Netflix’s Corporate-Level Strategy
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- Discuss Netflix’s Corporate-Level Strategy.
- Identify different business segments within Netflix.
Being a media organization, Netflix offers its customers the ability to buy television series services and movies. The company has made considerable changes in the business model to enhance its competitive nature in the market. However, significant changes in technology have allowed the company to invest heavily in streaming (Ward, A. (2020). The organization still offers its customers original DVD services. To be competitive in the market, the company employs the following business strategies:
- Domestic streaming
The domestic segment is made up of the subscription to customers within the boundaries of the united states. Over the years, more people are subscribing to the channel, leading to more profit. Ironically, during the pandemic, another business has experienced a drop in profit, while Netflix is projecting more returns.
- International streaming
International streaming involves individuals across the borders subscribing to the channel. The organization has had a surge of growth in this segment hence enabling create more revenue. International streaming accounts for the highest revenue-generating segment (Ward, A. (2020).
- Domestic DVD
With the growth in technology, more people are migrating to more digitized services. Therefore, the sale of DVDs has encountered colossal challenges, and especially during the covid-19 pandemic, people are shying away from buying them. This segment accounts for the lowest revenue generated by the organization (Mazzei et al. 2017).
- Determine the following comes from each segment in 2018, 2017 and 2016.
Domestic streaming
| Period | 2019 | 2018 | 2017 |
| Revenue | $ 9.2 bn | 5.6 bn | $5.7 bn |
| % Change from previous year | 25% increase | 48.2% increase | 10% increase |
| Contribution margin | 31% | 35% | 37.6% |
| % of Total Revenue | 45% | 48% | 49.7% |
International streaming
| Period | 2019 | 2018 | 2017 |
| Revenue | $10.6 bn | $9.4 bn | $4.3 bn |
| % Change from previous year | 25% increase | 20% increase | 19% increase |
| Contribution margin | 65% | 60% | 56% |
| % of Total Revenue | % 52.7 | 52% | 46.5% |
Domestic DVD Revenue
| Period | 2019 | 2018 | 2017 |
| Revenue | $300 million | $542 million | |
| % Change from previous year | 20% decrease | 15% decrease | 9% decrease |
| Contribution margin | 4% | 5.2% | 6% |
| % of Total Revenue | 1.5% | 2% | 2.5% |
- Based on this information, identify and defend Netflix’s Corporate-level strategy:
Netflix operates as a single business segment
Being a media house, Netflix has a considerable alley of sourcing revenue but is currently dependent on subscription services to source its revenue. The subscription, both local and international, has enabled the organization to generate more than $20 bn in 2019 (McDonald et al. 2016). Though the business makes some income from Domestic DVDs, the revenue generated is insignificant compared to the income generated from subscriptions, hence considered as a single business segment.
- Identify Netflix’s original Corporate-level strategy in 1996 and discuss how its Corporate-level strategy has changed over time.
The initial Netflix business strategy in 1996 was the Pay-per-rental method, where their customers would rent the DVDs for a given period and send back the title via the mail. This was practiced first in the bay area and later moved to the rest of the US. The company then migrated to an online subscription in 1999. Initially, the company was known for its substantial late payment of title. But with an online subscription, their customers could rent unlimited titles. The financial struggles led to Reed offering the company for the purchase and then rental Blockbuster for $50 million (McDonald et al. 2016). But the deal did not fall through, which gave the company time to scale up and invest in enhancing the technology and online infrastructure. In 2002, the business migrated to an online platform enabling more subscribers. Over time, the business has shown revenue generation potential over the online subscription compared to the sale of DVDs.
References
McDonald, K., & Smith-Rowsey, D. (Eds.). (2016). The Netflix effect: Technology and entertainment in the 21st century. Bloomsbury Publishing, USA.
Mazzei, M. J., & Noble, D. (2017). Big data dreams: A framework for corporate strategy. Business Horizons, 60(3), 405-414.
Rothaermel, F. T. (2016). Strategic management: concepts (Vol. 2). McGraw-Hill Education.
Amason, A. C., & Ward, A. (2020). Strategic management: From theory to practice. Routledge.