ITS 380: Global E-commerce Systems

John Bergstrom

CH10 HW

1.      What are three challenges that Netflix faces?

First off, the capital cost of providing content is very high for companies in the streaming industry. But for Netflix it is even higher, since they also invest and create their own Netflix original shows. This has proved to be a problem for Netflix, since the cost of content is sometimes growing faster than revenues. This in combination with competing with other illegal services like the PirateBay and TerrariumTV who provides their consumers with content they don’t have the digital rights too, increases the level of stress on Netflix to continuously get new content out on their website and app. Another risk that comes with creating their own content is that Netflix has very little experience of creating and advertising their own contenct. But I think that they will overcome this obstacle/risk by hiring expertise and utilizing that expertise to their advantage. Lastly, the competition in this industry is very tough, and especially when you are competing against Google and Apple on a technological level, and on a content creation basis against HBO and Amazon.  

2.      What are the key elements of Netflix’s strategy today?

To remain successful Netflix today rely on 4 strategies that they need to keep up with to continue to be successful. The first one is that Netflix have to strike good deals with Comcast and other ISPs to develop high speed internet service to its customers in order to stay on top of the game. Secondly, Netflix has made it one of their strategies to develop and producing their own content in an attempt to decrease the cost of content. However, the capital investment for developing your own content is very high, but it can prove too profitable in the long run as they don’t have to pay any royalties to an external party. Thirdly, Netflix needs to keep expand their service in new countries where there are opportunities for growth and increased profits. Lastly, Netflix are trying to expand their offerings of high quality TV series to catch new customers.

3.      What are the implications of Netflix’s new strategy for the cable television systems like Comcast and Time Warner?

The success of Netflix in developing and producing their own original content, as well as, having access to a different distribution medium (internet) than Comcast and Time Warner has shown to be a real threat to traditional cable providers. Netflix doesn’t require any installations or the purchase of channel bundles or TV shows. Netflix is very versatile in the sense that the customer decides what it wants to watch on demand. Additionally, there are no advertisements on Netflix website or app.

4.      Why is Netflix in competition with Apple, Amazon, and Google, and what strengths does Netflix bring to the market?

Along with Google, Amazon, and Apple, Netflix provides a substitute product to traditional TV by giving consumers access to movies and series if they have internet. The strengths of Netflix lies within their algorithm to give recommendations to their customers finding new and old movies and series, as well as, their ability to market themselves, which have given them extremely good brand recognition on a global scale. Netflix are differentiated from their competitors by their ability to develop and produce their own original content. Of course, these other companies could do this as well in a music, literature, or video form, but only with considerable effort, cost, and time.

Project Questions

1.      Go to Amazon and explore the different digital media products that are available. For each kind of digital media product, describe how Amazon’s presence has altered the industry that creates, produces, and distributes this content.

Amazon offers an array of different digital media to its customers, among the products and services are e-books, music, film, series, and of course Amazon offer the physical versions of these too. Amazon started out by selling books online, and soon developed e-books which scrambled the book industry. It created a demand for digital media that was unheard of. And soon enough, Amazon almost had a monopoly in the e-book industry as no one else could match their product variance or service levels. For the music part of Amazon’s digital media portfolio, they haven’t really disturbed the music industry in the same way as they did with e-books. But Amazon have helped the music industry to convert to the digital format, also with a lot of help from Spotify. For music and TV series, Amazon has quite the repertoire as well, but it does not match Netflix’s collection of movies, TV-series and original content. I believe that Amazon was an industry leader when it came to the digital media of books, but was an industry follower when it came to music, movies, and TV series.

2.      In 2014, Amazon purchased Twitch, which lets users stream their video game sessions, for almost $1 billion. Why would Amazon spend so much money on Twitch? The main reason for the purchase of Twitch was to promote their new function Amazon Lumberyard, which is a service for helping game developers. Both Many companies see a lot of opportunities for growth and profits in the gaming industry. Both Amazon and Twitch offered tools to help developers include streaming capabilities straight into their apps, which means that game developers can include new tools that let players interact directly with stream-watching strangers and vice-versa.