A Network View of Netflix

How Partners, Competition, and Opportunities Dictate Strategy

Changing How We WatchNetflix began as a DVD-by-mail service, using the web to improve the rental industry with recommendations, queues, and automation.

However, increasingly streaming of video online has become one of Netflix’s core strategies for delivering content to viewers.

$14m in Q3 2011 $21.5m in Q3 2011

Figures based on Netflix Q3 2011 Financial Statements

Focusing More on Streaming

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Netflix Investment in Streaming vs. DVD Content

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Figures based on Netflix Q3 2011 Financial Statements

“Our core strategy is to grow our streaming subscription business within the United States and globally.”

- Netflix Annual Report

1“Netflix’s CEO Discusses Q3 2011 Results.” http://seekingalpha.com/article/301738-netflix-s-ceo-discusses-q3-2011-results-earnings-call-transcript?part=qanda.

Netflix is constantly adding new content to its streaming library, including new partnerships with AMC, CBS, DreamWorks, and Warner Bros.

“[The DVD-by-mail business] will probably be something like AOL dial-up from 2002 through to today, where it’s a steady decline every year a little bit, but there’s a long-term residual market. And there’s very little fixed cost in the business. So that’s not a material cutoff of its efficiency, it’s almost all variable cost. The postage, the labor, all of those aspects.”1

- Netflix 10K

Pulling Content From All AroundNetflix purchases DVDs or holds content agreements with countless production studios and distribution companies. These are just a few of the partnerships Netflix currently holds.

A constant concern for Netflix is gaining new content and holding onto the content agreements it already has. Just recently, Starz opted not to renew its agreement with Netflix, meaning that in February Netflix will lose a great deal of its streaming content. This is a growing concern as other companies enter streaming.

“I think in the long-run, the long-term margin structure for streaming will be ultimately determined by the competitive space, and how many competitors we have. In the short run, we’ve been aggressively adding streaming content at the same rate of subscriber growth, and we continue to anticipate investing in 2012.”1

- David Wells, CFO, Netflix

1“Netflix’s CEO Discusses Q3 2011 Results.” http://seekingalpha.com/article/301738-netflix-s-ceo-discusses-q3-2011-results-earnings-call-transcript?part=qanda.

Others Catching On

Competitors like Amazon, YouTube, Hulu, Blockbuster (now partnered with Dish Network), Facebook, and Apple are getting in on the action too. All six companies have revenue generation models based on either selling digital content to consumers or using advertisements to subsidize viewing.

Subscription ServiceOne Price, Unlimited Viewing

Á La CartePay Per View

Advertising SubsidizedFree Viewing with Ads

FreemiumSome Content Free, Other Paid

Getting Content to YouRather than just getting content to viewers through DVD players, Netflix has partnered with numerous other device makers to help turn any screen into one that can stream Netflix movies and TV shows from the web.

Gaming Systems

Nintendo Wii Microsoft Xbox 360 Sony PlayStation 3

Getting Content to YouRather than just getting content to viewers through DVD players, Netflix has partnered with numerous other device makers to help turn any screen into one that can stream Netflix movies and TV shows from the web.

Mobile Devices

Apple iPad and iPhone

Windows Phone Google Android

Getting Content to YouRather than just getting content to viewers through DVD players, Netflix has partnered with numerous other device makers to help turn any screen into one that can stream Netflix movies and TV shows from the web.

Web-Enabled TV and Devices

Roku Box Tivo Apple TV

Getting Content To YouNetflix’s vast array of partnerships allow it to be available on a plethora of platforms, meaning that Netflix’s streaming services can reach just about everyone—either on the computer through a browser, through web-enable televisions, gaming consoles, or mobile devices.

However, a growing concern is the exclusivity of these relationships. Hulu is already available on many of these platforms, as is access to Apple content. What exists to ensure that Netflix with continue to enjoy its proliferation?

Area For Concern - ContentWhile its content partnerships are among Netflix’s strengths, they are also one of its weaknesses. The growing standard of exclusivity means that content may soon only be available in one place, rather than across multiple websites. Will content creators and distributors continue to partner with Netflix and give it the content it needs to exist, or will they find greener pastures, possibly even focusing on their own online distribution to build revenue?

Area For Concern - DeliveryAnother area for concern for Netflix are the platforms that deliver its streaming services. While browsers on computers will always be able to access Netflix.com, what about the numerous devices that make Netflix so easily accessible? What happens if they decide to partner with Hulu or Amazon exclusively for streaming services? Maintaining partnerships with these device makers is vital—especially considering the numerous connections Apple already holds for content.

Looking Forward

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Netflix Investment in Streaming vs. DVD Content

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Netflix will continue to build up its streaming library, maintaining a DVD selection that will eventually be slowly phased out.

Because of this need for new content, Netflix has to maintain content rights with a growing variety of content providers. Exclusivity rights and new partnerships will constantly be threats and opportunities for Netflix.

Netflix must also keep relationships with platforms that allow Netflix to stream its content via apps. With many new streaming options entering the market, it is vital to remain ubiquitous and a well-known brand name across platforms.