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CHAPTER CASE 7 Part 2 ALTHOUGH HUGELY SUCCESSFUL

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CHAPTER CASE 7 Part 2

ALTHOUGH HUGELY SUCCESSFUL. By 2019 Netflix found itself facing several forces threatening to undermine its ability to sustain a competitive advantage going forward. First, competition in the streaming media business had intensified significantly. Media content companies such as Disney, AT&T (owner of Time Warner, including HBO), and Comcast (Owner of NBCUniversal) were forwardly integrating streaming. Offering their own proprietary services. In the future, these media companies will be less inclined to continue licensing their content to Netflix.

Tech giants such as Apple and Amazon have increasingly pushed into the content business as well, offering their own fully integrated and proprietary solutions. But developing original content is pricey. HBO, for instance, spent about $10 million per one-hour of content for it, hit series Game of Thrones. Amazon spends more than $5 billion per year on acquiring content, while Apple TV has also spent billions to build up its library of content. All these companies compete for recurring revenues from tens of million subscribers in the United States and potentially hundreds of millions overseas. Yet, since each of these proprietary services costs somewhere around $8 to $15 a month, the total number of services a subscriber will pay for is limited. Netflix, for example, now charges $13 per month for its basic streaming service, up from just $8 per month when it was introduced in 2007 (which equates to a more than 60 percent price increase).

Second, and perhaps even more challenging. Netflix's growth in its domestic market has been declining. This implies that the U.S. market is maturing, and that Netflix’s future growth must come from overseas. To achieve growth in non-U.S. markets. Netflix needs to develop original content targeted for different languages and cultures, such as its original film Roma (2018), a Spanish-language drama set in Mexico City that follows the life of a Iive-in housekeeper, working for a middle-class family. Its director, Alfonso Cuaron, won an Academy Award for best directors.⁹⁰

Questions

1. How did Netflix, use innovation in its business strategy to gain and sustain a competitive advantage? What role did strategy, technology, and business model play? Explain in detail.

2. Why is competition in Internet streaming services freeing up? Who is jumping into die fray and why? How do these companies differ? What do you expect the result of this intensifying competition will be going forward?

3. International expansion appear to be a major growth opportunity for Netflix. Elaborate on the challenges Netflix faces going beyond the U.S. market.

a. Do you think it a good Idea to rapidly expand to almost 200 countries in one fell swoop, or should Netflix follow a more gradual international expansion?

b. What are some the challenges Netflix is likely to encounter internationally? What can Netflix do to address these? Explain.