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This strategy will require Netflix to invest in streaming technology, streaming title and, more crucially, expand its profit sharing relations with studios and networks to include exclusive content control. While the physical DVD rental industry, including online subscription will remain strong and the market as a whole will grow, the DVD rental share of the market will decrease. However, the digital rental market share will increase. A study conducted by Alexa Research indicated that a in a cycle of every six months, streaming media via the internet will increase by more than tenfold. Other industry reports estimate that the streaming media softwaremarket will generate more than $800 million by the year 2007. Arbitron release a study in 2004 which stated that 108 million U.S. viewers or 44% of the U.S. population have used video streaming at least one time. It also stated that there was a 10% increase in internet video viewingfrom the year 2000. Additionally, a report released in March 2005, indicated that U.S. consumers prefer to have control of their media entertainment which streaming media provides (O’kennon, 2007). With numerous studies indicating an increase usage of video streaming, Netflix needs to change its strategy from physical video rental service to the online streaming to achieve sustainability in this industry. Short-Term Objective
NETFLIX CASE STUDY4Netflix’s short-term objective must be to concentrate on profitability and growing its subscription base. Profitability can be gained by lowering cost to acquire subscribers, and increase the average revenue per paying subscriber. Growing Netflix’s subscription base is also vital to revenue growth and fostering brand loyalty. Netflix can grow subscription through competitive pricing and added product value in the form of customer service. To retain older subscribers, Netflix should establish a time based incentive program for customer to stay with Netflix or deter them from canceling their subscription. Based on Netflix’s data, they regain the acquisition cost in the seventh month and therefore, a benefit for subscribers who reach their seventh month university should be offered. This benefit could be in the form of a free streaming content or fee discount. This incentive could be extended to one, two and three year subscriber anniversary. Long-Term ObjectiveNetflix already has an existing online customer interface that can be converted to online video streaming. However, there are some weakness that must be addressed in order to be viablelong term in the digital distribution marketplace. To meet the long term goal of content distributor, Netflix must establish a strong streaming technology, overcome movie studio’s control over the digital content release dates and cost of licensing. Additionally, they will have to work out the distribution rights and the availability of streaming movie titles.