Company Analysis

COMPANY ANALYSIS 13

CompanyAnalysis

Netflixis an international company leading in the entire world in rentingDVD (Digital Video Disc) using mail. The company has above 1.1million subscribers that usually pay a monthly fee for the service.Netflix became founded by Marc Randolph and Reed Hastings in 1997(Netflix2014).In order to speed up the delivery of DVD, the company has openedabove 20 regional shipping centers in areas around the United States.In most cases, DVDs become received by customers in one to two daysafter making an order through the company’s website. As the world’sleading internet television network, the company has above 44 millionstreaming members from more than 40 countries. Members that havesubscribed with the company can enjoy watching anytime, anywhere, andas much as they may desire on almost any internet-connected screen.Besides, members have an advantage in that they can pause, play, andresume watching without any commitments or commercials. In the UnitedStates, members can enjoy receiving DVDs delivered swiftly to theirhomes (Netflix2014).The company leads the way in internet delivery of movies and TV showssince it launched its streaming service in the year 2007. Followingthe launch of the streaming service, the company created an ecosystemof for internet connected devices and licensed vast amounts ofcontent, which have allowed customers to enjoy movies and TV showsdirectly on their mobile devices, TVs and computers (Chao &ampZhao, 2013).The primary strategy of the company is growing its streamingsubscription operations, both locally and internationally. Thecompany commenced its international expansion in 2010, where itstarted with Canada and has so far launched its services in LatinAmerica and different European territories.

Thereare three operating segments of this company, which includeinternational streaming, domestic streaming, and domestic DVD. Theinternational and domestic streaming segments obtain their revenuesfrom membership fees that are paid monthly by members that desirereceiving the streaming service that comprise chiefly of content. Onthe other hand, the domestic DVD segment usually obtains its revenuesfrom fees that are paid monthly by members for services comprisingchiefly of DVD by mail. Netflix operates in the Internet and CatalogRetail industry and has its headquarters in Los Gatos (California)(Michael, 2012).

Whenit comes to establishing the market structure of Netflix, it may besomehow difficult to establish whether it is in monopolisticcompetition or an oligopoly market. On one hand, it may be classifiedto have monopolistic market structure and oligopolistic structure onthe other. It may have a monopolistic market structure since, in theshort run, although price for its services could be limited, thecompany can still manage to operate on optimum price range. In thelong run, the company can face more competition, but the operationsof the company may not be interrupted because the way the companysells its services matters most. In this case, productdifferentiation, in terms, of technology matters a lot (Chao &ampLi, 2010).For instance, although there are competitors in the market offeringalmost similar services, Netflix has been capable of dominating themarket due to its unique selling points. On the other hand, thecompany can be considered as an oligopoly since there are high entrybarriers into the market, the company is in full control over itsprices, and there are few companies in the market offering similarservices. Given the two cases, Netflix can be considered more of anoligopoly rather than being in a monopolistic competition.

Regulation

Theoperations of Netflix Company are usually guided by the rules thatprovide on the guidance of the use of the internet. Currently, it ispossible for the company to provide content to its members withoutbeing dictated the amount of charge or rates that it needs to apply.The consumer protection laws that are in the market are minimal, butmay increase in the future as competition for use of the internetincreases. Emerging government regulations on the use of the internetmay have an impact on the operations of the business. For example,consider the emerging rules on media control in the Canadian marketthe law requires online providers that make profit as a result ofdelivering programs to Canadians to start paying certain charge afterreaching a given minimum threshold (Lewis, 2014). Such a move wouldsee customers of Netflix increase their subscription fees in order tocover for the extra cost charged to the company.

Besides,the introduction of any regulations or laws that would adverselyaffect the popularity, growth or use of the internet such as internetneutrality laws being introduced by the Federal CommunicationsCommission (FCC) would have an impact of decreasing the demand forservices provided by Netflix as well as increasing the cost ofNetflix in doing business (Seattle, 2014). EPA has the mandate ofcoming up with and enforcing rules that protect the environment, aswell as human health. The use of the internet by Netflix does nottake part in harming human beings in terms of health nor does it harmthe environment. Therefore, Netflix Company is not under the controlof the Environmental Protection Agency.

Incase the company has to remain successful in its operations, theregulations that emerge must support its operations. Any regulationthat may come on the way, bringing complications on the use of theinternet, might result to increasing of the operations cost of thecompany this may not be profitable in the long run pulling away thecompany out of business (Ramachandran&amp Stynes, 2014).Thus, for successful operations and expansion of the company,emerging regulations must be friendly to the business of thiscompany.

ThroughNetflix operating in global markets and different market and industrystructures, there are different economic implications. Netflix has anobjective of spreading to different international markets. This isbecause it is the aim of any business to realize high profits andgrowth as time progresses. Operating in the global markets will havedifferent economic implications for the business. One such economicimplication is that the company is likely to incur competition fromother global companies offering similar services. As the market thata company plays in increases, so does the number of players increase,which implies that the number of competitors also increase (Allenet al, 2014).Thus, through seeking operations in global markets, the competitionincreases. When the company becomes a global operator, there is thelikelihood of being exposed to economic challenges in the globalenvironment. For instance, as the company seeks expansion in othercountries, it will have to comply with regulations regulatingbroadcasting of content in that country. This is because the legalframework of a country has to be strictly adhered to in case aforeign company desires to have a successful operation in the countryit is seeking presence.

However,some regulations may be discriminatory leading to the company havehigh operating costs that may subsequently result to decreasedprofits. For instance, the company’s expansion to Canada may facechallenges in case the body charged with the responsibility ofoverseeing the communication industry passes the proposed law ofregulating foreign companies that offer streaming of content (Lewis,2014). This is because local firms in the communications andbroadcasting industry perceive foreign firms as being a threat to thesuccess of their business. In case the company establishes itself inanother market, where there are new laws or regulations limiting itsgrowth, it may be forced to close its operations in that country.Therefore, global markets come with a challenge of new regulationsthat are unfriendly being introduced. However, in some cases, thecompany may improve its revenues through seeking global markets.

Byoperating in a different market structure, the company may end uplosing the market share it currently has globally. At present, thecompany is the market leader in the renting of DVD using mail. Thismay be due to the market structure it is currently operating in. Themarket structure in which the company is currently is characterizedby few players since there are high entry barriers due to the highentry barriers in the market, the market is not served by a highnumber of firms. A limited number of firms in the industry cantranslate to the existence of limited competition althoughcompetition is present, it is not as pronounced as in other marketstructures such as free market structure. Thus, in case the companywas to operate in a different market structure, where there are nobarriers to entry such as the free market structure, the companywould likely lose its global leadership in renting DVD using mailbecause there would many firms in the market desiring to hold theleading position. On the other hand, operating in a differentindustry may lead to the company forfeiting its profits. This isbecause operating in another industry may pose challenges that thecompany is not used to this may hinder the growth of the company inthe industry.

Thereare ethical and regulations concerns that may have an impact on theoperations of the business. One of the ethical issues that may affectthe company concerns enforcing a controversial policy that limits thestreaming of media to a single device at a time. This regulation canlimit one family member from getting an access and watching a movieon a given device while another member watches a movie on anotherdevice (Salway,2015).It is unethical to limit a family member from watching a movie he/shedesires on a given device because another member is using a differentdevice, given that the family is subscribed to streaming movies onany device. It is not right to deny a family member a chance to enjoywatching a movie on a device that he/she prefers in case streaming isdone simultaneously. Such limits may affect the Netflix Company sincemembers may feel denied their rights to stream from any device, whenthere is streaming from another device. This may reduce the number ofmembers subscribing to the services of the company especially, forfamilies. This is because family members would not be allowed tostream movies on their devices simultaneously. A drop in themembership of subscribers can have an effect of decreasing therevenues of the company.

Increasingthe price charged for monthly subscription is another ethical issuethat may affect the company. The company has created two differentplans, which include DVD rental plan that starts at $7.99 per monthfor one DVD at a time and unlimited video streaming plan that goesfor $ 7.99 per month. This has led to an increase in price paid bymembers in case they desire to have the option of streaming video andDVD using mail per month. In the past, this could have cost a member$10 a month, but now a member has to pay $16 per month (Salway,2015).This is a depiction of price discrimination, which can lead tocustomers dropping their subscriptions from the company. This wouldresult in a reduction in revenues received from subscriptions by thecompany.

Onthe other hand, the industry that Netflix operates in is faced withthe challenge of changing regulations. Some regulations introduced inthe industry may be friendly, while others may be hurting to thebusiness. Unfriendly regulations in the industry may have an effectof increasing the operating expenses of the company. Such regulationsmay have an impact of reducing the profitability of the company.

MicroeconomicEnvironment Analysis

Customers

Netflixhas approximately over 44 million customers that stream every monthand enjoy TV shows and movies. Because of the diverse spread of theinternet in different parts of the globe, the company expects to growits customers. Besides, the ability of the company to offer itsservices to different devices, including mobiles, has led to agrowing number of customers. In the first quarter of 2011, Netflixadded around 36 million customers globally. This is an indicationthat the company has a potential of growing its customers within ashort duration. However, the increasing number of customers, increasein price for the company services may hinder the customer growth.This implies that the company would need to review its pricing modelin order to sustain customer growth.

Employees

Employeesare a critical part of any organization. It is employees that help anorganization in realizing most of its goals thus, any organizationneeds to integrate employees in its success plan. Netflix had 2,022full-time employees as of 31stDecember, 2013 (Netflix2014).The company also makes use of temporary and part-time employeeschiefly in fulfilling DVD operations and in responding to thefluctuations in demand for shipment of DVD. As of 31stDecember 2013, the company had 305 temporary and part-time employees.The relation amid employees and the company is good, which iscritical for the growth of the company.

Suppliers

Inorder to ensure that customers receive a lot of content from thecompany, Netflix licenses content from various suppliers (Seave,2013). This reflects the fragmentation experienced in the contentindustry. The company has the power in deciding how much to pay forthe content since it pays for the content depending with theperformance of the content and customer feedbacks. Besides, Netflixhas the power in choosing its suppliers.

Competitors

Theprimary competitors of Netflix vary depending with the geographicregion and may include multichannel video programming distributorsthat offer free on demand content via authenticated internetapplications, DVD rental outlets, entertainment video rental stores,and internet-based TV and movie content providers, which may compriseboth illegal and legal entertainment video content (Netflix2014).

MacroeconomicEnvironment Factors

Interestrates

Interestrates are bound to change from time to time depending with theperformance of the economy. Therefore, interest rates emerge as oneof the major risk factors that may affect the performance of thecompany in the future. Besides, depending with the country, where thecompany will operate, the rates of interest will vary.

Inflation

Inflationis another macroeconomic factor that tends to change with and place.For instance, there are sometimes when the inflation may be high andat times may be low. Since growth of the company, in terms, ofmembers takes a seasonal pattern, sometimes inflation may play a partin determining the growth. Therefore, inflation may also pose a riskfor the company’s growth.

EconomicGrowth

Growthof the economy is exceedingly critical in determining the performanceand growth of a business. Organizations should establish theiroperations in countries experiencing economic growth. This isbecause in such countries, people tend to have more purchasingpower, which help in the growth of revenues. The domestic market ofthe company is doing exceptionally well economically. This iscritical for the company’s growth.

Recommendations

Inorder to continue supporting its operations in the domestic marketand be in a position to expand in the international market, it isrecommended that the company should review its price model. Becauseof the increase in price for its services, the company may face thechallenge of growing its revenues since it may lose a lot ofcustomers as a result of increasing its rates. Therefore, throughreviewing its price model, the company will have a great opportunityfor both domestic and global market. Besides, it is recommended thatthe company should expand in countries that have friendly policies.

Conclusion

Netflixbecame founded by Marc Randolph and Reed Hastings in 1997. In orderto speed up the delivery of DVD, the company has opened above 20regional shipping centers in regions around the United States. Inmost cases, DVDs become received by customers in one to two daysafter making an order through the company’s website. As the world’sleading internet television network, the company has above 44 millionstreaming members from more than 40 countries. The biggest challengefacing the company is changing and emerging regulations in theindustry. This is a big challenge because it has the effect ofincreasing the operating cost of the company, which subsequentlyreduces the profitability of the company. Besides, as a result ofincreasing the operating costs of the company, the company may betempted to increase its rates, which may lead to customers seekingcheaper services from other companies. The long term outlook of thecompany seems to be successful. This is because it is capable ofgrowing the number of customers by huge numbers and has the power ofdictating the price that it should pay its suppliers for content.However, the changing regulations may affect its expansion but notwith a big margin since other firms in the industry would also beaffected by changing regulations.

References

Allen,G., Feils, D., &amp Disbrow, H. (2014). The Rise and Fall ofNetflix: What happened and where will It Go from Here? Journalof the International Academy for Case Studies,Vol. 20 (1).

Chao,C. &amp Zhao, S. (2013). Emergence of Movie Stream Challengestraditional DVD Movie Rental-An Empirical Study with a user Focus.InternationalJournal of Business Administration,Vol. 4 (3), pp 22-29.

Chao,C.N. &amp Li, T. (2010). Movie Download Challenges Traditional MovieRental. InternationalJournal of Business, Marketing, and Decision sciences,Vol. 3 (2), pp 78-87.

Lewis,M. (2014). Ontariowants CRTC to regulate new media like Netflix.Canadian Press.

Michael,L. (2012). Amazon Challenges Netflix with big Movie Deal. TheHerald Business Journal.

NetflixAnnual Report 2014

Ramachandran,S. &amp Stynes, T. (2014). Netflix Earnings Jump but Costs WillRise. TheWall Street Journal.

Salway,D. (2015). Netflix Controversy a Sign of the Future Is NetflixGetting Too Greedy? Retrieved fromhttp://broadband.about.com/od/netflix/a/Netflix-Controversy-A-Sign-Of-The-Future-Is-Netflix-Getting-Too-Greedy.htm

Seattle,G.F. (2014). The Underwood of Net Neutrality. TheEconomist.

Seave,A. (2013). Netflix to Competitors: Be Afraid. Be Very Afraid. ForbesMagazine.