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Netflix is competing in two different markets. The first one, its historical market, is the DVDrental industry, where Netflix is facing Blockbuster and smaller businesses. We will not focus onthis market but rather on the other one, the Online Television and Premium Video Industry (orOTPVI). This market, part of the online entertainment industry, is a fast growing and extremelycompetitive market. To give a precise figure of the market would be difficult if not impossible. There is aninability to count Internet viewing, or time-delayed viewing. Still, experts estimate that the onlinemovie business represents $5.7 billion in 2013 in the US. There is no figure regarding online TV.Also, there are two different industries regarding OTPVI: the Video-On-Demand (VOD),which is a streaming service like Netflix, and the Electronic-Sell-Through (EST), which sells orrents movies and TV shows like iTunes. The next figure will give an overview of the competition. Julien Guitton | Netflix Case Study4
Figure 2 - Major U.S. Online Movie Distributors, based on data from industryNetflix; 44%Apple; 32%Others; 9%Microsoft; 8%VUDU; 4%Sony; 2%According to a survey made by Statistica in 2014, the online spending soared thanks to a45% rise in streaming sales and a 35% rise in movie downloads. NETFLIX’SCUSTOMERSNetflix has always put its customers at the center of its strategy. When it was only a DVDrental service, Netflix saw the inconvenience for renters: they had to move physically to get theirDVDs and return them; plus the late-return fees were incredibly high. Now, providing online streaming, Netflix is answering the new needs of most of movies &TV shows fans. According to eMarketer, in 2014, over 140 million Americans watch TV online,which represents 55% of the US Internet population. And over 75% of millennials are watchingstreamed television shows and movies. Julien Guitton | Netflix Case Study5
Viewers are now switching from TV network to go to online services (streaming ordownload). The trend is not going to stop anytime soon because they value too much what thismarket offers:1.An access to content anytime, anywhere, on any device. By creating an early platformworking 24/7 on any device, Netflix has gained a competitive advantage. 2.An almost infinite library. When confronted to TV programing, or in store rental, viewershave a limited choice. Chris Anderson developed a Long Tail theory for the Internet: “nomatter how much content you put online, someone, somewhere will show up to buy it”(Ecommerce 2015). Indeed, the Internet has allowed content provider, like Netflix, to offer awider library than physical stores. This explains mostly the success of Netflix againstBlockbuster.3.An ad-free environment. As opposed to TV network or advertising revenue model (likeYouTube), Netflix opted for a subscription revenue model that made it more attractive anduser-friendly.