some of the same content for free, like Hulu, their variety is not as strong. Huluplus, the paid subscription version of Hulu, focuses more on television, shows than movies. The monthly subscription prices are similar, however Huluplus