1.

0 INTRODUCTION

 Identify the firm’s existing vision, mission, objectives, and strategies

Existing vision, mission and objectives

- This elements does not state in the case study.

Existing strategies

Netflix had offers variety of product services to their customers all around the world. Netflix
has a subscription based model which allows customers to utilize their services through per/
month fee rather than a pay as you go rate (Watrous, 2009).

Netflix already have their current strategy they make the company success in the
online streaming industry. One of the strategy Netflix collaborated with TV manufacturers to
integrate Netflix directly into the latest televisions. From this strategy the company can
creating mutual beneficial relationship with a number of entertainments video providers.

Second strategy that Netflix was made is for their future revenue growth, Netflix
needed to increase its subscribers numbers both domestically and internationally. After its
initial launch of online streaming, Netflix kept up to date with new trends and customer
preferences, especially the quickly changing preferences of generation Y, which were
influenced by branding, social media, and media saturation are their wise strategy that they
make.

Last but not least, the strategy of Netflix are continually bearing in the mind that the
two most important things for Netflix’s customer were price per content, and quality of
content, Netflix kept its priorities straight and never stopped improving the quality of its
content, or the platforms for delivering the content.

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2.0 PAST CORPORATE PERFORMANCE INDEX: FINANCIAL RATIO ANALYSIS

LIQUIDITY RATIO

Current Assets
a. Current ratio =
Current Liabilities
2010 2011
637,231 1,830,857
= =
388,579 1,225,055

=1.64 =1.49

A company must have enough current assets to accommodate current liabilities

(Media, 2015). Plus, the ratio must more than 1. A ratio more than 1 is considered not risky
because it shows that the company running efficiently and the company able to pay its debt
on time.

Based on the result above, the value of current ratio in 2010 is 1.64. In 2011, it slightly
decrease where the value of current ratio is 1.49. Netflix shows that they can pay their debt
because their current ratio is more than 1.

Cash + Cash Equivalents

b. Cash ratio =
Current Liabilities
2010 2011
194,499 508,053
= =
388,579 1,225,055

=0.50 = 0.41

The purpose of cash ratio is to measure the ability of company whether they can pay
their currents debts with the most liquid of its current asset which is cash (Thomsett, 2014).
If the cash ratio is more than 1, it shows that the company has more cash and cash equivalents
and they are able to pay their debts. If less than 1, it shows that their liabilities are more than
their cash and cash equivalents.
From the results, we can see that the cash ratio is slightly decreased in from 2010 to
2011. The value of the cash ratio in 2010 is 0.50 while in 2011, the value is 0.41. The value
of cash ratio is decreased from 2010 to 2011 because their current liabilities are more than
the cash and cash equivalents.

2
PROFITABILITY RATIO

Net Profit after Taxes

a. Net profit margin = x 100
Net Sales
2009 2010 2011
115,860 160,853 226,126
= x 100 = x 100 = x 100
1,670,269 2,162,625 3,204,577

=6.94% = 7.44% =7.06%

Net profit margin is defined as net income (after minus taxes and interest expenses
that have been paid) and divided by net sales (Matt Krantz, 2014). It indicates how well the
company converts sales into profits after subtract all expenses.
Baes on the result, the value of net profit margin was increased from 2009 to 2010.
In 2009, the values is 6.94% while in 2010 is 7.44%. In 2011, it slightly decreased which the
value is 7.06%.

Net Sales−Cost of Goods Sold

b. Gross profit margin = x 100
Net Sales
2009 2010 2011
590,998 805270 1,164,676
= x 100 = x 100 =
1,670,269 2,162,625 3,204,577

=35.38% =37.24% =36.34%

The purpose of gross profit margin is to measure the percentage of each sales dollar
remaining after a business has paid for its goods (Pinson, 2008). In other word, it shows how
the company can produce and sell its products. The higher the gross profit margin is, the
better the company is thought to control costs.
Based on the result above, the value of gross profit margin from 2009 to 2010 is
increased where in 2009 is 35.38% while in 2010 is 37.24%. But in 2011, it slightly decreased
where the value is 36.34%.

3
 Net Profit after Taxes
c. Return on Investment = x 100
Total Assets
2010 2011
160,853 226,126
= x 100 = x 100
982,067 3,069,196

=16.38% =7.37%

Return on investment or ROI is a profitability ratio that calculates the profits of an

investment as a percentage of the original cost. In other words, it measures how much money
was made on the investment as a percentage of the purchase price. Every company must
show that they can manage the owners’ investment and produce the profits owners and
creditors demand (George T. Friedlob, 1996).
Based on the results above, it shows that the return on investment decreased from
2010 to 2011. We can see that the total assets have different amount in 2010 and 2011. The
value of return on investment in 2010 is 16.38% while in 2011, the value is 7.37%.

Net Profit after Taxes

d. Return on Equity = x 100
Shareholder′ s Equity

2010 2011
160,853 226,126
= x 100 = x 100
290,164 642,810

=55.44% =34.18%

The return on equity ratio or ROE is defined as the ratio of earnings to equity (Hoque,
2006). In other words, it is a profitability ratio that measures the ability of a firm to generate
profits from its shareholders investments in the company.
Based on the result above, the value of return on equity decreased from 2010 to 2011.
In 2010, the value or return on equity is 55.44% while in 2011, the value is 34.18%.

4
 Net Profit after Taxes
e. Earnings per share =
Weighted Average Shares Outstanding

2010 2011
160,853 226,126
= =
54,304 54,369

=$2.96 =$4.16

Earnings per share influence the achievement and perspective of the company (Mehta,
2016). If earning per share increases, the company will pay more dividend or bonus shares.
Basically, EPS shows in two different ways which is basic and diluted. To calculate earnings
per share, we use diluted earnings per share because it is more accurate measure than basic
earnings per share.
Based on the results, we can see that Netflix achieve a continuous profit growth where
the value in 2010 is $2.96 while in 2011, the value is $4.16.

ACTIVITY RATIO
Net Sales
a. Net working capital turnover =
Working Capital

2010 2011
2,162,625 3,204,577
= =
248,652 605,802

=$8.70 =$5.29

Net working capital turnover ratio is an important indicator of efficiency of working

capital because it shows the movement of working capital (Talekar, 2005). The higher the
gross working capital turnover, the higher the efficiency of working capital.
Based on the result above, in 2010, the value of net working capital turnover is $8.70
while in 2011, the value is $5.29. The value was decreased from 2010 to 2011.

5
 Net Sales
b. Assets turnover =
Average Total Assets

2010 2011
2,162,625 3,204,577
= 679,734+982,067 = 982,067+3,069,196
2 2

=$2.60 = $1.58

The asset turnover ratio is an efficiency ratio that measures a company’s ability to
generate sales from its assets by comparing net sales with average total assets (Gary Porter,
2008). In other words, this ratio shows how efficiently a company can use its assets to
generate sales. For instance, a ratio of .5 means that each dollar of assets generates 50 cents
of sales.
From the result above, in 2010, the value of assets turnover is $2.60 which means
each dollar of assets generates $2.60 of sales. In 2010, the value is $1.58 which means each
dollar of assets generates $1.58 of sales.

Net Sales
c. Fixed assets turnover =
Average Total Fixed Assets

2010 2011
2,162,625 3,204,577
= 131,653+128,570 = 136,353+128,570
( ) ( )
2 2

=$16.62 =$24.19

The fixed asset turnover ratio is an efficiency ratio that measures a company’s return
on their investment in property, plant, and equipment by comparing net sales with fixed
assets. In other words, it calculates how efficiently a company is a producing sales with its
machines and equipment. The more rapidly fixed assets turn over, the smaller the amount of
plant and equipment the firm is employing (Mayo, 2015).
From the results above, we can see that Netflix is efficiently using its fixed asset to
generate revenue as the ratio is increasing from 2010 to 2011. The value of fixed asset
turnover ratio in 2010 is $16.62 while in 2011, the value is $24.19.

6
 Cash & Cash Equivalents
d. Days of cash = x 365 days
Total Operating Expenses

2010 2011
194,499 508,053
= x 365 days = x 365 days
2,162,625 3,204,577

=32.83 ~ 33 days =57.87 ~ 58 days

Days of cash is a measure of how much cash a company has in relation to its operating
expenses. In other words, it shows that how long can the company stay in business if the
company doesn’t make any more sales or collect any more money from customers. The longer
the days, the better it will be.
Based on the results above, it shows that Netflix is good in manage their cash flow. In
2010, the value of days of cash is 33 days while in 2011, the value is 58 days. This value
shows that Netflix has a good cash flow where they can pay their total operating expenses
with their cash & cash equivalents.

LAVERAGE RATIO
Total Debts
a. Debt-to-asset ratio =
Total Assets
2010 2011
691,903 2,426,386
= =
982,067 3,069,196

=0.70 =0.79

The debt to asset ratio is a leverage ratio that measures the percentage of total assets
that are financed by creditors (House, 2006). In other words, it shows what percentage of
assets is funded by borrowing compared with the percentage of resources that are funded by
the investors. Basically it illustrates how a company has grown and acquired its assets over
time. Companies can generate investor interest to obtain capital, produce profits to acquire
its own assets, or take on debt.
Based on the results above, the value of debt to asset ratio is increased from 2010
which is the value is 0.70 to 2011 which is the value is 0.79

7
 Total Debt
b. Debt-to-equity ratio =
Shareholder′ s Equity

2010 2011
691,903 2,426,386
= =
290,164 642,810

=2.38 =3.77

The debt to equity ratio compares a company’s total debt to total equity (Engle, 2010).
The debt to equity ratio shows the percentage of company financing that comes from creditors
and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans)
is used than investor financing (shareholders).
Based on the results above, the value of debt to equity ratio increased from 2010 to
2011. The value in 2010 is 2.38 while in 2011 is 3.77.

Long−term Liabilities
c. Long-term debt to capital structure =
Shareholder′ s Equity

2010 2011
200,000 200,000
= =
290,164 642,810

=0.69 =0.31

The long-term debt to total asset ratio is a solvency or coverage ratio that calculates
a company’s leverage by comparing total debt to assets. In other words, it measures the
percentage of assets that a business would need to liquidate to pay off its long-term debt and
its maturity is greater than one year (Zane Swanson, 2003). The higher the ratio means that
the company is more leveraged and owns less of the assets on balance sheet.
Based on the results, the value of long-term debt to total asset ratio in 2010 is 0.69
while in in 2011, the value is 0.31. The value from 2010 to 2011 is decreased and the lower
the ratio, the better it is. This is because it shows that Netflix has more cash flow and more
ability to finance new operations.

8
 Profit before Taxes+Interest expenses
d. Times interest earned =
Interest expenses

2010 2011
267,696+19,629 359,522+20,025
= =
19,629 20,025

=14.64 ~ 15 times = 18.95 ~ 19 times

Times interest earned ratio is an indicator of the company’s ability to pay off its interest
expense with available earnings (Eugene F. Brigham, 2012). It calculates how many times a
company’s operating income (earnings before interest and taxes) can settle the company’s
interest expense. A higher times interest earned ratio indicates that the company’s interest
expense is low relative to its earnings before interest and taxes (EBIT) which indicates better
long-term financial strength and vice versa.
Based on the results above, the times interest earned in 2010 is 15 times while in
2011, the times interest earned is 19 times. The results shows good relation because Netflix
has an ability to pay its interest expense with available earnings.

Profit before taxes+Interest charges+Lease charges

e. Coverage of fixed charges =
Interest charges+Lease Obligation

2010 2011
267,696+19,629 359,522+20,025
= =
19,629 20,025

=14.64 ~ 15 times = 18.95 ~ 19 times

The coverage of fixed charges is a financial ratio that measures a firm’s ability to pay
all of its fixed charges or expenses with its income before interest and income taxes (Pamela
P. Peterson, 1999). The fixed charge coverage ratio is basically an expanded version of
the times interest earned ratio or the times interest coverage ratio.
Based on the results above, the coverage of fixed charges in 2010 is 15 times while in
2011, the coverage of fixed charges is 19 times. The value shows that Netflix’s income is 15
times greater than its interest and lease payments in 2010 while in 2011, Netflix’s income 19
times greater than its interest and lease payments.

9
 Current Liabilities
f. Current liabilities to equity =
Shareholder′ s Equity

2010 2011
388,579 1,225,055
= =
290,164 642,810

=1.33 =1.91

Current liabilities to equity is indicates how much debt a company is using to finance
its assets relative to the amount of value represented in shareholders’ equity. Netflix’s liabilities
have constantly exceed its equity, which means that the company has been borrowing to
finance its growth.

Based on the results above, the value of current liabilities to equity increased from
2010 which is 1.33 to 2011which is 1.91.

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3.0 COMPETITIVE PROFILE MATRIX (CPM)

Netflix Amazon Hulu

Critical Success Weight Rating Score Rating Score Rating Score

Factor
1) Monthly user 0.13 3 0.39 4 0.52 2 0.26

2) Customer Loyalty 0.15 4 0.60 2 0.30 3 0.45

3) Market share 0.17 4 0.68 3 0.51 2 0.34

4) Global expansion 0.18 3 0.54 4 0.72 3 0.54

5) Price Competitive 0.13 3 0.39 3 0.39 2 0.26

6) Brand name 0.12 4 0.48 3 0.36 2 0.24

7) Advertising 0.12 2 0.24 3 0.36 4 0.48

TOTAL 1.00 3.32 3.16 2.57

The main competitors for Netflix is Amazon and Hulu plus. The biggest competitive
probably Amazon. Video service which representative Amazon and Netflix hold 59% of one
subscription video service in America due to report that released by Nielson in November
2017.

For the monthly user, the Netflix hit a record 117.6 million subscribers. While for Amazon,
they have 127 million unique visitors during the same period. Hulu hit 17 million subscribers
at the end of 2017 .Through Customer loyalty the Netflix have more good news where the
Netflix get many online viewers that subscribing to Hulu in addition to rather than in
replacement of Netflix. For Amazon's Customer Loyalty, their customer is astounding. Through
Hulu, we can see that they have many subscribers that significantly more likely than the
general population to have a Netflix account, as 62% of Hulu members also have Netflix.

From competition through market share, we can conclude that the Netflix including most
notably YouTube, which has grown its reach to 53%. While Amazon at 33% and Hulu plus
about around at 17%. For Global expansion, Netflix had broad their network to the selected

11
country which is 190 countries are using their services around the world. While the Amazon
prime services has landed in 242 countries around the globe. Meanwhile, Hulu plus only known
in US.

The Netflix compete their competitor through pricing by assuming the cost of a one screen
basic plan is $5.99 while a standard two screen service has recently risen from $7.49 to $7.99
per month. To watch on four screens, it's $9.99. A free 30 day trial is available. While the
Amazon put their pricing through gibe their membership costs $7.99 a month or $79 for the
yearly service. Both offer a 30-day free trial. Hulu is yet to become available in the UK but its
$7.99 for US.

The second last is we can conclude about brand name of Netflix with their competitor’s.
For Netflix, linear television networks are competitors whose have brand identities reduce
Netflix’s own brand equity. Difference with Amazon where Amazon, the brand identities of
some television networks act as valuable lures drawing customers into its Prime membership
program. Hulu use the name because it has relevant with their mission which they need to
hold the any precious things.

Lastly , through advertising , we can see Netflix have made their company which offered
about 1,000 movies and TV episodes when it began streaming videos in 2007, now has thousands
more for its 29 million US subscribers. While the Amazon give free-shipping-and-streaming-video
combo, and prime. In other sides, Hulu show us on their advertising information about its viewership.
They target to any new marketer who wants to target a specific demographic within the Hulu
audience.

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 4.0 EXTERNAL FACTOR EVALUATION (EFE) MATRIX

Opportunities Weight Rating Weighted Comment

score
1. With 245 million Internet users in the 0.12 4 0.48 Number of internet users
United States, and 2.2 billion worldwide
2. With the introduction of Blu-Ray 0.13 3 0.39 Introduce the new
discs, the demand for higher and better- technology
quality picture and sound streaming
increased, which in turn increased the
demand for higher bandwidths.
3. According to a research report by 0.12 3 0.39 The trend of internet
Mintel investment research database, the users for online streaming
percentages of people using the internet to services
stream video has jumped from 5% (2005)
to 17% (2011), significantly growing the
market for online streaming services such
as Netflix.
4. By 2011, the crucial 18-34 years old 0.13 2 0.26 The age of internet users
demographic saw the internet as its prime as prime source of access
source of access to entertainment. to entertainment
5. Twenty million UK household had 0.15 3 0.45 The number of household
broadband internet, and 60% of those using the service.
households subscribed to a paid movie
service.
6. In Latin America, four times number 0.11 2 0.22 The number of household
of household internet access making use the internet access
international expansion there especially
attractive to subscriber-hungry Netflix.
Threats Weight Rating Weighted Comment
score
1. However, increased competition in 0.09 3 0.27 The technology use as
streaming, ISP fair-use charges, and piracy the major challenges
were some of the major challenges it faced
2. At the same time, recession of 2008- 0.08 2 0.16 The economy fluctuation
2010, with its high unemployment and slow
economic growth had a significant impact
on the spending habits of U.S consumer
3. By June 2011, Redbox had over 0.07 3 0.21 The competitor’s
33,000 kiosks in over 27,800 locations advantages.
worldwide and was considering launching
an online streaming service, perhaps for as
cheaply as US$3.95 per month

13
 4. Lower per capita income and slower 0.05 4 0.2 The problem to expand
Internet speeds, especially in Latin America globally.
were further potential problems for Netflix’s
international expansion.
5. In Canada, low data usage limits per 0.05 3 0.15 The limits of data using.
subscribers were a concern for a data
hungry service such as Netflix
TOTAL 1 3.18

The most important factor to being successful in this business is “Twenty million UK
household had broadband internet, and 60% of those households subscribed to a paid movie
service” as indicated by the 0.16 weight. Also note that increasing of technology regarding
quality of video and sound also have major impact in this business such as, “With the
introduction of Blu-Ray discs, the demand for higher and better-quality picture and sound
streaming increased, which in turn increased the demand for higher bandwidths”. Perhaps
Netflix will provide their customers with the latest technology that arising in this business such
as provide customers with the “HD quality for video streaming” in order to compete with
others competitors.

The total weighted score for Netflix 2.83 is above the average (midpoint) of 2.5 (Fred
R. David, 2015), which is this business is doing pretty well in taking advantages of the external
opportunities and avoiding the threats that their facing in this business.

Of course there is some space that Netflix should improve to increase their total
weighted score. As indicated by ratings of 2, this business should focus more on the
opportunity such as “By 2011, the crucial 18-34 years old demographic saw the internet as its
prime source of access to entertainment, In Latin America, four times number of household
internet access making international expansion there especially attractive to subscriber-hungry
Netflix” and threats such as “At the same time, recession of 2008-2010, with its high
unemployment and slow economic growth had a significant impact on the spending habits of
U.S consumer”.

14
  Identify the organization’s external opportunities and threats

OPPORTUNITY

1. With 245 million Internet users in the United States, and 2.2 billion
worldwide,.(pg.2;ph.1;ln.5)
2. With the introduction of Blu-Ray discs, the demand for higher and better-quality picture
and sound streaming increased, which in turn increased the demand for higher
bandwidths.(pg.2;ph.2;ln.11)
3. According to a research report by Mintel investment research database, the
percentages of people using the internet to stream video has jumped from 5% (2005)
to 17% (2011),significantly growing the market for online streaming services such as
Netflix.(pg.3;ph.1;ln.2)
4. By 2011, the crucial 18-34 years old demographic saw the internet as its prime source
of access to entertainment. (pg.3;ph.1;ln.8)
5. Twenty million UK household had broadband internet, and 60% of those households
subscribed to a paid movie service.(pg.5;ph.2;ln.10)
6. In Latin America, four times number of household internet access making international
expansion there especially attractive to subscriber-hungry Netflix.(pg.5;ph.2;ln.11)

THREAT

1. However, increased competition in streaming, ISP fair-use charges, and piracy were
some of the major challenges it faced.(pg.2;ph.3’ln.23)
2. At the same time, recession of 2008-2010, with its high unemployment and slow
economic growth had a significant impact on the spending habits of U.S
consumer.(pg3;ph.1;ln.5)
3. By June 2011, Redbox had over 33,000 kiosks in over 27,800 locations worldwide and
was considering launching an online streaming service, perhaps for as cheaply as
US$3.95 per month.(pg.4;ph2;ln9)
4. Lower per capita income and slower Internet speeds, especially in Latin America were
further potential problems for Netflix’s international expansion.(pg.5;ph.5;ln.25)
5. In Canada, low data usage limits per subscribers were a concern for a data hungry
service such as Netflix.(pg.5;ph5;ln.26)

15
5.0 Internal Factor Evaluation (IFE) matrix

Strength Weight Rating Weighted Comment

score
1. The company’s subscriber base 0.10 4 0.4 The growth of
grew strongly and steadily from 1 million subscribers.
in the fourth quarter of 2002 to over 27
million in July 2012.

2. By 2012, Netflix had over 100,000 0.09 4 0.36 The success of Netflix
titles distributed via more than 50
shipment centres, insuring customers
received their DVDs in one to two
business days, which made Netflix one of
the most successful dotcom ventures in
the past two decades.

3. By the end of 2011, Netflix had 24.4 0.15 3 0.45 Largest providers in the
million subscribers, making it the largest world
provider of online streaming content in
the world.

4. Netflix was a leader in developing 0.14 3 0.42 The technology and

streaming technologies, increasing its development in industry
spending on technology and development
from US$114 million (2009) to US$258
million in 2011 (8% of its revenue), and
initiating a US$1 million five-year prize in
to improve the existing algorithm of
Netflix’s recommendations service by at
least 10%.
5. In 2011, Netflix surpassed US$3.2 0.09 3 0.27 The revenues from the
billion in sales, an annual revenue growth sale
of 50% over 2010 (US$2.1 billion.

6. Netflix grew from 12 million 0.09 4 0.36 The growth of the

subscribers in 2009 to 20 million in 2010, subscribers.
and then to 27 million in 2012.

7. Until the end of 2007, Netflix had no 0.12 3 0.36 The strength of the
long-term debt on its books, but it began company
to acquire long-term debt in 2008 as a
result of its decision to invest in building a
strong content library and expand
overseas.

Weakness Weight Rating Weighted Comment

score
1. When Netflix changed its pricing 0.08 2 0.16 The pricing failed
structure in the third quarter of 2011,
subscriptions immediately dropped off
3%.

16
 2. Netflix does not have a formal 0.09 3 0.27 Mission and vison existing
vision and mission statement

3. Apart from losing over 800,000 0.05 3 0.27 Strategy to rebranding

subscriber after its price increase, and the products.
losing half of its market capitalization,
Netflix’s rebranding strategy did not
seem justifiable to its customers

TOTAL 1.00 3.32

The weight assigned to a given factor indicates the relative importance of the factor
to being successful in the online streaming industry. The sum of all weight must equal 1.0.
the most important factors to be successful in in the online streaming services are “By the
end of 2011, Netflix had 24.4 million subscribers, making it the largest provider of online
streaming content in the world” and “Netflix was a leader in developing streaming
technologies, increasing its spending on technology and development from US$114 million
(2009) to US$258 million in 2011 (8% of its revenue), and initiating a US$1 million five-year
prize in to improve the existing algorithm of Netflix’s recommendations service by at least
10%”. This factors are important because we gave the priority to our customers and
technology and development advance are very important to our company because delivering
our services by using technology.

The company doing best on “The company’s subscriber base grew strongly and
steadily from 1 million in the fourth quarter of 2002 to over 27 million in July 2012”, “By 2012,
Netflix had over 100,000 titles distributed via more than 50 shipment centres, insuring
customers received their DVDs in one to two business days, which made Netflix one of the
most successful dotcom ventures in the past two decades” and “Netflix grew from 12 million
subscribers in 2009 to 20 million in 2010, and then to 27 million in 2012”.

Overall this company receives 3.2 total weighted score, which on a 1-4 scale exactly
average/halfway (Fred R. David, 2015), indicating there is definitely for improvement for
strategies, pricing structure, mission and vision. The total weighted score for internal factor
evaluation is 3.32 which above the average of 2.5 and can be concluded that the Netflix is
doing well in their performance of the internal strength and fix their weakness.

17
  Identify the organization’s internal strengths and weaknesses

STRENGTH

1. The company’s subscriber base grew strongly and steadily from 1 million in the fourth
quarter of 2002 to over 27 million in July 2012. (pg.1;ph;2;ln4)
2. By 2012, Netflix had over 100,000 titles distributed via more than 50 shipment centres,
insuring customers received their DVDs in one to two business days, which made
Netflix one of the most successful dotcom ventures in the past two
decades.(pg1;ph.3;ln.1)
3. By the end of 2011, Netflix had 24.4 million subscribers, making it the largest provider
of online streaming content in the world(pg.2;ph.1;ln.1)
4. Netflix was a leader in developing streaming technologies, increasing its spending on
technology and development from US$114 million (2009) to US$258 million in 2011
(8% of its revenue), and initiating a US$1 million five-year prize in to improve the
existing algorithm of Netflix’s recommendations service by at least
10%.(pg.2;ph.3;ln,1)
5. In 2011, Netflix surpassed US$3.2 billion in sales, an annual revenue growth of 50%
over 2010 (US$2.1 billion).(pg.5;ph.1;ln.1)
6. Netflix grew from 12 million subscribers in 2009 to 20 million in 2010, and then to 27
million in 2012.(pg.5;ph.1;ln.4)
7. Until the end of 2007, Netflix had no long-term debt on its books, but it began to
acquire long-term debt in 2008 as a result of its decision to invest in building a strong
content library and expand overseas.(pg.9;ph.3;ln.1)

WEAKNESS

1. When Netflix changed its pricing structure in the third quarter of 2011, subscriptions
immediately dropped off 3%.(pg.3;ph;1;ln.11)
2. Netflix does not have a formal vision and mission statement
3. Apart from losing over 800,000 subscriber after its price increase, and losing half of its
market capitalization, Netflix’s rebranding strategy did not seem justifiable to its
customers.(pg.10;ph.3;ln.22)

18
6.0 Prepare Strengths-Weaknesses-Opportunities-Threats (SWOT) matrix

STRENGTH (S) WEAKNESS (W)

1. The company’s subscriber 1. When Netflix changed
base grew strongly and its pricing structure in
steadily from 1 million in the the third quarter of
fourth quarter of 2002 to over 2011, subscriptions
27 million in July 2012. immediately dropped off
(MARKET EXPANSION) 3%. (SUBCRIBERS)

2. By 2012, Netflix had over 2. Netflix does not have a

100,000 titles distributed via formal vision and
more than 50 shipment mission statement.
centres, insuring customers (MISSION/VISION)
received their DVDs in one to
two business days, which
made Netflix one of the most 3. Apart from losing over
successful dotcom ventures in 800,000 subscriber after
the past two decades. (DVD) its price increase, and
losing half of its market
3. By the end of 2011, Netflix had
24.4 million subscribers, capitalization, Netflix’s
making it the largest provider rebranding strategy did
of online streaming content in not seem justifiable to
the world (SUBCRIBERS) its customers.
(INTERNET USER)
4. Netflix was a leader in
developing streaming
technologies, increasing its
spending on technology and
development from US$114
million (2009) to US$258
million in 2011 (8% of its
revenue), and initiating a US$1
million five-year prize in to
improve the existing algorithm
of Netflix’s recommendations
service by at least 10%.
(MARKET EXPANSION)

5. In 2011, Netflix surpassed

US$3.2 billion in sales, an
annual revenue growth of 50%
over 2010 (US$2.1 billion).
(MONEY)

6. Netflix grew from 12 million

subscribers in 2009 to 20
million in 2010, and then to 27
million in 2012. (POTENTIAL
USER)

19
 7. Until the end of 2007, Netflix
had no long-term debt on its
books, but it began to acquire
long-term debt in 2008 as a
result of its decision to invest
in building a strong content
library and expand overseas.
(MARKET EXPANSION
OPPORTUNITIES (O) SO STRATEGIES WO STRATEGIES
1. With 245 million Internet 1. Offer a broader of online 1. Develop a clear mission
users in the United States, streaming in cost from $9.90 and vision.(W2, O4, O6)
and 2.2 billion worldwide. to $14.90 (S3, S4, S5, S6, O1,
(INTERNET USERS) O2, O5, O6) 2. Offer a broader online
streaming in cost from
2. With the introduction of Blu- 2. Adding distributor to fulfil $9.90 to $14.90. (W1,
Ray discs, the demand for market demand (S2, S4, S7, W3, O1, O5)
higher and better-quality O2, O3, O6)
picture and sound streaming
increased, which in turn 3. Upgrade internet speed for 3. Adding distributor to
increased the demand for fulfil market demand.
better experience globally.(S5,
higher bandwidths. (W2, W3, O2, O3 )
S6, O4, O5, O6)
(DEMAND)

3. According to a research
report by Mintel investment
research database, the
percentages of people using
the internet to stream video
has jumped from 5% (2005)
to 17% (2011), significantly
growing the market for
online streaming services
such as Netflix. (MARKET
EXPANSION)

4. By 2011, the crucial 18-34

years old demographic saw
the internet as its prime
source of access to
entertainment.
(DEMOGRAPHIC)

5. Twenty million UK household

had broadband internet, and
60% of those households
subscribed to a paid movie
service. (HOUSEHOLD)

20
6. In Latin America, four times
number of household
internet access making
international expansion
there especially attractive to
subscriber-hungry Netflix.
(MARKET EXPANSION)
THREATS ST STRATEGIES WT STRATEGIES
1. However, increased 1. Invest on technology and 1. Develop a clear mission
competition in streaming, development streaming to and vision. (W2, T1)
ISP fair-use charges, and attract more customer. (S2,
piracy were some of the S6, T1, T2, T4, T5) 2. Invest on technology
major challenges it faced. and development
(MARKET CHALLENGE) 2. Adding distributor to fulfil streaming to attract
market demand. (S1, S4, S6, more customer. (W1,
2. At the same time, recession T2, T3, T5) W3, T1, T3)
of 2008-2010, with its high
unemployment and slow 3. Offer a broader online
economic growth had a 3. Upgrade internet speed for streaming in cost from
significant impact on the better experience globally.
$9.90 to $14.90. (W1,
spending habits of U.S (S4, S5, T4, T5)
consumer. (ECONOMY) T3, T4)

3. By June 2011, Redbox had

over 33,000 kiosks in over
27,800 locations worldwide
and was considering
launching an online
streaming service, perhaps
for as cheaply as US$3.95
per month. (ONLINE
STREAMING SERVICE)

4. Lower per capita income and

slower Internet speeds,
especially in Latin America
were further potential
problems for Netflix’s
international expansion.
(MARKET EXPANSION)

5. In Canada, low data usage

limits per subscribers were a
concern for a data hungry
service such as Netflix.
(SUBCRIBERS)

21
 7.0 Prepare Quantitative Strategic Planning Matrix (QSPM).

Adding Offer a broader

distributor to of online
fulfil market streaming in
demand cost from $9.90
to $14.90

Key Factors Weight AS TAS AS TAS

Opportunities
1. With 245 million Internet users in the United States, 0.07 - - 3 0.21
and 2.2 billion worldwide.

2. With the introduction of Blu-Ray discs, the demand 0.15 4 0.6 4 0.6
for higher and better-quality picture and sound
streaming increased, which in turn increased the
demand for higher bandwidths.

3. According to a research report by Mintel investment 0.12 4 0.48 - -

research database, the percentages of people using the
internet to stream video has jumped from 5% (2005) to
17% (2011), significantly growing the market for online
streaming services such as Netflix.

4. By 2011, the crucial 18-34 years old demographic 0.13 - - - -

saw the internet as its prime source of access to
entertainment.

5. Twenty million UK household had broadband 0.16 - - 3 0.48

internet, and 60% of those households subscribed to a
paid movie service.

6. In Latin America, four times number of household

internet access making international expansion there
especially attractive to subscriber-hungry Netflix. 0.06 3 0.18 4 0.24

22
Threats
1. However, increased competition in streaming, ISP 0.04 4 0.16 - -
fair-use charges, and piracy were some of the major
challenges it faced.

2. At the same time, recession of 2008-2010, with its 0.10 - - - -

high unemployment and slow economic growth had a
significant impact on the spending habits of U.S
consumer.

3. By June 2011, Redbox had over 33,000 kiosks in over 0.07 4 0.28 3 0.21
27,800 locations worldwide and was considering
launching an online streaming service, perhaps for as
cheaply as US$3.95 per month.

4. Lower per capita income and slower Internet speeds, 0.05 - - 3 0.15
especially in Latin America were further potential
problems for Netflix’s international expansion.

5. In Canada, low data usage limits per subscribers 0.05 2 0.10 - -

were a concern for a data hungry service such as Netflix.

Strengths
1. The company’s subscriber base grew strongly and 0.10 3 0.3 - -
steadily from 1 million in the fourth quarter of 2002
to over 27 million in July 2012.

2. By 2012, Netflix had over 100,000 titles distributed 0.09 4 0.36 - -

via more than 50 shipment centers, insuring
customers received their DVDs in one to two business
days, which made Netflix one of the most successful
dotcom ventures in the past two decades.
3. By the end of 2011, Netflix had 24.4 million 0.15 - - 3 0.45
subscribers, making it the largest provider of online
streaming content in the world.

23
 4. Netflix was a leader in developing streaming 0.14 2 0.28 3 0.42
technologies, increasing its spending on technology
and development from US$114 million (2009) to
US$258 million in 2011 (8% of its revenue), and
initiating a US$1 million five-year prize in to improve
the existing algorithm of Netflix’s recommendations
service by at least 10%.

5. In 2011, Netflix surpassed US$3.2 billion in sales, an 0.09 - - 4 0.36

annual revenue growth of 50% over 2010 (US$2.1
billion).

6. Netflix grew from 12 million subscribers in 2009 to 0.09 3 0.27 3 0.27

20 million in 2010, and then to 27 million in 2012.

7. Until the end of 2007, Netflix had no long-term debt 0.12 2 0.24 - -
on its books, but it began to acquire long-term debt
in 2008 as a result of its decision to invest in building
a strong content library and expand overseas.

Weaknesses
1. When Netflix changed its pricing structure in the third 0.08 - - 2 0.16
quarter of 2011, subscriptions immediately dropped
of 3%.

2. Netflix does not have a formal vision and mission 0.09 3 0.27 - -
statement.

3. Apart from losing over 800,000 subscriber after its 0.05 4 0.2 4 0.20
price increase, and losing half of its market
capitalization, Netflix’s rebranding strategy did not
seem justifiable to its customers

TOTAL 3.72 3.75

24
8.0 Alternative and recommendation
 Recommend TWO (2) specific strategies and long-term objectives

Two specific strategies that recommend to the Netflix are dividing into two part which is main
strategy and alternative strategy. The main strategy that based on the Quantitative Strategic
Planning Matrix (QSPM) with value 3.75 is:

 Offer a broader of online streaming in cost from $9.90 to $14.90.

Then the alternative strategy for the Netflix that refer on QSPM with value 3.72 is:

 Adding distributor to fulfil market demand

 The advantages and disadvantages of each strategy

The main strategy is “Offer a broader of online streaming in cost from $9.90 to $14.90”
have few advantages and also disadvantages. The advantages of the main strategy are the
online streaming has a fixed cost that can give benefits to the customers. The consumer never
pays more than the monthly subscription regardless of which movies or how many movies are
viewed. Next, this strategy can increase the internet user because the cost is affordable for
everyone. Other than that, the internet user can use the internet data without limit because
the price of online streaming will help the customer to get information without restrictions.
Furthermore, the main strategy can expand Netflix to the international level because it cost
suitable to the citizen’s income. The disadvantages for the main strategy are the Netflix can
get the profit but in small revenue values which means that the cost it’s too low when the
industry become more important to the customers. When the price is too low the risk of piracy
is high because people can easily get the copy of the movie and make some money to sell or
upload in the other website.

The alternative strategy is “adding distributor to fulfil market demand” have an

advantages and disadvantages. Advantages for this strategy are Netflix can easily penetrate
the international market because the distributor are anywhere place in. other than that, the
maintenance cost will be incurred by distributor and they also can find more customers in
every corner of the world. The disadvantages are when the distributor making any problems
to the customers, the name of Netflix will get the bad name and can affect the company
financial position and situation. Another disadvantages is about the profit that will distribute
with the distributor. The profit not at all belongs to Netflix.

25
9.0 Compare the recommendations to the existing strategies planned by the
organization

The current strategy of Netflix more focus on long term value. For example, strategy
of their future revenue growth, Netflix needed to increase its subscriber’s numbers both
domestically and internationally. After its initial launch of online streaming, Netflix kept up to
date with new trends and customer preferences, especially the quickly changing preferences
of generation Y, which were influenced by branding, social media, and media saturation are
their wise strategy that they make. Other than that, the current strategy more focus on home
video market, Netflix’s top management needed to address many issues to maintain the
company’s leading position. Netflix should repair the PR damage from the rebranding and
price increase in 2011. Furthermore, they need to focus on growing its subscriber base both
at home and abroad.

The two recommendations strategy will more give attention to expand globally and
the market demand. When create a new strategy should not only increase revenues and
profits it should consider relationship and brand image gains losses. Netflix also needed to
invest in the technological infrastructure in the international markets that it lacked but which
it desperately needs due to heavy competitions and other legal concerns that appear there.
These two strategy also associated with pricing structure that will affect the market demand
of their services.

26
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https://www.recode.net/2018/1/22/16920150/netflix-q4-2017-earnings-subscribers

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*https://www.forbes.com/sites/pamdanziger/2018/01/10/amazons-customer-loyalty-is-
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