Assignment

Heading into mid$-2020,$ Netflix was demonstrating significant competitive muscle in attracting millions of new subscribers across the world to its service for streamed internet content, despite the entry of formidable new competitors in the past nine months. Netflix grew its paid membership base from $139\mathrm{.}3$ million at year$-$end $2018$ to $167\mathrm{.}1$ million worldwide at year$-$end $2019.$ Then in the first six months of $2020,$ spurred by widespread business closures and shelter$-$in$-$place orders mandated by governments to contain the spread of the COVID$-19$ pandemic that greatly increased the time many families spent at home, Netflix added a record $15\mathrm{.}8$ million new paid subscribers in the first quarter of $2020$ and another $10\mathrm{.}1$ million paid subscribers in the second quarter of $2020.$ To counter the now$-$stronger competition from an assortment of new streamed entertainment providers, Netflix was continuing to increase its releases of new original content and strengthen its marketing efforts to grow its user base in high$-$opportunity country markets.

Over the past nine years, the company had successfully transformed its business model from one where subscribers paid a monthly fee to receive an unlimited number of DVDs each month $($delivered and returned by mail with one to three titles out at a time$)$ to a model where subscribers paid a monthly fee to watch an unlimited number of movies and TV episodes streamed over the Internet. During the same time frame, Netflix had expanded its geographic coverage to over $190$ countries, making it the world$$s leading Internet television network.

During the past five years, Netflix had made another adjustment in its business model, shifting from a content library consisting mainly of titles licensed from the movie studios, broadcast TV networks, and other sources that produced them to a content library that increasingly consisted of its own self$-$produced original content $($feature films, multi$-$episode series, and documentaries$).$ Netflix members, as well as households subscribing to rival content providers, could not only watch as much streamed content as they wanted$$anytime$,$ anywhere, on nearly any Internet$-$connected screen$$but they could also play, pause, and resume watching, all without commercials.

In its April $2019$ report of Netflix$$s financial and operating results for the first quarter of $2019,$ management said Netflix subscribers were watching more than $165$ million hours of the company$$s content offerings per day. In reporting the company$$s quarterly performance in the following four quarters, Netflix management did not disclose the total viewership hours per day, saying only that daily viewership hours worldwide were growing. The company tracked the viewership of each title.

In the United States, Netflix still had $2\mathrm{.}1$ million members as of December $31,2019,$ who, because of limited Internet service or just personal preference, continued to receive DVDs solely by mail $($but the numbers of mail$-$only subscribers had been declining monthly as members transitioned to streaming$).$ Netflix$$s swift growth to nearly $200$ million worldwide subscribers as of June $30,2020($some industry analysts believed Netflix had a clear path to $350$ million subscribers worldwide by $2025)$ pushed the company$$s stock price from $$270$ at the beginning of $2018$ to an all$-$time high of $$474$ in the third week of June $2020$

Prepare a report for Netflix CEO Reed Hastings outlining the top priority issues that Netflix management needs to address and the actions you think Hastings should initiate to address these issues and steer Netflix into a commanding leadership position in using the Internet to stream content to subscribers. Your report should contain detailed and convincing reasons in support of each one of your recommendations. It is imperative that the support offered for each of your recommendations be based on $($a$)$ conclusions drawn from the application of the concepts and analytical tools discussed in your book.

Lead Questions

How strong are the competitive forces in the rapidly evolving global market for streamed video content? Do a five$-$forces analysis to support your answer.

What forces are driving change in this market for streamed entertainment? Are the combined impacts of these driving forces likely to be favorable or unfavorable in terms of their effects on competitive intensity and future industry profitability?