Netflix employed a subscription-based business model. Netflix’s swift growth to 60 million paid subscribers in the United States and its promising potential for rapidly growing its base of international subscribers past 90 million pushed the company’s stock price to $360 per share in mid-May 2019 (and an all-time high of $423 in July 2018). Already solidly entrenched as the world’s biggest and best-known Internet subscription service for watching TV shows and movies, the only two questions for Netflix in 2019 seemed to be how big Netflix’s service might one day become in the world market for on-demand streaming of movies and TV episodes and whether the company had the competitive and financial strength to combat the efforts of larger, resource-rich rivals looking to steal subscribers away from Netflix. An estimated 37 percent of TV viewers in the United States used subscription-based streaming services in 2017 to watch digital video content on their TVs. YouTube ranked first as the market leader among video and entertainment websites, with almost 10 times as many site visits to view videos as Netflix. Netflix’s competition included many subscription-based providers of streamed video content across the world in 2019, and more new entrants were expected in the upcoming years. 

In North America, Netflix’s four biggest Internet streaming competitors in 2019 were Amazon Prime, Hulu, HBO (with its HBO NOW and HBO GO service options), and Walt Disney (beginning in late 2019 and going forward). Other rivals included Vudu, Sling TV, HBO NOW, Starz, MAX GO® (Cinemax), Showtime, Direct TV Now, and Play Station Vue. Netflix’s heightened strategic emphasis on original content produced in-house had resulted in multi-billion-dollar annual increases in Netflix’s financial obligations to pay for streaming content and sharply higher negative cash flows from operations — which the company was covering with new issues of common stock and new issues of senior notes. Netflix management forecasted that the company would have a negative free cash flow deficit of about $3.5 billion in 2019 and that the company would continue to experience negative, but progressively smaller, cash flow deficits in the foreseeable future due to growing expenditures for original programming content. How confident could founder/CEO Reed Hastings be about his company’s expected growth in subscribers, subscription revenues, and resale of original content enable Netflix to reduce its high leverage due to borrowed funds and begin to pay down its long-term debt?

Netflix Case Study Questions

1. How strong are the competitive forces confronting Netflix in the market for subscription video on demand? Do a five-forces analysis to support your answer.

2. What do you see as the key drivers impacting growth and key success factors for rivals competing in the market for subscription video on demand?

3. What does a SWOT analysis reveal about the overall attractiveness of Netflix’s situation?

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