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Brought to you by
Team 69:
Josh Brauer
Austin Easler
Eilidh Hadjost
David Ritter
Kyle Walsh
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Company & Industry Description

Netflix Inc. is the worlds leading online TV streaming service and is classified as a major player

in the Internet Publishing and Broadcasting industry in the US (NAICS code 51913b). This

industry comprises of firms that offer intangible products, such as music and video, exclusively

online. Netflixs (NFLX) stock is currently valued at an all-time high of $202.68 and expected to

increase. The industry is currently in a stage of rapid growth at an estimated rate of 8.9% in

2017, as the overall volume of internet traffic continues to increase. Netflix experiences intense

competition from comparable streaming services, like Hulu, Amazon, and HBO. Approximately

one-third of total industry revenue is attributed to subscription services, such as Netflix, whose

US membership alone accounts for almost half the worldwide streaming subscriber base, as the

global number reached 109.25 million as reported in the third quarter earnings for 2017.

SWOTT Analysis & Target Segmentation

Netflix evaluates its target markets in a unique manner, because it not only has to determine who

will buy a subscription, but also what they will watch. They believe that consumer profiling cant

rely on broad categories like race or geographic location (Morris, 2016). Netflix marketers have

found that common demographics do not determine what viewers will watch. Instead, they have

built an empire on their mass market approach of grouping viewers based solely on their taste in

content. They do not release their demographic data.

However, there are three major target markets in which Netflix has a larger impact on than

others: US millennials age 18-24, families with children, and international subscribers.

Millennials represent nearly one-third of the US population over the age of 13 and account for

79% of total Netflix viewers (Deloitte, 2017). Netflix has found little to no correlation between a

users taste in content and specific demographics like gender, location, or age. An example of
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this was provided by Netflix VP of Product, Todd Yellin, explaining that 90% of their Anime

views are from outside of Japan (Barrett, 2016).

Primary Target Market

Millennials are exactly what a dominant, yet growing company like Netflix wants as a primary

target market. Americans at this age are generally more tech savvy and are trend setters. This has

to do with an increased percentage of college education. Among millennials, 35% binge-watch

on a weekly basis (Beaver, 2015). As long as Netflix continues to provide quality content, this

generation will bring them to new heights.

Secondary Target Market

The second target market for Netflix is families with children. Netflix became much more

appealing to families when they added the Kids section to the profile login page. This was a safe

way in which parents could give their children the freedom to choose their own shows, without

the danger of them picking anything inappropriate. The ratings proved the success, as over half

of Netflixs members use the Kids profile regularly. With Disney intending on beginning its own

streaming service, the need for Netflix to both grow and retain its family/children audience has

never been greater.

Tertiary Target Market

Netflixs final target market is international subscribers. As of the end of the 3rd quarter of 2017,

Netflix had 104 million subscribers (Hufford, 2017). While the clear majority of those are in the

United States, its international growth is doing much better than expected. Netflix is available in

190 countries. In terms of Original Content, Netflix makes specific series and movies for

individual countries and areas. This gives Netflix the multicultural identity necessary to expand

internationally, successfully.
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Competitive Analysis

Netflix is in multiple industries, some being micro and others being macro. The company has

three reportable segments: Domestic streaming, International streaming and Domestic DVD

Rentals. The Domestic streaming gets its revenues from monthly subscription fees for of

streaming content to our members in the United States. The International streaming segment gets

its revenues from monthly subscription fees of streaming content to our members outside the

United States. Lastly, the domestic DVD rental segment gets its revenues from monthly fees for

services consisting solely of DVD-by-mail.

Macro Competition

For Macro competition, Netflix is in a unique category as it is one of the largest tech companies

that dominate the stock market. This group of companies is known as the FAANG Group. The

big five tech companies that make up this market segment are Facebook, Apple, Amazon,

Netflix, and Google. Netflix does not have a lot in common directly with these four other

companies, however, they are all in similar industries. As of June 9, 2017, the market

capitalization of these companies summed up to $2.415 trillion (Investopedia, 2017), which is

about the size of the entire economy of France. For Netflixs industry, the FAANG Group are the

major players, which is why at a Macro Level, they are considered the competition. Because

these companies dont share a lot in common, it is often placed with other streaming oriented

companies.

Micro Competition

For Micro competition, Netflixs primary focus is on streaming video on demand services. This

competitive landscape (including Netflix) primarily consists of Hulu, Netflix, and Amazon. Both

Hulu and Amazon, within Amazon Prime Video, have a similar structure when it comes to
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streaming and both have their own original titles to convince the customers to use their

platforms, on top of an already vast library of movies and shows. For Netflix, their main draw is

the amount of original content, which is has more than 800% more originals than the

competition. For Amazon, it is the amount of content in their library, which is close to 20000

titles available. And lastly, because Hulu is owned by a combination of Turner Broadcasting,

NBC Universal, 21st Century Fox, and Disney, it has the availability of immediate access to

current airing shows within 24 hours of airing on cable. All of these companies have minor

differences in overall service provided but have their specific draws to get customers to their

platform. Because of this, they are often used in addition to each other rather than as substitutes

to each other. (Doorn, 2017).

Marketing Problems

Saturated Domestic Market:

The first marketing problem has to do with our domestic subscriber count. Right now, Netflix

has about 50 million subscribers within the U.S. which equates to about 42% of all households

(McAlone, 2017). They will have to target certain audiences to crack into more of the market, it

is unlikely that they will see a huge subscriber jump within the next year.

Reliance on Media Companies:

The second marking problem is that Netflix relies in, on the outside media. Netflix relies on them

because that is where they take their shows from and one way they have gained the subscriber

base. But at the same time, they are also competing with these channels. It is a constant back and

forth battle which is why now that companies are being skeptical of signing contracts with

Netflix. Time Warner is even lengthening the time between a shows end and when it can go on

streaming services (Levy, 2016).

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International Markets:

The last challenge that Netflix faces is the growth of their international markets. One major

problems is that smaller competitors are popping up in the international markets which is taking

away market share that Netflix currently has. However, the biggest challenge is breaking into the

Chinese market because there are so many regulations about what can and cannot be shown. But

if they can break into the market, it would mean a huge subscriber growth.

Summary & Conclusion

As discussed above, Netflixs three problems are its shrinking market within the United States,

their reliance on outside sources for content, and entering the Chinese market. With these

problems at hand, Netflix is trying to find possible solutions to each of these issues. As far as the

shrinking market of the United States, three possible solutions can be: gaining higher customer

satisfaction within the domestic market, adding content that reaches all demographics, and

retaining customers from the competition. When looking at the reliance on outside sources for

content, they could: create more original content, lessen contracts with these competitors, and

invest more money on creating original content that would have been used to pay these outside

sources. Lastly, entering the Chinese market. It is said that this will happen in the near future

with plans to occur in 2018. Some possible solutions to entering this market are: working around

the strict Chinese restrictions laws, finding content that is suitable to play, and using a domestic

name to go under in this market. With these problems and possible solutions, we plan to

investigate more thoroughly this information in Phase III. Please email our team leader at

DavidRitter@email.arizona.edu with any further questions.

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Attachments

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References
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Retrieved October 20, 2017, from https://www.wired.com/2016/03/netflixs-grand maybe
crazy-plan-conquer-world/

Castillo, M. (2017, May 04). Hulu CEO: Here's our game plan to beat Netflix and Amazon in
streaming. Retrieved October 23, 2017, from https://www.cnbc.com/2017/05/04/hulu
ceo-mike-hopkins-how-hulu-can-beat-netflix-amazon.html

Deloitte. (2017, March). Digital democracy survey, 11th edition. Retrieved September 2017,
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Doorn, P. V. (2017, October 21). Netflix shows that it has no real competitors. Retrieved
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Hadad, J. (2017). Industry Report 51913b Internet Publishing and Broadcasting in the US.
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Hufford, A. (2017, Oct 17). Netflix again tops forecasts for subscriber growth; company expects
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With a DVR. Retrieved September 2017, from Leichtman Research
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Lisa Beaver, M. B. (2015, November 16). Massive share of US millennials stream video on
Netflix and YouTube. Retrieved September 2017, from Business Insider
:http://www.businessinsider.com/massive-share-of-us-millennials-stream-video
onnetflix-and youtube-2015-11

Netflix Inc. . (2017). Form 10-K . Annual, United States Securities and Exchange Commission.

Statista. (2017). Number of Netflix streaming subscribers in the U.S. 2011-2017. Retrieved
October 2017, from Statista: https://www.statista.com/statistics/250937/quarterly
number-of-netflix-streaming-subscribers-in-the-us/