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Marketing Strategy Netflix Draft ReviewYou have been hired as a consultant to Netflix Corporation in order to design a more robustrevenue growth strategy than that currently being executed upon by Netflix. As the number ofdirect market competitors grows in addition to the multiple original content creators imbeddinginto some of the Netflix key competitor set, a less aggressive revenue growth outcome seemsprobable for 2022-2023 (post the C-19 revenue push enjoyed over the past 12-15 months). Theimpact of C-19 on Netflix has been mostly positive on the subscriber growth side but costly on theproduction of new content side of the business. As the rate of international growth slows and thevalue/subscriber becomes less attractive in a number of key Netflix markets- one wonders what canbe done to re-establish a healthier growth profile while simultaneously becoming more effective indeployment of marketing/sales resources. Increasing the average net margin per subscriber and thenet marketing contribution performance of the organization as a whole are seen as important stepsin maximizing the monetized value of their current domestic (US) and international subscriberdatabases. In order to complete your consulting mandate you must respond to the four questionsthat the client wants answers to- as listed below:1) Define what you feel are the three biggest blocks (in priority order) to faster, stronger toplinerevenue growth for Netflix as at April 2021?2) What 5 new elements would you introduce to the current Netflix offering, whether these aremodifications of current services/pricing structures, etc. or completely new service offerings toadd to their current 2 stream revenue models?3) What competitive market strategy would you recommend Netflix implement in order to notonly retain current subscriber base in addition to also growing the value/subscriber data file?4) Provide the client with a revenue forecast that outlines the 2021(full year) 2022, and 2023revenue forecast portraying the current growth plan–making sure to include the method usedand why you used that method. Then provide a second forecast that includes the impact of yourproposed improvements to the current Netflix marketing sales plan. (the value of the 5 newelements that you previously described in question #2).Provide a written response to a draft case study which will be a maximum of 5 pages doublespaced typed (plus 2 pages of exhibits maximum-double spaced 12 Pt. font plus 1 page forbibliography and 1 page for footnotes) for a total of 9 pages of material. Participants shouldrespond to the specific challenges identified in the four questions provided on the first page ofthis document. In responding to the case challenge make sure to perform and describe youranalysis of key case data (including the course concepts underpinning your solution).Participants will be provided with the necessary data to deliver a good case challenge submissionbut can (but do not need to in order to do an excellent job on the case study challenge) access dataoutside the case data set if they so choose. Data has been included in this case document that takesyou from 2013-2021- to the edge of this current recession recovery in order to provide perspectiveon how Netflix dealt with its previous serious challenges. Please include a bibliography andfootnote index (this is in addition to the 7 pages of case response limit) in order that citedworks can be properly identified.Why Netflix is producing original contentBy Felix SalmonJUNE 13, 2013MEDIAMatthew Ball has a long examination of the economics of Netflix’s original content,looking at it on a show-by-show level. He starts with the cost of producingsomething like Arrested Development, and then works out how many extrasubscribers Netflix would need to attract in order to justify that cost. (Or, howmany extra months existing subscribers would have to keep their subscriptionsfor, compared to when they would unsubscribe otherwise.) He writes:I’d argue that it is unlikely that Arrested Development will convince millions ofusers to stay an extra month in 2014 and 2015. If this is the case, the show wouldneed to achieve its return in the immediate future. Therefore, if we don’t see Netflixadding four to five million new subscribers during the quarter, one of two thingsare true. One, the show was a poor investment whose draw was a fraction of thoseanticipated, or two, the show is instead intended to convince many of the millionsubscribers currently churning away each month to defer their cancellation. Thiswould be telling.While Wall Street analysts are assessing the success of original content in termsof new customers, I believe Netflix’s primary goal is on imminent servicecancellations.Ball lists three reasons why Netflix is making original content. There’s the way inwhich that content keeps people subscribing for longer; the way in which originalcontent will allow Netflix to raise its prices in the future; and then there’s this:Hedging against rising content licensing costs, which are up 700% over the pasttwo years. While per-show licenses will never surpass the cost of originalproducing a series, their increases will make ongoing investments in House ofCards less expensive on a differential basis.The ever-increasing cost of licensing is a huge issue for Netflix, and it’s the reasonwhy its business model is a very tough one: any time that Netflix builds up a profitmargin, the studios will simply raise their prices until that margin disappears.Netflix had to pay a whopping $1.355 billion in licensing costs just in the firstquarter of this year; that number is only going to increase, unless Netflix can findsome other way of finding content. Like producing it in-house. At the margin, themore material that Netflix produces on its own, the less it needs from third parties,and the easier that Netflix finds it to say no to ridiculous demands.But what Ball misses, I think, is that Netflix is playing a very, very long game here— not one measured in months or quarters, and certainly not one where originalcontent pays for itself within a year. Netflix doesn’t particularly want or need thecontent it produces in-house to make a profit on a short-term basis. Instead, itwants “to become HBO faster than HBO can become Netflix,” in the words of itschief content officer Ted Sarandos.Most importantly, the thing that Netflix aspires to, and which HBO already has, isan exclusive library of shows. If everything goes according to plan, then the Netflixof the future will be something people feel that they have to subscribe to, on thegrounds that it’s the only place where they can find shows A, B, C, and D. That’swhat it means to become HBO — and Netflix is fully cognizant that this is aprocess which takes many years and billions of dollars.If Netflix gets there, then it becomes a license to print money, just as HBO istoday. Shows like Arrested Development and House of Cards may or may not payfor themselves over the short term — in fact, they almost certainly won’t. But thatdoesn’t matter. In the long term, they will become part of a library which hasmassive value on two fronts: the shows can be licensed out in jurisdictions whereNetflix doesn’t want to compete, and they will also help make Netflix a service thatcan guarantee you a great show that you want to watch, whenever you want towatch it.Ball says that “Arrested Development is an established brand that’s intended to bea one-off event to convince its fanatical (and tech-savvy) followers to give Netflix’sbroader streaming service a try.” That’s true — narrowly. But the series is muchmore than that: it’s also a way forNetflix to signal to all its current and potential subscribers that it is home to highquality exclusive content, if and when they ever feel like giving it a try. In a weirdway, Arrested Development is worth more as the number of people who haven’tseen it goes up.No one today is likely to subscribe to Netflix just on the grounds that they thinkthey might like to watch Arrested Development at some point. But when there aredozens such shows — none of which are available anywhere else — that begins toadd up. At that point, not only does Netflix provide something for everybody; italso becomes the only place to watch certain shows with cultural-touchstonestatus. And presto, the decision is no longer whether Netflix is worth thesubscription price; rather, the question is whether you can afford not to have it.There’s no guarantee that Netflix is going to succeed at this strategy: many havesailed into the treacherous waters of Hollywood video production, and few havethrived there. And in the first instance the strategy just means that it’s no longerjust the content companies managing to extract enormous rents from Netflix; it’sthe production industry and the talent as well. The old argument still applies,mutatis mutandis, to the new strategy: as high-quality original content becomesincreasingly important to Netflix, Hollywood will find ever more ingenious ways offorcing Netflix to pay through the nose for it.Still, for viewers, this can only be good. The viewing audience doesn’t carewhether Netflix makes money: they just want great shows to be produced. If theylike House of Cards and Arrested Development, they should be very heartened:there’s going to be a lot more new shows where those ones came from.Netflix to signal to all its current and potential subscribers that it is home to high-qualityexclusive content, if and when they ever feel like giving it a try. In a weird way, ArrestedDevelopment is worth more as the number of people who haven’t seen it goes up.No one today is likely to subscribe to Netflix just on the grounds that they think they might like towatch Arrested Development at some point. But when there are dozens such shows — none ofwhich are available anywhere else — that begins to add up. At that point, not only does Netflixprovide something for everybody; it also becomes the only place to watch certain shows withcultural-touchstone status. And presto, the decision is no longer whether Netflix is worth thesubscription price; rather, the question is whether you can afford not to have it.There’s no guarantee that Netflix is going to succeed at this strategy: many have sailed into thetreacherous waters of Hollywood video production, and few have thrived there. And in the firstinstance the strategy just means that it’s no longer just the content companies managing toextract enormous rents from Netflix; it’s the production industry and the talent as well. The oldargument still applies, mutatis mutandis, to the new strategy: as high-quality original contentbecomes increasingly important to Netflix, Hollywood will find ever more ingenious ways offorcing Netflix to pay through the nose for it.Still, for viewers, this can only be good. The viewing audience doesn’t care whether Netflixmakes money: they just want great shows to be produced. If they like House of Cards andArrested Development, they should be very heartened: there’s going to be a lot more newshows where those ones came from.Netflix Is Completely Changing ItsBusiness Once AgainBy Sam Mattera – April 24, 2013 | Tickers: AMZN, NFLX, TWX | 88 CommentsPerhaps the most unique thing about Netflix (NASDAQ: NFLX), at least as a business,has been the company’s ability to shift from one paradigm to the next. As evidenced byits most recent earnings release, Netflix is in the midst of yet another transition — and itcould be the most revolutionary one yet.Netflix’s evolving businessWhen Netflix was founded in the late 1990s, the company was built on single-rentalDVDs by mail — in effect, the standard Blockbuster model applied to the Internet. Later,Netflix decided to switch to a monthly subscription plan, and the company began to takeoff.In a piece titled “How Netflix (and Blockbuster) Killed Blockbuster” Rick Newman detailshow the success of Netflix’s subscription model, combined with Blockbuster’s ownshortcomings, drove the once-dominant movie renter into bankruptcy.However, the most amazing thing about Newman’s piece is how outdated it is. Despitethe fact that it was published less than three years ago, Newman gives only a passingmention to Netflix’s streaming ambitions. Today, Netflix is known primarily for itsstreaming, with its DVDs-by-mail dying a slow death.But that streaming business is shiftingNow with video streaming as its dominant business, Netflix is working to transform what,exactly, that streaming entails. Three years ago, Netflix’s streaming content was nothingbut a hodgepodge of various old movies and television shows from a variety of networksand studios — really, anything Netflix could get its hands on at a reasonable price.At $8 per month, Netflix’s content was a great deal for anyone looking to binge. But ofcourse, there are limits to that strategy. Why, for example, would someone with a robustcable package bother to sign up for Netflix?Netflix is working to change that. The company has been rolling out originalprogramming, and its clear that three years from now, Netflix will look more like analternative cable network — except on the Internet.Much more original content is in the worksIn its letter to investors, Netflix spoke at length about the company’s ambitions for itsstreaming service — specifically, it’s all going to be about original or exclusive contentfrom here.In February, Netflix released the first season of House of Cards. Unlike other networks,which will typically show only one episode per week, Netflix opted to release all 13episodes at the same time.Some consumers took advantage of this, binge viewing all the episodes within a fewdays, then promptly cancelling their membership. Yet, according to Netflix, the numberof people who did this was relatively small — only 8,000. Netflix contends that the mediabuzz and consumer satisfaction this strategy generated made up for any free-riders.In addition to House of Cards, Netflix recently released horror thriller Hemlock Grove.Two other new shows will follow this year, along with a fourth season of ArrestedDevelopment (a show that last aired on Fox nearly seven years ago) and a secondseason of Netflix’s first original show, Lilyhammer.There’s also an animated kids series coming at the end of the year, and a Sci-Fi thrillerlate in 2014. But it isn’t just about Netflix original content; the company is also workingto secure exclusive rights to content from other providers.In its letter, Netflix writes, “As we continue to focus on exclusive and curated content,our willingness to pay for non-exclusive, bulk content deals declines. At the end of Maywe’ll be allowing our broad Viacom Networks deal for Nickelodeon, BET, and MTVcontent to expire. We are in discussions with them about licensing particular shows buthave yet to conclude a deal.”Could Amazon and HBO foil Netflix’s plans?The biggest threat to Netflix’s attempts to re-imagine itself remain Amazon’s (NASDAQ:AMZN) Prime Instant Video and Time Warner’s (NYSE: TWX) HBO. Yet, both remainhindered.Netflix addresses Amazon in its shareholder letter, noting that of its top 200 videos, only76 are also available on Amazon Prime — up from 75 last quarter.More generally, while Netflix’s mention of Amazon shows that the company views it asits biggest rival, Amazon Prime is weakened in the sense that the service isn’t really atrue Netflix competitor.That is to say, Amazon’s ambitions for Prime are fundamentally different than Netflix’s.To Netflix, the ultimate aim is to get more subscribers. But Amazon’s goals are muchlarger; Prime is a way to get people to buy more stuff from Amazon itself.In addition to streaming video content, Amazon Prime also includes free two-dayshipping on goods purchased from Amazon.com and free digital book rentals from thecompany’s vast lending library. In effect, Amazon Prime is really the service for peoplewho love Amazon, not a true standalone Internet video service.Amazon briefly tested Prime monthly memberships last fall, but ended the test after onlytwo weeks. With no mention since, it seems likely that Amazon will continue to keepPrime a service that requires a big, upfront membership fee — a fee that might dependmore on the cost of shipping rather than the cost of content.For its part, HBO remains wholly owned by cable giant Time Warner. Because of thisownership, HBO is hindered in the strategies it can employ against Netflix.Specifically, although HBO may only cost $10-$20 per month, that fee must comeon top of an already larger cable bill. While Netflix may cost a subscriber only $8,the real fee for an HBO subscription could be over $100 per month.There have been rumors that HBO is considering offering its online service, HBO Go,to non-cable subscribers, but for the time being, those reports remain only rumors.Further, while HBO has superior original content to Netflix, it lacks the depth ofNetflix’s content catalog.Consequently, even if HBO was to completely sever its dependence on the cableproviders, there would likely be few Netflix subscribers that would bail on Netflixfor HBO.Interestingly, the more valuable Netflix becomes, the more valuable HBO becomesto Time Warner’s shareholders. Right now, Netflix is worth about $12 billion. If HBOwere to be spun off from Time Warner, it could be worth at least as much as Netflix,and possibly far more.Invest in Netflix?But is Netflix worth investing in? With a price-to-earnings ratio over 600 (more than30 times greater than the S&P 500) it’s hard to consider buying shares, at least froma fundamental perspective. What’s worse, as Zerohedge notes, the company isfacing immense content liabilities.Still, the company continues to be uniquely dynamic, shifting business modelscompletely every few years. That kind of creativity could keep Netflix relevant forthe foreseeable future.
Netflix’s Price Hike Is Making Investors Nervous7/8ForbesLauren Gensler, Forbes Staff2 days agoNetflix is preparing to take the bold step of raising prices on long time subscribers and it’scausing concern on Wall Street, which is bracing for subscribers to bail and growth to suffer.Starting in May, subscribers who are still paying $7.99 a month will be moved to a plan thatcosts $9.99 a month. While previously they had escaped price hikes by being grandfathered in ata lower rate, the jig is up.Netflix is already struggling to grow its subscriber ranks in the U.S., with investors increasinglyquestioning whether the streaming giant has reached its peak here at home.“Our high penetration in the US seems to be making net additions harder than in the past,” wroteCEO Reed Hastings and CFO David Wells in a letter to shareholders in January.Netflix has sought growth by expanding internationally and is available in nearly every countryin the world except China. Yet nearly two thirds of Neflix’s existing 75 million members are inthe U.S. Of them, 70% will be impacted by the price hike, according to J.P. Morgan.While it remains to be seen how many people will break it off with Netflix, subscriber growth isof paramount importance to investors, so any type of pullback isn’t likely to be looked uponfavorably.“The potential churn impact has been a central question for many investors,” wrote Baird analystWilliam Power in a recent note to clients.When Netflix reports earnings on April 18, investors will be paying close attention to thecompany’s outlook for the second quarter and beyond. Perhaps more than usual. “Due in part tothe potential for higher church, Q2 guidance could be under an even greater microscope thannormal,” wrote Power.Netflix faces increasing competition and isn’t the only streaming service in town, with Amazon,Hulu and others in an arms race to add new titles and original content. At $99 per year, anAmazon Prime subscription is cheaper than Netflix, plus comes with free shipping. You can alsonab a Hulu subscription for $7.99 a month (or $11.99 if you don’t want commercials). HBO willrun you $14.99 a month.Netflix and those who are bullish on the stock are counting on two things to keep viewersaround. The first is inertia. Netflix is wagering that most people who have grown accustomed tostreaming won’t suddenly want to give up their ability to binge watch Friends. “Given thesemembers have been with us at least two years, we expect only slightly elevated churn,” saidHastings and Wells.The second reason has to do with original content, which Netflix been going crazy over in thehopes of cementing its place as a must-have streaming option. A whole spate of Netflix originalseries are set to air after the price increases set in, including the fourth season of Orange Is TheNew Black in June.The growing popularity of original series helps “ease concerns” about losing subscribers, wroteCowen & Co. analyst John Blackledge in a note. In a survey they did, almost two thirds ofsubscribers said they have Netflix because of the original content, three times the number whosaid that in 2013.That’s good, since that’s part of the reason for the price hike, according to Wedbush analystMichael Pachter. “We believe Netflix’s shift to owned originals and higher licensed contentspending is driving the increase,” he wrote in a note.It’s no secret that Netflix’s costs are out-ofthis-world. This year, the company could spend a whopping $6 billion on content.Netflix’s stock, which was one of last year’s biggest winners and climbed a stunning 130%,hasn’t fared nearly as well this year amid concerns about growth at home. The stock is down 3%year-to-date.
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