Netflix is an American public company involved primarily in providing Internet-based and subscription-based streaming media, distribution of film and television contents on the Internet, and video content production. The company is headquartered in Los Gatos, California and it has several regional locations in Latin America, Europe, South Asia, East Asia, and Southeast Asia, as well as subsidiary offices in the United Kingdom and Singapore.
It is interesting to note that Netflix started as an online-enabled DVD rental-by-mail business that used a monthly subscription model instead of a single-rental model that was typical in most video rental stores. The company provided its customers with unlimited rentals at a fixed rate with extended due dates. Hence, when it was launched in 1998, the business model of Netflix was the first of its kind in the world.
The wide adaptation of the Internet in the mid-2000s and the substantial improvements in bandwidth and Internet speeds compelled Netflix to explore the idea of offering online video streaming services. Note that the idea was inspired by the growing popularity of YouTube. Adding to this motivation is the fact that DVDs and other stored media had become less popular due to the advancements in technologies related to the Internet.
Netflix started to offer streaming content in February 2007 and began moving away from its core DVD rental business. Today, the company has over 120 million paid subscribers in over 190 countries. Of course, it is competing against other streaming service providers such as YouTube and Amazon, the streaming services of TV networks and Hollywood producers such as HBO and Fox Entertainment, and other similar competitors such as HOOQ and iFlix, among others. Understanding the success of Netflix and how it competes against other similar businesses requires an understanding of the key elements of its business strategy.
The Key Elements in the Business Strategy of Netflix
1. Internationalization and Localization Strategy
Remember that Netflix is available in more than 190 countries. The company is able to reach its online-based global target audience through the use of servers strategically located in different regions of the world. It is worth mentioning that Netflix uses the cloud-computing platform of Amazon Web Services for a more cost-effective and globally available large-scale computing capacity. Through cloud computing, the company is able to scale its operation, make it services available across the globe, and mitigate the risks that come with network outages and bandwidth traffic.
Take note that the company is headquartered in California. However, to maintain a global presence and to better manage its global operation, the company has offices and subsidiaries in countries such as the Netherlands, Germany, Luxembourg, Brazil, India, Japan, South Korea, and Singapore.
Operating on a global scale means dealing with a diversified target audience with diversified preferences. To deal with this issue, Netflix has also utilized a localization strategy as part of its business strategy. The company has secured licenses to distribute content not only from Hollywood producers but also from regional producers. Hence, its streaming services also offer drama series from Korea, anime from Japan, Sundance films, and other films and television shows from countries such as United Kingdom, China, and India, among others,
2. Diversification Strategy Through Content Production
Netflix is primarily a provider of on-demand video streaming services. These video contents include television series, films, animations, and documentaries produced in the United States, as well as other countries such as the United Kingdom, France, Germany, India, Japan, and Korea, among others. However, the company has diversified its business to include numerous subsidiaries.
The company owns and operates three content production companies: The US-based Netflix Studios, the Germany-based Netflix Services Germany GmbH, and the Singapore-based Netflix Pte. Ltd. These subsidiaries are production studios that produce and co-produce original television shows and films. Some of the films and televisions that are exclusive under the company have earned critical praise and positive audience reception. These include the series “Sense8” and “13 Reasons Why,” and the films “First They Killed My Father” and “To All The Boys I’ve Loved Before.”
Having the capacity to produce or co-produce its own contents enables Netflix to promote exclusivity of its online streaming service, thus allowing it further to compete against studios or production companies and television network that also provide streaming services such as Fox Studios and HBO. The exclusive and original contents also allow the company to attract and retain subscribers.
3. Marketing Strategy and Marketing Activities
A critical component of the business strategy of Netflix is its marketing strategy and its specific marketing activities. It is interesting to note that that marketing strategy of the company is relatively straightforward.
Because it is an online-enable or Internet-based business that follows the general principles of electronic commerce, Netflix makes extensive use of different digital marketing activities. For example, it maintains a social media presence using Facebook, Twitter, and YouTube to maintain connections with social media users. In addition, it also uses Internet advertising, particularly ad placements on social media, publishing websites and blogs, search engines, and mobile apps to promote its streaming services and contents.
Promotional strategies are also a critical part of the overall marketing strategy of Netflix. The company offers a one-month trial period as a specific sales promotion tactic to entice new customers to subscribe. It has also been partnering with telecommunication service providers and general Internet service providers to offer free or discounted subscriptions to new or existing customers while also tapping the existing customer base of these providers and turning them into subscribers.
The pricing strategy of Netflix is considerably flexible. It offers three pricing options. The cheapest one or the basic includes a single-user and single-stream subscription with standard definition streaming service while the mid-tier option or the standard includes up to two users and double-stream at high definition streaming. The high-tier and the most expensive option or the premium plan includes four users that can simultaneously watch ultra high definition streaming. These pricing options allow Netflix to target different customers with different financial capabilities and streaming needs.
4. Technological Strategy and Capability Building
The fact that Netflix is an online-enabled business that uses the general principles or framework of electronic commerce means that is dependent on technologies related to the Internet and digital communications.
Remember that to reach its global target audience and maintain regional markets, the company has opted to use cloud computing or virtualization. Cloud computing gives Netflix several advantages, including cost and operational efficiency from the absence of the need to build and maintain physical network and server infrastructures, global scalability, and a workaround against network and power outages.
Netflix is also involved in software development. The company has developed and released web and native apps for multiple computing platforms such as the web for Microsof Windows and Apple macOS operating systems, as well as for Android and iOS mobile operating systems. It regularly updates its apps to introduce new features and improve user experience, thus enabling online users to access its services regardless of the platform they use.
Also part of the business strategy of Netflix is its anti-piracy initiatives. The company has been working with other producers and technology companies to fight piracy and protect its rights to contents. It has specific programs to scan and report contents that have been illegally distributed online. The apps have built-in digital rights management systems aimed at curbing illegal copying and distribution.
To improve user experience, the company also uses machine learning to provide subscribers with automated television or film recommendations based on their profiles and historical preferences. The company also uses machine learning to improve streaming quality, particularly through a complex algorithm and statistical analysis to examine network throughput. Note that the company has a dedicated department called Netflix Research aimed at capitalizing on the benefits of machine learning for various business purposes.