Case Study

Name
Contents
Intro ..................................................................................................................................................... 3
Theory ................................................................................................................................................. 4
Story telling ......................................................................................................................................... 6
Conclusion ......................................................................................................................................... 11
Bibliography ..........................................................................................Error! Bookmark not defined.

Figure 1 Netflix challenges TV networks at the 2014 Emmys ............................................................. 5

Figure 2 Shortly Timeline .................................................................................................................... 6
Table 1 International Decision making model……………………………………………………………………………….10
Introduction

Netflix has a competitive edge in the DVD rental industry over competitors such as
Blockbuster, Redbox and Coinstar because of its strategies of market entry, diffusion, domination
and its revolutionary patented business model. It uses a combination of patents, trademark,
copyright and trade secrets to protect its intellectual property. This paper will analyze the key
patent decisions by Netflix as well as their novelties. Netflix patented the online DVD rental
business model including open-ended rentals for a fixed fee and sued Blockbuster for infringement
shortly after release of the patent. Netflix also uses a patented in-house video streaming
technology with an interface compatible to desktop and mobile devices. The location of Netflix
warehouses is a trade secret in order to protect the resources and to prevent people from
returning DVDs at the warehouse location.

Netflix, Inc. was founded in 1997 by Reed Hastings, Marc Randolph and Mitch Lowe in
Scotts Valley, California (Funding universe, 2012). According to Hastings, the company’s CEO, the
idea for Netflix came to him after he was charged a $40 late fee on a Blockbuster movie rental
(O'Brien, 2012).
Theory

Since the company’s establishment in 1997, Netflix has drastically adapted and improved
its business model to accommodate its customer base. Their vision in forming the company was to
provide America with access to thousands of movie titles via an Internet ordering and shipping
method. The process has been consistent throughout the years because of their monthly
subscription model. However, since the early 2000’s, there have been major adjustments that
have propelled the company to heights that could not have been foreseen.

As of today, Netflix is the world’s leading Internet network and has reached more than 50
countries compiling over 50 world-wide million subscribers. The company’s ability to stay ahead of
the game while remaining innovative is their driving force behind its attractive profitability. A
major game changer for them these days is their monopolized ability in providing its viewers 4K
streaming. With this extremely high resolution service, viewers are able to immerse themselves
while watching their favorite shows and movies. 4K service will not be available for cable or
satellite viewers until spring of 2015, giving Netflix a competitive advantage in viewers’
experience.

In 2010, Netflix began extending its services to Canada and the Latina American countries.
This is after they expanded to a few countries in Europe. These expansions have proven to yield a
sustainable amount of growth in subscriber sign ups per month. Netflix is in a continually studying
its markets in order to provide content those subscribers want. In September 2014, Netflix had
announced that it was going to extend its reach to Germany, France, Austria, Switzerland, Belgium
and Luxembourg.

These countries have a household broadband access that the company found very
appealing since the broadband has capabilities of streaming video content. Netflix is also planning
to expand to the Asian Pacific regions of the world in the coming years.

The company’s ultimate goal is to be the global leader in Internet television within the
next three to five years. Netflix currently coordinates with its users’ Facebook accounts, and
analyzes subscribers’ viewing history. This has allowed the company to get real-time data that
could not be accurately assessed in surveys due to the inconsistency of response rates. By allowing
its subscribers to rate content on a one to five star scale, the company is easily able to access what
genres are most popular, actors that users prefer, or even specific titles that people would
possibly enjoy watching.

Netflix has also constructed a simulated A.I. system called “Max” that assist subscribers
with finding content that they would possibly want to view based on movies they have rated
favorable, personal preference, and history. “Max” asks the viewer questions that help them
narrow down a possible movie or show choice in a comedic fashion. It is very interactive. These
tools have helped reach a customer base that has exceeded their prediction back in the early
stages of Netflix.

Figure 1 Netflix challenges TV networks at the 2014 Emmys

NETFLIX

PBS

ABC
Streaming
FX
Broadcast
NBC Cable
CSB

HBO

0 20 40 60 80 100 120
 Storytelling

2015 Netflix expanded to

Europe and garners 31
primetime Emmy nominations
2009 Netflix partners including outstanding drama
with consumer series, comedy series and
electronics companies documentary. They were the
to stream on multiple first internet TV network for
platforms the primetime Emmy

2012 Netflix expands 2019 Netflix has 58.4 million

into Latin America U.S. customers as of the end
the third quarter of 2018, with a
worldwide total of 137.1
million streaming members.

Figure 2 Shortly Timeline

 Entry Modes into International Markets – Netflix - The entry mode that Netflix used was
exporting to the Canadian market. This strategy is especially useful for companies that are initially
entering to the global market.-Later on, Netflix could be expected to identify other foreign
markets that have a demand for the films that are currently offered through the streaming service,
such as Europe, Latin America even parts of Asia.

After Netflix gain knowledge from the service in Canadian market, these learned
efficiencies will be able to be carried over into the other potential foreign markets. It is also a
reasonable expectation that Netflix will begin to adapt the selection of videos available to fit
specific markets.

In 2011, Netflix was the world’s largest online movie rental service. Its subscribers paid to
have DVDs delivered to their homes through the U.S. mail, or to access and watch unlimited TV
shows and movies streamed over the Internet to their TVs, mobile devices, or computers. Marc
Randolph and Reed Hastings founded the company in August 1997 in Scotts Valley, California,
after they had left Pure Software. Hastings was inspired to start Netflix after being charged US$40
for an overdue video.1 Initially, Netflix provided movies at US$6 per rental, but moved to a
monthly subscription rate in 1999, dropping the single-rental model soon after. From then on, the
company built its reputation on the business model of flat fee unlimited rentals per month
without any late fees, or shipping and handling fees. In May 2002, Netflix went public with a
successful IPO, selling 5.5 million shares of common stock at the IPO price of US$15 per share to
raise US$82.5 million. After incurring substantial losses during its first few years of operations,
Netflix turned a profit of US$6.5million during the fiscal year 2003.2 The company’s subscriber
base grew strongly and steadily from 1 million in the fourth quarter of 2002 to over 27 million in
July 2012.3By 2012, Netflix had over 100,000 titles distributed via more than 50 shipment centers,
insuring customers received their DVDs in one to two business days, which made Netflix one of the
most successful dotcom ventures in the past two decades.4 The company employed almost 4100
people, 2200 of whom were part-time employees.5 In September2010, Netflix began international
operations by offering an unlimited streaming plan without DVDs in Canada. (Forbes)

In September 2011, Netflix expanded its international operations to customers in the

Caribbean, Mexico, and Central and South America. Key to Netflix’s success was its no late fee
policy. Netflix’s profits were directly proportional to the number of days the customer kept a DVD.
Most customers wanted to view a new DVD release as soon as possible. If Netflix imposed a late
fee, it would have to have multiple copies of the new releases and find a way to remain profitable.
However, because of the no-late-fee rule, the demand for the newer movies was spread over a
period of time, ensuring an efficient circulation of movies.
Strategy Hambrick Diamond

Arenas: After their first successful international expansion to Canada in 2010, Netflix
proceeded to other markets such as Latin America, the United Kingdom and the Dutch land. Their
European expansion is by far their biggest single launch into new territory in the company’s
history. The online video-streaming company continued their European expansion launching
recently into France, following a rollout into six other European countries including Germany,
Belgium and Switzerland. Netflix plans to succeed in these international markets by putting a lot of
emphasis on their core competencies of superior application and service created by their global
technological investment, their process knowledge, data from related markets, and their brand
presence. Although international expansion is one of Netflix’s main focuses, they also plan on
staying the market leader of streaming video on demand in the United States.

Vehicles: Netflix does not own most of the content it provides, their vehicles are through
licensing. Their licensing of content is generally time based, which means they pay for a multi-year
exclusive subscription video-on-demand license for given titles. At the time of renewal, Netflix
evaluates how much a title is getting viewed as well as member rating feedback to determine how
much the company is willing to pay. Content is bid for and licensed on a country-by-country basis,
in launching Netflix’s service in a new international market; the company must license a content
portfolio for that country.

Differentiators: Netflix is an increasingly global Internet network offering movies and TV

series commercial free; with unlimited viewing on any Internet connected screen for an affordable
no commitment monthly fee. Netflix limits the complexity and frustration that embody most
MVPD relationships and their customers. An example of their no-hassle online cancellation,
members can leave when they want, and come back whenever they want. Netflix is about the
freedom on demand and the fun of indulgent viewing. They are about the flexibility of any screen
any time. Netflix is about the fantastic content that is available only through them.

Another area of focus is personalized recommendations and merchandising, which drives

what content Netflix features on a member’s initial screen.
 Staging: Netflix’s approach is to expand as quickly as possible while staying profitable on a
global basis, as long as there are compelling markets to expand into, and the company is
continuing to see growth in its current markets.

Economic Logic: Netflix will continue to obtain returns by retaining members and
attracting new customers by winning “moments of truth” from these consumers. They win these
moments of truth when members expect Netflix to be more pleasurable than their other options,
based upon their prior experiences.

The satisfaction comes from easy choosing, total control over when to play, pause,
resume, etc. and content that suits the taste and mood of everyone in the household. Netflix
invests a lot in core advantages such as streaming delivery, sign up, billing and customer service
across more than 1,000 devices being used in nearly 50 countries.

Netflix is well ahead from their competitors in the operational aspect, but will continue to
invest heavily to make sure their service is always available, their streaming never re-buffers and
their audio-video quality is pristine.

Table 1 International Decision making model

Netflix Compatibility/capability

Country attractiveness/priority

High High Medium Low

Primary

Canada

Medium Secondary U.K.

Mexico Australasia

Argentina

Colombia

Brazil

Low Tertiary India

Conclusion

Netflix has demonstrated that developing country-specific knowledge is critical for success
in local markets. This knowledge needs to be both broad and deep, extending across political,
institutional, regulatory, technical, cultural, customer, and competitor domains. Understanding
local cultures ensured that Netflix could be sensitive to and respond to their differences. This
enhanced its credibility and helped it forge smooth relationships with key stakeholders.

Taken together, the elements of Netflix’s expansion strategy constitute a new approach
that I call exponential globalization. It’s a carefully orchestrated cycle of expansion, executed at
increasing speed, to an increasing number of countries and customers. The approach has helped
the company expand far more quickly than competitors. Going forward, Netflix will face increasing
competition not only from other global players such as Amazon Prime but also from new entrants
and regional or local players. In that regard, it will have to continue to expand its blending of
global and regional content.
Bibliografía
BUSINESS INSIDER. (12 de 8 de 2015). Obtenido de https://www.businessinsider.com/netflix-
global-expansion-plans-2015-8

Forbes. (s.f.). Obtenido de https://www.forbes.com/2003/10/02/cx_al_1002nflx.html

Funding universe, N. I. (10 de March de 2012). Obtenido de http://www.fundinguniverse.com

O'Brien, J. M. (8 de March de 2012). The Netflix Effect, WIRED MAG. Recuperado el 20 de marzo de
2019, de
http://www.wired.com/wired/archive/10.12/netflix.html?pg=1&topic=&topic_set

Oxford Academic. (s.f.). Google Academic. Obtenido de https://academic.oup.com/joc/article-

abstract/66/1/35/4082390