Case Study Questions
1. What are three challenges that Netflix faces?
While Netflix has been able to disrupt the movie and television broadcast market, they still face challenges within their industry. One challenge Netflix needs to overcome is the competition from other companies that are getting into the streaming market. Companies like Amazon have a large amount of capital and a vast database of customer preference information. This type of competition puts tremendous pressure on Netflix to attempt to stay competitive.
Another challenge to Netflix is the cost of acquiring and creating content to stream. With the success of Netflix, older content that use to be purchased at a cheaper price has now increased in value. Additionally, other companies are flooding into the streaming market and in doing so are retaining rights to their content or bidding up other content. The competition in the streaming market keeps placing more and more pressure on the providers to try new ways to generate revenue.
The third challenge to Netflix is the location of creative content creators. Netflix is located in Silicon Valley while the entertainment content producers are located in Hollywood and other distant locations. This creates challenges for Netflix to gain access to the content creators as well as to developing successful original programming. Netflix’s use of algorithms to develop new programming ideas are not as successful as having those in the showbiz industry developing ideas. That is what makes their location a challenge to overcome.
2. What are the key elements of Netflix’s strategy today?
Currently Netflix has a couple key elements in their strategy that help them to be successful. One element is their willingness to take the risk of creating their own programming. Complimenting their original programming with successful older series is another element to their strategy. In addition to their programming choices, they have developed their own streaming platform that allows them to provide high quality of service across the globe. Part of their platform is to have servers distributed throughout their subscription area. This type of infrastructure keeps their customers serviced with a high quality and reliable streaming experience. A final key element to the Netflix strategy is the use of a subscription service that has been build on years of experience and customer data. Netflix was able start collecting viewer data long before many of its competitors. These are all key elements to the strategy of Netflix today.
3. Why is Netflix in competition with Apple, Amazon, HBO, and Google, and what strengths does Netflix bring to the market?
Netflix has created a success transition from a movie rental service to a subscription based streaming service through its technology and now its original content creation. The convergence of Netflix has brought them into competition with many giants in a few industries. Netflix is battling Amazon, Apple, and Google on multiple fronts from technology service platforms to content streaming services. Additionally, Netflix faces competitions from HBO on the content creation front as well as in the service streaming industry.
Convergence between industries and the successful creation of a market by Netflix has encouraged other companies to jump into the competition. Netflix brings a couple strengths to the market. To start with, they have the first-mover advantage over their newcomers. Netflix has been able to build its database along with great customer relations long before these other companies started to get into the streaming market. Another advantage for Netflix is they have a platform that is their own and had been tried and tested over the years. These factors lend to Netflix having strength to compete against the newcomers to the streaming market.
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 the consumer. Which type of revenue model do you prefer, and why?
The New Yorker is an example of a subscription-based model. The generate revenue by persuading potential customers into a subscription service for access to their content. One method they used to lure customers in is to reset the 6 free views each month. This encourages potential consumers to come back and allows The New Yorker to contact them again about a subscription.
Amazon.com provides an example of an a la carte model. A la carte is not Amazon’s only revenue model. Their a la carte service is on select video content, songs, and books. Customers can select which items they want and pay a price for each item the choose. This portion of Amazon’s digital business model does not rely on subscription to sell content. Even their subscription customers are required to pay a la carte for some content.
YouTube provides a good example of an advertising-supported revenue model. There are many channels on YouTube that its content owners are generating revenue from sponsors or other advertising on their channel. This model requires the content creator to have a minimum number of subscribers and be active with content production and interactive with users to help support the advertisement revenue generation.
I prefer the subscription model over the other two models. I feel there is better value to the consumer while providing a more stable business model for the business. This model may help with planning both financial needs and product lines.
4. Identify a popular online magazine that also has an offline subscription or newsstand edition. What advantages (and disadvantages) does the online edition have when compared to the offline physical edition? Has technology platform, content design, or industry structure convergence occurred in the online magazine industry? Prepare a short report discussing this issue.
National Geographic Magazine has an online magazine as well as a newsstand edition. The online version of the magazine has the benefit of a larger potential customer reach through its broader reach as compared to the physical magazine. Another advantage online is the ability to have the magazine articles come up in content searches through major search engines. Online has the further advantage of having content corrected or updated and archived as needed. The physical copy provides the advantage of reaching the older generations that tend to want a physical copy over digital content. Another advantage of the printed version is the ability to catch consumers on an impulse purchase that is less likely online. Another advantage offline is the magazine can be utilized in areas that do not have web access or spotty service. The online magazine industry has definitely had convergence occur.