Netflix is a major company in the popular Silicon Valley. Netflix offers its subscribers with the internet movie streaming and the traditional DVDs by the mail services. It is evident that the company is very popular. This is because by April, 2011 it had more than 23 million subscribers. This growth by Netflix has been witnessed, despite the magnitude of criticism that the company has endured over the years. It was initiated in the market in 1997, and gained its market share because of its superior movie services it offered to its customers. The incorporation of new technology was fundamental to this revolution in the market, but the management knew that after its videos streaming service had gained the required market share and all the technicalities had been fixed, it would shrink. Therefore, the company had a long run plan that would cushion it against this vagary. That is, the company would split its movie services into internet streaming videos and DVD rental services via email. This study, therefore, aims at evaluating the effects of Netflix’s corporate decision on its profit margins, market share, SWOT analysis and BCG analysis to determine its performance in terms of growth and market share retention.
Immediate Effect of the Decision to Split the Movie Services
In 2011, the company founder and chief executive officer Mr. Hasting announced this split. However, this decision, despite warning from a few of his corporate managers, resulted in the company’s subscribers revolting against it, and they closed their accounts. It is evident that the company lost more than 800,000 subscribers in the third quarter of the company’s fiscal year (Wingfield & Stelter, 1). This decision turned out to be disastrous for the company. The announcement by the management on the fall in the number of subscribers made the company’s stock to plummet resulting in more than 25% downturn in company’s stock trading on the regular basis at the New York stock exchange. This demanded that something should be done. Netflix chief executive officer had to apologize to the public three weeks after the decision to split its services had been made, and he decided to reverse it (Wingfield & Stelter 1).
The company had also decided to increase its prices from $10 a month subscription fee for the combination of the video stream and the DVDs to $16 a month for the same. This increase was necessitated by the need to caution itself against the increase in the amount of money that was being spent on licensing for more materials for its video streaming service. Mr. Hasting had defended this decision by citing that the company’s customers were fast moving into the future, in which the internet would serve as the media that people would watch their favorite TV shows and new movies (O’Brien, Jeffery 1).
This new medium was more advantageous, as it would offer them instant viewing. This new trend in the market was the driving force for the company’s decision to split its services as the mailed DVD service had already peaked. The company had recorded in the first quarter of its 2011 fiscal year that there was a decline in the DVD shipment, and this trend has been increasing year after year. Therefore, Netflix had to change and incorporate the internet movie streaming as its major service in the market (Ho and Ramamurthi 1).
However, it is evident that its initial decision to split its services was hasty, and it had irked its customers. It is evident that the company’s chief executive officer was not fully aware as to whether the company had carried out an effective customer focus study that was expected to evaluate, how the public would have received the radical changes that the company was implementing (Wingfield & Stelter, 2). In a nutshell, Netflix had not taken in to consideration the emotions people attached to the periodic DVD delivery packages they received, despite the fact that they at times did not watch those movies. They had not consulted with the customers, like many companies based in the Silicon Valley. Netflix had over relied on its analytical data-driven decision-making process that evidently cannot quantify emotions of the customers. Therefore, there was a need for the company to slow its decision-making process, so that it would give room for all relevant stakeholders to express their opinion on the rooming changes at the company. This approach will ensure that the decisions made were holistic, and they took into consideration all the premiums proposed (Wingfield & Stelter 1).
However, it should be noted that Netflix future depended on this split, and implementation of this strategy was crucial. This is because the subset of the DVD rental services of the company products would shrink, as technology would continue playing the more pivotal role of re-insurrecting the market. Downloading and streaming would dominate the market, but Netflix’s drastic decision to incorporate it would not aid well its evolution to be the greatest company in the digital entertainment. This decision required correct and cautious implementation (Lamb, Hair and McDaniel 58).
Netflix’s SWOT Analysis
- Netflix market entry timing was superb. This is because there were fewer competitors. This enabled it to establish its brand name as a unique service provider. This well-timed entry in the market has allowed it to maintain a high market share.
- Leading online market share for the movie rentals
- Its services have a low fixed cost
- It provides its customers with free rented DVD shipping and postage services
- It has the largest DVD selection catalogue in the world
- Netflix boasts of an award winning website
- Netflix’s primary disability to fully satisfy the rush customer demand for a movie after its release
- Netflix’s rent by email service has some delays and it may take days for a movie to get to a particular customer. This creates room for customer’s dissatisfaction, as their mood to watch that particular movie could change before it gets to him or her.
- Netflix faces strong suppliers
- Netflix faces volatile performance from particular movies
- The studios that produce those movies are the only ones who can determine the release date of a movie, even when it is most anticipated in the market
- Netflix has the potential to expand its services to the global market
- Studios can form an alliance against it
- It can easily lose its goodwill
- It faces the risk of malware
- It has the potential of being obsolete within a limited time, due to the rapid growth in technology
Netflix’s Growth Market Share
The above diagram shows that Netflix has maintained a high market share, and its growth has continued tremendously. This high performance in both facets of the market can be articulated to its aggressive marketing strategy and networking campaign. This is eminent for the company’s strategic policies of splitting its services into two. This is because the management was able to forecast the demand patterns of its customers, despite the initial pitfall of its announcement on implementing these changes in its service delivery (Boone and Kurtz 22).
It is evident that the reception of the changes that Netflix had implemented had negative impacts on its customers, and consequently, the market forces. This is the reason why its shares plummeted. However, it is evident that the company’s business model had been drafted to enable it thrive in the movie service industry. This is because the development of new technology that complemented video services was necessitating the acquisition of the video streaming formats that would become popular with its customers. Therefore, Netflix had to incorporate these transitions to ultimately be in the position of being the ideal digital entertainment company in the globe. This splitting was fundamental in attaining this ideal.