96%(68)65 out of 68 people found this document helpful
This preview shows page 4 - 7 out of 11 pages.
to work out the distribution rights and the availability of streaming movie titles. Netflix streaming technology must provide fast, easy to use and high picture quality. Therefore, adequate investment in research and development in digital streaming technology will be needed.With technology constantly changing, it is recommended that Netflix acquire a small technology firm that can first spearhead the development of the streaming technology and head the
NETFLIX CASE STUDY5innovation in streaming videos. Investing in technology could lead to higher returns with the transition of the video rental market transitioning into the digital distribution arena. Lastly, Netflix will need to change its cost structure as the shift to digital media will require higher acquisition cost. Netflix will have to continue to leverage and work on an extensive relationship with the studios. To align the interest of the studios and Netflix, Netflix should use vertical integration with the studios which will allow for cost reduction for both the studios. Vertical integration will eliminate the transaction cost that comes with negotiating license fees for distribution. Another benefit that Netflix will gain is that the studios will determine the movie release date that would give Netflix a competitive advantage over its competitors. Meaning, movie titles will be available to Netflix subscribers before other streaming competitors. The estimated project schedule of implementation is for the streaming video is at 36 months. Each activities is identified by the estimated number of months that is projected to complete this project in Appendix D. Please note that some activities will overlap. The estimated upfront cost to implement this strategy is 175M. New Revenue streamThe new business model will generate revenue from three different revenue streams, monthly subscription and platform sales. Once the new model is implemented, it is forecasted that the sales revenue for operating year 1 will be 2.16M, operating year 2 will be 3.37M and operating year 3 will be 2.95M. It is projected that in the third year of operating, revenue sales will fall slightly due to emerging competitors. However, it is projected that Netflix will still generate a sizeable revenue with the streaming video service. See Appendix E. for the revenue projections.
NETFLIX CASE STUDY6New Business ModelNetflix’s business model is suitable for transition to add digital video entertainment distribution. It is recommended that the new business model incorporate both DVD rentals and online video streaming through subscription business model. The subscription model provides an optimal balance of value to both the customers and Netflix. Customer will see the value in convenience and the flat rate will help them stay within their budget. They will see the added value in the bundling pricing model. For Netflix, the subscription model provides the prediction of revenue through the recurring sales.