FORMATIVE ASSESSMENT 1 [100 Marks] Read the article below and answer ALL questions in this section. The battle for video streaming: Netflix vs. Amazon is a clash worth watching In the profitable U.S. market, Netflix's biggest competition comes from Amazon and Hulu, but in other countries Netflix is the only game in town Author of the article: Jonathan Ratner Publishing date: Apr 20, 2016 Netflix Inc. has a huge advantage as the first mover in the video streaming market, along with the benefits that come with being a recognizable brand in terms of attracting customers. But its facing an increasingly competitive battle for producing and providing appealing content, and equally important, on price. That became more evident on Sunday, when e-commerce giant Amazon.com Inc. lowered the pricing for its video streaming service. The new monthly fee option gives Amazon video subscribers access to its Prime Video library of movies, TV shows and original series for US$8.99, whereas Netflix will hike its basic monthly service to US$9.99 a month in May. An escalating price war was exactly what Netflix shareholders didnt need, since the companys disappointing secondquarter outlook for international subscriber growth helped wipe 13 per cent off the stock on Tuesday. The numbers showed that Netflix is having trouble matching its U.S. success with growth in some of the 200 countries it hopes to expand to by the end of 2016. In the profitable U.S. market, Netflixs biggest competition comes from Amazon and Hulu a joint venture between Disney, 21st Century Fox and Comcast. But there is a lot of overlap between the services, with some consumers subscribing to two or all three services. In other countries, Netflix is the only game in town, or ranks second in subscribers to domestic video streaming providers. Since viewers have similar taste in markets like Canada, the U.S., Australia, and England, Netflixs competitive advantage is pretty strong with popular offerings like House of Cards and Orange is the New Black. As a result, Netflix will likely be the leader in those markets for a long time. The problem, as Wedbush Securities analyst Michael Pachter points out, is the company isnt generating any profits anywhere else. Having a competitive advantage in a place you dont make money really isnt that big of a deal, he said. Netflix shares are still up 190 per cent in the past five years, so plenty of investors clearly arent scared off by the stocks multiple of 330 times earnings. But if the havoc Amazon wrecked on the retail sector is any guide, they do have something to be worried about in the US$300 billion giant. Netflix cant grow as fast as people think if Amazon is serious about competing, Pachter said. I believe Amazon is serious about competing. (CEO Jeff) Bezos is in this to win. Amazon also has a much stronger balance sheet than Netflix does, and has much more revenue from other sources to plow into its video business When you compare the two services, a case can be made for Amazon having superior recent film offerings. Netflix has a deal with Dreamworks and Disney, but Amazon has Epix and HBO movies. Amazon also kicks their butt in originals because it also has HBO titles like Empire, Six Feet Under and The Sopranos, Pachter said. Thats much better than anything Netflix can come up with. He is one of only four analysts (out of 46 in total) tracked by Bloomberg with a sell rating on the stock. Those with buy ratings on the stock like Mark Mahaney at RBC Capital Markets believe timing had a lot to do with Netflixs weak outlook. We continue to believe that Netflixs value proposition has universal appeal as demonstrated by its success in North America, Latin America, and Western Europe, he said, adding that the companys international efforts will pay off as it provides more localized content, language and payment options Mahaney continues to forecast more than US$10 in earnings per share by 2020 driven by 180 million global subscribers. As a result, the analyst thinks Netflix shares could double over the next three years. Similarly, Doug Anmuth at J.P. Morgan doesnt think the lacklustre guidance changes the thesis on Netflix. He noted that the company has historically shown seasonal subscriber weakness in previous years falling 44 per cent on a quarterly basis, on average, between 2012 and 2014. Anmuth also thinks the Q2 could prove conservative given Netflixs global rollout. Investor focus will shift from U.S. to international subscribers, and overall Street numbers will likely come down, he said. However, we would be buying the weakness in Netflix shares. Yet with Netflix set to post negative cash flow for at least two years as its content spending continues to ramp up (from US$5 billion this year to US$6 billion next), its tough for some to find meaningful catalysts for the stock. Macquarie Capital analyst Tim Nollen, who rates Netflix at neutral with a US$110 price target, noted that the spending plans should come as little surprise given the companys push in both acquired and self-produced original programming. But he also highlighted how ungrandfathering in the U.S. will lead to some customer churn, as more than 50% of Netflixs subscribers in the country will see a price hike. This comes at a time when there is already a lot of over-the-top (Internetprovided) competition Source: https://financialpost.com/investing/the-battle-for-video-streaming-netflix-vs-amazon-is-a-clash-worth-watching

Question 1 (20 Marks)

Although the service that Netflix provides is not a new one, their innovative marketing and targeting strategies created a new flourishing segment, with the result that its service concept has become a generic term: Netflixing. Based on this statement, assess the various complexities that Netflix may face when targeting an emerging market like the India. Suggest strategies that can be adopted by Netflix to successfully target a changed marketplace.