Chapter 10:

Case Study

1.      What are three challenges that Nexflix faces?

One issue is that the cost of their content is very high, which leads to poor profitability. Therefore, the company barely sees any profit from shows that they have purchased. Secondly, they take a ton of risk when they create their own content. The company is smart in theories and applications, but when it comes to creating content, they lack the imagination to create it themselves. On top of this fact, the company takes risk about which content to create because the shows that are created are based on these algorithms. Finally, Nexflix faces a highly competitive market place, which has slowed subscriptions in the United States and caused their subscribers to cancel their subscriptions in favor of another service. These companies have very deep pockets and are able to throw more cash around than an elderly couple at an antic store. Due to these challenges, Netflix will have to adapt their strategy and find new ways to succeed.

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

Netflix has realized that they must be a leader in entertainment with originally created content and delivery platform so they have negotiated and obtained movies from Hollywood. These movies will only be presented through their streaming service, which cuts competition from being able to use them. They also want to challenge the larger cable companies to obtain a larger streaming service than cable TV. The hope is that Netflix will gain access to the same treatment as cable systems by allowing them to show the latest movies as soon as they premier on cable. This would allow Netflix to draw people away from cable and into streaming services since they won’t feel the need to bundle packages anymore.

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

These companies have been competing with Netflix for the top streaming service in recent years even though Netflix has held the marketplace in their grasp for the last decade. HBO is a great example of this competition because the streaming service started following Netflix with various originals of their own and won the same number of Emmys as Netflix with less nominations. Another issue about the competition between these rivals is the large budget that each bring along with them to create original content, which is a lot more expensive to create than existing content. Nexflix has many strengths in the fact that they have exclusive content, first-movers, and that they have been able to overcome their competition.


3. Identify three online sources of content that exemplify one of the three digital content revenue models (subscription, a la carte, and advertising-supported) discussed in the chapter. Describe how each site works, and how it generates revenue. Describe how each site provides value to consumers. Which type of revenue model do you prefer, and why?

Hulu is a subscription service that provides streaming service for their customers to have unlimited access to their shows. However, their services have additional packages that can be added on for a higher monthly fee so the fees can vary. Overall, this provides customers value with unlimited access to the content that is provided by Hulu.

The Ram truck website is an example of an “a la carte” revenue model that gains revenues as they sell vehicles to their consumers. Users will first go onto the website and find or personalize their vehicles themselves that will cause the price to vary based on their specifications. Customer value is provided by giving consumers the choice of which vehicle that they can select and make any customizations that they please.

Instagram is a website that uses the advertising-supported revenue model that generates advertisements as you scroll through their app or website. The advertisements are generally based on product history and present them to individuals. Instagram will also put advertisements in the story section of the user’s content tab. Customer value is provided through providing sometimes pointless ads to consumers, but never the less exposing them to new products that may catch their interest.

Personally, I would prefer the “a la carte” method due to the margins and stability being placed in the hands of the company. Subscription services are great but the revenue model is based on the people that want to use your service and that the entry level is significantly higher than the other choices. Advertising-supported revenue would be difficult because the advertisers could pull their content at any point based on the response from your website.

5. In 2014, Amazon purchased Twitch, which lets users stream their video games sessions, for almost $1 billion. Why would Amazon spend so much money on Twitch? Defend the purchase or explain why you think it was a bad idea.

The purchase of Twitch by Amazon was probably a great decision on their part that allows them to gain access to a rapidly expanding industry and taking out some competition at the same time. Twitch is a streaming service that allows gamers to play, advertise, and promote themselves and products to people with Amazon thinking this was their specialty. Twitch has been very successful with people joining the streaming service and many people becoming rich off of the service as well. An example would be professional gamers such as Ninja who has been sponsored and made millions off of being good at Fortnite. Twitch allows Amazon to promote themselves and place content that is suitable for themselves inside of Twitch that will shift focus towards items that they sell. Undoubtably, this will lead to greater income than just staying as an e-commerce and has expanded their service. The gaming industry will continue to play a massive role in the world and Amazon is buying in before the price is too high.