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NETFLIX COMMUNICATION REPORT 1

Netflix Communication
Report

Austin Easler
Josh Brauer
Eilidh Hajost
David Ritter
Kyle Walsh
University of Arizona
NETFLIX COMMUNICATION REPORT 2

Table of Contents

Executive Summary..........................................................................3

Introduction......................................................................................4

Situation...........................................................................................4

Background & Analysis....................................................................5

The Current Situation...5

Key Stakeholders......6

Analysis.........6

Recommendations.............................................................................7

Response............................................................................................8

Projected Budget...........8

Next Steps..............8

ROI............8

Conclusion.........................................................................................9

References........................................................................................10
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EXECUTIVE SUMMARY

Issue Identification
The following report contains important information regarding the issue of Netflixs shrinking
library and the intended strategy to communicate this issue to key stakeholders for the betterment
of the company in the future. Included within the report is the company narratives, the key issue
of Netflixs shrinking library, the challenges and problems associated with that, and the
opportunity to resolve this issue through our customers, investors, and competitors.

Background
With Netflix being such a prominent company within the entertainment industry, they have many
narratives. One of these narratives is to entertain everyone. Originally, they wanted to have as
much content for as many people as possible. Recently, this narrative as changed to focus more
on the quality of content rather than the quantity. This shift in narratives/ business models has
render the entire focus of the company in a different direction by focusing on more specific
target markets and the creation of original content.

Analysis
This key issue of the shrinking library has become a problem. As mentioned above, their focus
has transitions to have a higher quality of movies and televisions shows rather than have a higher
quantity. This issue creates more risk and higher competition with Netflix competitors. Stricter
contracts and producing more original content is costing the company billions of dollars. These
challenges have continued to arise due to the online library shrinking from 11,000 to 7,000
movies and television shows in a mere 5 years. Going with that is the loss of Disneys content
starting in 2019.

Communication Strategy
The identification of these problems present us with the opportunity to resolve these issues.
Netflix has made steps to resolve these issues by creating more original content, changing their
business model, a campaign to promote this original content. With the recent pulling of Disney
in 2019, Netflix plans to invest 6 billion dollars into creating new Netflix Originals to boost their
self-reliant sector of the service. With that being said, the company is focusing more on quality
over quantity. With the arrival of all these new series, Netflix plans to promote them through an
up and coming advertising plan that focuses on highlighting the success of their past originals
through approval ratings and critic reviews.

INTRODUCTION
The Corporate Communication Team has formulated this report to examine how the underlying
issue of Netflixs shrinking library affects critical stakeholder groups, and to provide our
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intended strategy to best communicate with those who have a direct influence on our
organizations success. After conducting market research and identifying opportunities to grow,
our team has decided that the companys best course of action is to to heavily advertise Netflix
Originals to our main stakeholder by means of a self-promotional campaign to better
communicate the unparalleled value of original programming

While Netflix continues to grow, its library seems to be getting smaller, as more popular titles
are being removed due to a decreased dependency on other content providers, combined with a
heightened amount of investment in the production of Netflix Originals. The purpose of this
document is to discuss the challenges associated with Netflixs continuously shrinking library,
and examine the best methods to promote the uniqueness of our exclusive content that
subscribers cannot find anywhere else.

SITUATION
Netflixs goal of becoming the worlds best entertainment distribution platform reflects Netflixs
core values of innovation and desire to improve the customer experience. With over 109 million
members in over 190 countries enjoying more than 125 million hours of TV shows and movies
per day (Tsang, 2017), Netflix is living up to the promises described in their mission statement
of wanting to provide quality entertainment to subscribers around the world.

A main takeaway from our companys narratives is the constant need to entertain everyone,
everywhere, at any time. This determination to expand the reach of our services, whether that be
internationally or domestically, demands that we acquire as much content as possible in order to
appeal to both current subscribers, as well as potential customers. By providing our users with
the most options of high quality entertainment, we allow them to view whatever show they want
at the most affordable price. We are also living up to our internal narrative of wanting to
entertain everyone by making Netflix accessible from almost every device with Wifi-
connectivity. Netflix can be streamed from computers, phone apps, gaming consoles, and many
more platforms.

Netflix is also reaching their goal of becoming the worlds leading entertainment service due to
their unprecedented rate of global expansion when compared to their competitors. We are
currently in 190 out of 207 countries, with the only major country we are missing being China,
and we plan to expand there in 2018 (Tsang, 2017). Not only is Netflix in all of those countries
already, but we showing signs of consistent, positive growth in those countries. While our
growth rate in the U.S. has stagnated, our international reach is only continuing to increase at a
revolutionary speed.

Another instance in which Netflix demonstrates this willingness to entertain everyone is by not
only gaining content that is on T.V. at the time, but also with our original content which has been
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stellar. In fact, some of the original shows have beat out regular shows for prestigious awards,
such as the Emmys. Our original content is also not just targeted at our audience in the U.S., but
internationally, as we are currently developing original series in many different countries around
the world.

Like most major corporations, Netflix has had some challenges that it must face regarding
problems with their narratives throughout the years. One of the major events that conflict with
our companys narrative is the removal of Disney content from Netflix, as they plan to create
their own streaming service. Even though Disney holds a very large market share of the
entertainment industry and their content is known worldwide, their contract with Netflix does
not terminate until the year 2019 (Emerson, 2017). For Netflix, this means that we have over a
year and a half to bolster up our original content and demonstrate the value associated with our
original programming. While we may may not necessarily have the same primary audience as
that of Disney movies, our dominant market share and reputation, combined with new original
programming, will allow us to easily target children and families. Our research concludes that
this split may prove to be more of a problem for Disney, as they are pressured to compete for
subscribers with well-established streaming services. This divide will allow us to spend more on
original content, as opposed to spending more to temporarily procure the rights to shows and
movies from other providers.

Another problem that we have had with upholding our narrative is that Netflixs competitors are
able to add shows the day after they air on T.V. Because we only put the show on our streaming
service after the entire season has already aired, we are lagging behind in this category. People
may be frustrated because of this because they have to wait much longer to watch the show then
it would on another streaming service. The one thing that this does help us with however is the
airing of our original content. Our entire business model is centered around releasing all of these
episodes at one time which allows people to watch the entire show at their leisure. This allows
users to easily access all of the entertainment they want at whatever time they like because they
can watch an episode a day, or they can binge watch the entire show in one day.
BACKGROUND & ANALYSIS
The Current Situation
As stated above, Through various research, we have determined some of the major issues facing
Netflix today. Speaking internally, our views are to expand Netflix worldwide to every device
while giving our customers the best content, this is in response to companys charging more for
Netflix to have their content on our platform. A lot of these companies (such as Hulu) are able to
upload the newest episode of a show within 24 hours of it airing on TV. Because Netflix does
not have the capacity to do this, we are moving more toward high end original series.
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Key Stakeholders
Next, we discuss the various stakeholders that are most readily influenced by Netflixs activity.
These stakeholders include the customers, the investors, and the competitors. With over 100
million subscribers worldwide, it is safe to say that customers are our leading stakeholder group.
We believe our focus on acquiring exclusive content is essential to retaining this high number of
subscribers. In a recent survey by investment bank SG Cowen, customer responses revealed that
58% of subscribers pay for Netflix for its original shows (Seitz, 2015). As our membership base
continues to grow steadily, it is important we recognize the significant impact that our customers
have on the success of our company, and strive to meet their entertainment needs.

Analysis
Through our research, the primary issue involves the lack of content on Netflixs library. In
comparison to the competition, Netflixs overall library has the smallest amount of content with
around 7,000 titles (Tsang, 2017). As compared to the Hulu with around 10,200 titles and
Amazon with 20,300 titles in their library. (Tsang, 2017) Netflix, however, has the most
exclusives, with 800% more than the nearest competition. We believe that both the quantity and
quality of exclusives will help lead Netflix into the forefront of digital entertainment streaming
as content producers. Given Netflixs current content creation budget at $6 billion, only second
behind ESPN (Disney) at $7.5 billion (Levy, 2016), and we plan to surpass ESPN with $8 billion
for 2018, we can safely say the money is going into new high quality shows and doing new
seasons of successful show. Ted Sarandos, the chief content officer, stated that with this money,
they will be able to make more shows like Stranger Things and House of Cards and wants to
focus less on the 1,000 hours of content and more on the quality of those 1,000 hours.
(Sarandos, 2016)
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Source: (Masters, 2016)

This increased spending on content can only benefit the customer. Although the quantity of titles
on Netflix is decreasing, the quality of the content we are producing is only increasing. We may
lose some long time subscribers that joined Netflix for our vast library, but we believe we will
gain more in the long run because of the increase of quality for our exclusives. The biggest
spender on content, being ESPN, is not considered a major threat to us when considering their
plan to exit our services. Our investors have nothing to worry about, because not only is our
content better reviewed than ESPNs, but also multiple surveys we sent out has shown that our
consumers will not leave Netflix because of the loss of Disney, and on top of this, the Disney
deal was only in the US. This means for the other 129 countries that we are currently in, the
Disney deal had no effect.

When looking at analyses of our companys financials, much of the research indicated that
Netflix is currently wrapped up in many financial obligations in regards to the development of
original content. While these statistics reflect not only the amount of the content we are losing,
but rather, the financial hole we are putting ourselves into by creating so much content at such an
accelerated rate. For the past couple of years, Netflix has had a negative cash flow of around $2
Billion.(Vena, 2017) This is a bit of a gamble as we are allocating this money into our exclusive
original content, and whether or not it will be well reviewed and increase the quality of the fewer
titles. If this end result is not the case, it could have harsh reprimands for Netflix.

RECOMMENDATIONS
As stated in the research, the biggest issue that our company and its stakeholders currently face is
the shrinking of our content library. While we became successful through having a wide range of
showsgood and badavailable for customers, we are now moving more toward quality over
quantity, and may be losing our identity in the process. We concluded that the 3 most important
stakeholders to Netflix are the customers, investors and competitors. In order to communicate
our issue, we have specified three recommendations that will demonstrate our plan to our
stakeholders.

Recommendation #1: Original Content


Fortunately for our company, Netflix Originals provide an extremely promising and unique path
to pursue into our future. To begin with, creating this content is much more cost effective. Rather
than having to pay licensing agreements with outside providers, we are able to keep essentially
all of the revenue in house. With the success Netflix Originals have had, this puts our company
in a position of power over our customers. These shows are extremely popular, which means
there is a high demand for people that want to watch them. Due to these Originals not being
available anywhere other than Netflix, this creates a great reliance on our streaming network.
Focusing more on Original Content will continue to make customers and potential subscribers
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dependent on Netflix.

Recommendation #2: Treat Netflix Like a Network


As a company, Netflix have evolved compared to how we began. In the early years, we were
reliant on mail delivery of DVDs directly to the customer. As we have moved toward online
streaming and instant access, the direct delivery portion of the company has become less
important. With this, we are developing into a Network of shows compared to the service that we
used to provide. We want to both be recognized and recognize ourselves as an exhaustive
network of film and television, in which we hope to eventually become the only one necessary
for customers.

In order to begin this new identity, we are interested in the idea of providing notifications to
customers on the website or app itself. These notifications could provide updates on new shows
or seasons coming out soon, new or hot movies, or personalized recommendations for the user.
To bolster this, we need an additional means of communication for our customers and investors.

Fortunately for our company, in order for any customer or investor to subscribe to Netflix, they
must provide a personal email. This gives us as a company an array of contact information for all
of our current stakeholders, aside from competitors. Our plan is to send two types of emails in
our communication endeavor. The first would be for our customers, in which the email would
provide them a schedule for upcoming shows, or a trailer for a show or movie that we expect to
be successful. For our investors, we would send a more formal email, regarding the company
financials and how our campaign is expected to progress. Both of these communication methods
are essentially to excite our stakeholders by showing them where our company is trending, that
direction being upward.

Recommendation #3: Implement Rating Service


The final recommendation that we have for Netflix to ensure communication of our campaign,
involves implementing a public rating service. This would be a critic review service that is
available to anyone, however the convenience of having it directly on our website or app would
be appealing to the customers. We envision that there would be a tab or section in which a list of
all shows or movies are in order, based on each rating. This is an exciting idea because it will
demonstrate the quality of our Netflix Originals. We have found that our Original content is
often comparatively better than the rest of the content we provide, in terms of ratings. By
displaying this quality, we will be communicating our campaign plan with our stakeholders. In
addition, this will go back to the notion that if we provide quality Original content, customers
will be obligated to continue their subscription in order to watch these shows and movies.
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RESPONSE
As a whole, Netflix has already begun taking its next steps toward putting the issue of content
size in the past. As our company moves toward a smaller quantity of shows, we are starting to
create a quality-based streaming service in which customers have all of the best shows available
to them. To help this process continue to carry out smoothly, we need to implement a campaign
toward promoting our Netflix Originals. These shows have been extremely successful, and are
not available on any other service.

Budget
Our campaign approach will involve candidly informing our customers and investors of our
intentions as a company, and our plan for action regarding the release our Netflix Originals.
While the the budget allocated to producing Netflix Originals is currently $8 billion (Koblin,
2017) our projected budget for this promotion plan is $0. Due to the already high expenditure
invested in creating these original programs, we recognize the importance of keeping costs low
when feasible. The steps outlined in our communication plan are efficient but effective ways to
reach our audience. Another important factor to consider when devising the budget for our
recommendation is the fact that we do not have much more room for growth in the United States,
so it does not make sense to invest more money into a market that is already accessible. All of
the stakeholders that we need to reach out to our current customers and investors, in which we
already have the means to communicate.

Next Steps
We will begin with sending an informational email to all customers that have subscribed to
Netflix, and providing them a schedule of when each Original show will become available, as
well as other big name shows and movies. Furthermore, we also plan to advertise on the website
and app itself, showing approval ratings and critic reviews to prove the widespread success of
our exclusive shows. When the user logs onto Netflix, they should be able to see 3 things
immediately, first is featured original shows, second would be critic review and ratings of these
exclusive shows, and lastly, we should have a section for shows that are leaving Netflix soon.
Finally, we will contact our investors either via a formal letter, or face-to-face in order to show
them the success we have had in our new content method. During this period of development,
our investors may have a lack of confidence in our ability to continue to grow. By supplying hard
evidence of both our current and projected success, we will strengthen our relationship with
those who are directly influenced by our operations. As a company, we recognize the importance
of keeping our most valued stakeholders happy in this transition phase.

ROI
With the budget of this promotional campaign being $0, we are providing an affordable approach
to communicate the value of our original series with our stakeholders. Netflixs current ROI is
6.18% (MarketWatch, 2017) and we expect this number to only increase as a result of our
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increased advertising practices of original series. Due to the nature of our plan, we arent
expecting a necessarily large return on investment for the campaign; however our main goal in
this endeavor is to focus more on the intangible aspect of our ROI that is customer and investor
satisfaction. The customer growth rate for Netflix has been continuously increasing significantly
due to our expansion internationally. With the negative aspect of our shrinking content library
being the biggest problem our company faces today, our stakeholders have become wary. We
need to reassure them that Netflix is the streaming service of now and into the future.

CONCLUSION
The Corporate Communication Team has constructed this report to present our analysis on the
challenges associated with the removal of content in order to adjust for the influx of original
programming, and to suggest ways to heavily advertise Netflix Originals to our main stakeholder
groups through a self-promotional campaign.

By developing a platform centered around exclusive, internally produced programming, Netflix


has enabled itself to focus on the quality of content above everything else. Netflixs
unconventional business model influences those who most directly contribute to our
organizations success, specifically, customers, investors, and rival streaming services, both
positively and negatively. However, with the right marketing protocols and promotion strategies,
Netflix will continue to build an empire on this system of providing irresistible entertainment
that that users cannot acquire anywhere else.

We, the Corporate Communication Team, encourage you to carry out our request for
concentrated advertisement of original programming to highlight the benefits of Netflix to our
key stakeholder groups. Thank you for your time and consideration of our proposal, and if you
have any further questions about the information summarized in this report or wish to discuss our
recommendations further, please contact our team leader, David Ritter, at
davidritter@email.arizona.edu.
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