Executive Summary VODISNOWHERE. What do you see from the block of letters Is it !VOD IS NOWHERE" or !

VOD IS NOW HERE" #ou are ri$ht if you $uess the former a%d latter. &hat de'icts the fast 'ace of tech%olo$ical develo'me%t. VOD( )hich refers to Video*o%*Dema%d( is the rece%t video streami%$ tech%olo$y )here 'ay*'er*vie) 'ro$rammi%$ mer$es )ith I%ter%et do)%loadi%$. Netflix( a% o%li%e subscri'tio%*based DVD re%tal com'a%y( e%tered the video i%dustry )ith disru'tive tech%olo$y of offeri%$ o%li%e video re%tal )hile the i%cumbe%t com'etitors like +lockbuster )ere offeri%$ retail re%tals. &he i%cumbe%t com'etitors eve%tually follo)ed Netflix,s directio% )he% their core com'ete%cies )ere sabota$ed by Netflix,s strate$y. -oreover( Netflix )as a tech%olo$ical leader that i%vested i% %e) tech%olo$ies like VOD. I% this case study( )e )ould be usi%$ SWO& method to a%aly.e o% Netflix /ase. Discussi%$ o% its stre%$ths a%d )eak%esses( i% 'articular to its survival i% the hy'er com'etitio% of video i%dustry )here there are dy%amic a%d com'lex u%certai%ties a%d com'etitive adva%ta$es are %ot sustai%able a%d also Netflix,s surrou%di%$ o''ortu%ities a%d threats )ith re$ard to VOD. We )ould be a%aly.i%$ o% 'ossible alter%atives o% ho) Netflix ca% take u' VOD market a%d e%d the re'ort )ith a recomme%datio% for Netflix. 0roblem Stateme%t Video*o%*dema%d 1VOD2( a service that allo)s users to select a%d )atch video a%d cli' co%te%t over a %et)ork as 'art of a% i%teractive televisio% system( is $oi%$ to be the %ext bi$$est thi%$ i% the i%ter%et. It is $oi%$ to become a %orm i% the i%dustry or 'ublic a%d also a threat to Netflix existi%$ busi%ess model( a% o%li%e subscri'tio%*based DVD re%tal service( )hich de'e%ds o% the i%ter%et to se%d out 'hysical DVDs to their customers. Ho) should Netflix e%ter the o%li%e video market 3%y decisio% made o% this issue )ould im'act %ot 4ust the Netflix existi%$ busi%ess model but its ability to sustai% its 'ositio% as a $ia%t i% the media i%dustry.

3%alysis +ut before )e $o i%to a% i% de'th discussio%( )e first 'rese%t Netflix,s curre%t stre%$ths( )eak%esses( o''ortu%ities a%d threats a%d reveal some of their strate$ies used so far. 3fter this )e ca% be i% a better 'ositio% to determi%e ho) Netflix should res'o%d to the Video O% Dema%d tre%d. Strengths of Netflix Netflix offers 're'aid subscri'tio% service )hereby customers o%ly %eed to si$% u' a%d 'ay a fixed subscri'tio% fee a mo%th for u%limited re%tals. /ustomers )ill %o) have %o more )orry of retur%i%$ their movies late( as Netflix has ca%celled the late*fee system. &his model e%ables Netflix to 4ustify its slo)er delivery time i% com'ariso% to +lockbuster brick*a%d*mortar model. I%stead of maki%$ it difficult for customers to u%subscribe its service( Netflix made the u%subscri'tio% 'rocess relatively easy a%d ado'ti%$ the strate$y of reclaimi%$ chur%ed customers rather tha% forci%$ dissatisfied customers to stay. Netflix also offers a )eb 'ortal )ith 'o)erful features such as a 'ro'rietary recomme%datio% system that )as very accurate i% recomme%datio%s( due to ex'loiti%$ the k%o)led$e of the choices made by the masses i% its )eb 'ortal as )ell as havi%$ the lar$est collectio% of movie rati%$s. /ustomers are recomme%ded to movies based o% their 'refere%ces as )ell as the availability of the movies. +ei%$ the first com'a%y that ve%ture i%to the o%li%e DVDs re%tal retaili%$( Netflix $ai% a first mover adva%ta$e. Netflix has $ai%ed a $ood re'utatio% as )ell as a lar$e base of customers over the years.+eside havi%$ a $ood a%d stro%$ relatio%shi' )ith several ma4or studios )hich e%able them to ac5uire latest releases at a faster time a%d lo)er cost( Netflix also successfully $ai% resources from i%de'e%de%t film studios )hereby creati%$ a %iche i% the market. &herefore( customers ca% $et a )hole )ide ra%$e of movies 1i%cludi%$ those lo)er*'rofile a%d i%de'e%de%t films as )ell as earlier released movies2 from Netflix as com'ared to other com'etitors.

Weakness of Netflix 3lthou$h the 're'aid subscri'tio% service did hel' Netflix to $ai% %e) customers a%d reve%ue( yet this model do %ot )ork )ith lo) volume customers 1i.e. customers )ho re%t a DVD o%ce i% a blue mood2. Hi$h re'laceme%t i%ve%tory cost )ill occur si%ce DVDs mi$ht $et lost or dama$e duri%$ the mail tra%sit. Delivery time is still a )eak%ess for Netflix i% com'ariso% to brick*a%d*mortar store like +lockbuster. /ustomers could %ot $et the DVDs they )a%t immediately. Opportunities for Netflix With the fast 'ace adva%ceme%t i% tech%olo$y( Netflix ca% easily source for the tech%olo$y a%d i%frastructure to 'rovide VOD services to its customers. -oreover( Netflix ca% revie) o% the curre%t com'etitors i% the VOD market to have a safer measure before e%teri%$ i%to the market. Si%ce Netflix already have a% i%frastructure for o%li%e customers( a%d that is their 'oi%t of co%tact )ith customers( they could be at a% adva%ta$e to cha%$e their busi%ess model to 'rovidi%$ VOD o%li%e( or 'art%er )ith /able 'rovider to deliver the VOD to customer via customers6 televisio% set. With VOD( the 'roblems associated )ith i%ve%tory co%trol such as dama$ed as lost DVDs mi$ht be elimi%ated. -ore 'eo'le have hi$her 'urchasi%$ 'o)er si%ce more are buyi%$ hi$h*'rice durable $oods like bi$*scree% HD&V. He%ce( it created o''ortu%ity for Netflix to offer VOD to this market se$me%t. Threats for Netflix Video streami%$ tech%olo$ies had evolved drastically over the years to the rece%t VOD. Netflix k%o)s( it is 4ust a matter of time that VOD )ill become the 'ublic most commo%ly )ay of vie)i%$ media( but the u%k%o)% is that )he% )ill that be. If they co%ti%ui%$ly be com'lace%t )ith their existi%$ model( they )ill lose out to the i%te%se com'etitio% i% the i%dustry. &he risk is( for ho) lo%$ they ca% levera$e o% their existi%$ model( u%til they cha%$e their strate$y before losi%$ out market shares. +rick*a%d*mortar stores like +lockbuster )ill co%ti%ue to e%4oy its busi%ess )ith customers )ho )a%t to $et their DVDs o% the s'ot a%d do %ot co%sume hi$h volume of DVDs.

&he liberate 7.S. la) allo)s co%sumer to buy a DVD a%d re%t it as ma%y times as they )ish. -oreover( the 'iracy issue is a ma4or co%cer% i% 7.S. He%ce( it 'osed a threat to Netflix as there is %o %eed to obtai% lice%se from co%te%t o)%ers a%d Netflix,s sales )ould be affected. +ased o% the case study( three 'ossible alter%atives of ve%turi%$ i%to VOD market have bee% ide%tified. &hey are8 192 :ice%si%$ a$reeme%t )here Netflix )ould offer its recomme%datio% system to cable 'roviders )hich are 'la%%i%$ to e%ha%ce their VOD services( 1;2 I%te$rati%$ streami%$ o%li%e video feature i%to core service a%d 1<2 +uildi%$ sta%d*alo%e o%li%e video busi%ess. Each of the 'ossible alter%atives stated above has its o)% cost a%d be%efit. =ollo)i%$s are the cost a%d be%efit a%alysis based o% each 'ossible alter%ative8 192:ice%si%$ a$reeme%t )here Netflix )ould offer its recomme%datio% system to cable 'roviders )hich are 'la%%i%$ to e%ha%ce their VOD services. /ost8 * 0art%eri%$ )ith a com'etitor )ould be challe%$i%$ to Netflix. &hey )ill have to ma%a$e relatio%shi's )ith cable 'roviders carefully a%d also to %e$otiate the details of co%tractual a$reeme%t as detailed as 'ossible( so that a%y u%desirable outcome i% future )ill be at a mi%imal. With the fast adva%ceme%t of tech%olo$y( the likelihood of a satisfactory co%%ectio% bet)ee% a user,s com'uter a%d televisio% mi$ht emer$e shortly i% the future. If Netflix is 'art%eri%$ )ith the com'etitor( Netflix mi$ht lose a lar$e 'ortio% of the VOD market share. +e%efit8 * With the lice%si%$ a$reeme%t )ith cable 'roviders( Netflix )ill be able to by'ass the tech%olo$y challe%$e of co%%ecti%$ the com'uter )ith &V easily( )ithout havi%$ to s'e%d time( cost a%d effort i% solvi%$ the 'roblem of develo'i%$ a lar$e

i%frastructure ca'ital outlay to deliver video co%te%t to subscribers by themselves. Netflix ca% also ca'itali.ed o% cable 'roviders existi%$ %et)orks a%d i%frastructure to further e%ha%ce o% their services( es'ecially their core DVD re%tal service. While cable 'roviders ca% levera$e o% Netflix )ell k%o)% recomme%datio% services i% ta%dem )ith their o)% i%frastructure. Netflix ca% eve% take adva%ta$e of cable 'roviders, %e) customer bases( i%troduci%$ the customers to their core DVD re%tal service as a% alter%ative choice. =urthermore( VOD feature offered by the cable 'roviders does %ot rely o% do)%loadi%$ )hich also mea%s that 'iracy issue )ill be reduced a%d 'remium* co%te%t ac5uisitio% )ill be accelerated. /o%te%t ac5uisitio% cost )ill be lo)ered do)% due to the fact that it is shared by both 'arties. Overall( it ca% be a% ideal )i% * )i% situatio% for both 'arties. I% the eve%t( if VOD is u%successful( Netflix,s losses ca% also be reduced to a mi%imal.

1;2I%te$rati%$ streami%$ o%li%e video feature i%to core service /ost8 * Netflix have to s'e%d time( cost a%d effort i% solvi%$ the 'roblem of develo'i%$ a lar$e i%frastructure ca'ital outlay to deliver video co%te%t to subscribers by themselves. VOD co%te%t ac5uisitio% cost )ill be bore solely by Netflix. /urre%tly( o%ly limited o%li%e co%te%t available as all the ma4or studios are 5uite relucta%t to 'artici'ate due to the co%cer%s of 'iracy. I% the eve%t( if VOD is u%successful( Netflix,s losses )ill be a hu$e amou%t. -oreover( re'utatio% of Netflix mi$ht be affected too. Sim'ly by offeri%$ a %e) feature at %o additio%al cost also mea%s that there )ill be %o additio%al reve%ue ear%ed. Without additio%al reve%ue( it )ill be difficult for Netflix to 4ustify costs associated )ith co%te%t ac5uisitio% a%d 'ro$rammi%$ su''ort.

+e%efit8 * -aki%$ $ood use of Netflix,s existi%$ stre%$ths such as( its bra%d( its recomme%datio% system a%d its lar$e market share of o%li%e customers to i%crease 'e%etratio% of the you%$ VOD market a%d ultimately differe%tiate the com'a%y,s busi%ess from sta%d*alo%e sites such as Vo%$o a%d -ovie:i%k. 1<2+uildi%$ a sta%d*alo%e o%li%e video busi%ess. /ost8 * +y buildi%$ a sta%d*alo%e o%li%e video busi%ess( Netflix mi$ht eve%tually ca%%ibali.e its core busi%ess as o%li%e VOD become more viable a%d 'o'ular amo%$st the home video vie)ers i% %ear future( i% additio%( creati%$ co%fusio% amo%$ the staffs re$ardi%$ to the missio% stateme%t of the com'a%y. Similar to alter%ative 1;2( time( cost a%d effort %eed to s'e%d by Netflix i% solvi%$ the 'roblem of develo'i%$ a lar$e i%frastructure ca'ital outlay to deliver video co%te%t to subscribers. Si$%ifica%t com'uter a%d %et)ork su''ort are %eeded )ith a sta%d*alo%e o%li%e video busi%ess. /urre%tly( Netflix still have to deal )ith the issue of limited o%li%e co%te%t a%d co%%ectivity. +e%efit8 * Similar to alter%ative 1;2( bra%d %ame a%d stre%$ths of Netflix )ould 'rovide com'etitive adva%ta$e a$ai%st %e) e%tra%ts a%d existi%$ com'etitors such as Vo%$o a%d -ovie:i%k With the setti%$ u' of sta%d*alo%e o%li%e video busi%ess( Netflix able to diversify its VOD busi%ess risks from the core busi%ess of o%li%e DVD re%tal( 'rovided that differe%t 'rofit ce%tre is established. I% the eve%t( if VOD is u%successful( it )ill %ot affect Netflix core busi%ess of o%li%e DVD re%tal.

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