3-2 Final Project Milestone One_SWOT Analysis

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1 3-2 final Project Milestone One: SWOT Analysis QSO-489 Capstone in Operations Management June 1, 2024

2 Introduction Netflix is an on-demand subscription-based streaming service that offers various movies and television shows. The company was founded in 1997 by Reed Hastings and Marc Randolph and began as a mail-order DVD delivery service (Jain, 2024). Netflix.com was created in 1998, and in 1999, the subscription-based model was established, which allowed Netflix to offer its massive catalog of DVDs online to subscribers for postal delivery. Since Netflix chose to provide a web-based catalog of DVDs, they were not limited to storefront locations, allowing for greater user access to the online catalog across the country. The subscription business model helped gain subscribers and company growth as customers had unlimited access to DVDs for a flat monthly rate (Jain, 2024). In 2007, Netflix implemented an add-on of online streaming services with video on demand, which allowed subscribers access to specific titles for unlimited video streaming (Centuro, 2024). Their introduction of streaming services created a revelation in the entertainment and media communities. Since its inception, Netflix has expanded globally, created original content, and has adapted various technologies to assist with company growth. This paper will evaluate Netflix's strengths, weaknesses, opportunities, and threats to assess its ability to remain relevant in this changing industry. Strengths In planned development, a company’s strength is an asset. It is an essential element when developing a SWOT. Netflix has numerous advantages, making it the largest streaming service provider, household name, and global market leader. In comparison to its competitors, Netflix has been available globally longer. They have 269.6 million paid memberships allocated as follows: Canada and the United States at 82.66M, EMEA (Europe, Middle East, and Africa) at 91.73M, Mexico and Latin America at 47.72M and Asia-Pacific region at 47.5M subscribers

3 (Netflix, 2024). A review of quarterly summary results shows a 3.2% increase from the last quarter and an 11.1% increase from the previous year. This significant global customer base gives them mighty bargaining power to secure exclusive content with the studios. Netflix’s commitment to content innovation and its member-centric brand of equity are key factors that set it apart from its competitors. Recognizing that its performance is directly linked to subscribers, Netflix has been focused on delivering diverse, high-quality, and original content (Netflix, 2024). Leveraging its global reach, Netflix is dedicated to content excellence, which enables it to cater to diverse audiences. Moreover, with technology innovations like language dubbing or subtitles, Netflix can provide cross-views of foreign and domestic content, thereby driving subscriber retention and growth. Weaknesses Businesses need weaknesses, and Netflix is no exception. Each business should implement design strategies to correct identified weaknesses. Although Netflix is profitable, it has weaknesses that can prevent further expansion. Netflix is reliable on subscriber growth, dependent on market saturation and seasonal steadiness. Although subscription costs differ per nation and can fluctuate based on economic factors, market competition, licensing for content, and currency variations, Netflix subscription costs are increasing. For instance, in the U.S., for a monthly subscription, the standard plan went from $9.99 to $11.99, and the premium plan went from $19.99 to $22.99 (Netflix, 2023). Increases can deter renewals or sign-ups, and with the increased number of competitors also offering streaming services, members can cancel for many different reasons, such as economic and financial conditions (inflation), not using the service enough, cutting back on expenses, or being dissatisfied with the services. This risk was included

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4 in their 2023 Annual Report, which stated that if they are not successful in retaining and attracting members, they will be adversely affected (Netflix, 2023). Limited or restricted copyrights are seen as another weakness. To innovate and diversify, Netflix must acquire and invest in technologies, platforms, content, and other businesses to support its operations. However, Netflix does not own the majority of its content. The studio that makes the show incurs production expenses and sells the show to Netflix, which pays a licensing fee to the studio for said content (Netflix, 2023). This fee is either large enough to cover the production costs or is an operational loss with the hope that the money will be recovered further down the line. Rights taken from the studios will expire after a few years, resulting in Netflix content appearing on other streaming platforms. Opportunities The streaming services market is in demand. With the market constantly moving, businesses should look for advantages to continue to develop considerably. Netflix already possesses such a powerful image in the streaming industry. It could benefit by adding services to its platform, such as enhancing cloud-based options to reduce buffering or improve streaming quality, offering gaming to attract a younger audience, and social viewing experiences. The ability to watch films together and interact in real time can help attract new customers who value social interaction and increase subscriber retention. Introducing annual subscriptions is another prospect for Netflix. Annual upfront payments entail a discounted rate suitable for cash flow (Saljoughian, 2023). By encouraging subscribers to switch from monthly to yearly plans, Netflix can increase its revenue by offering an annual subscription with discounts . Threats

5 Regardless of the market, any business is vulnerable to specific risks. Every business may need help with problems that can impact their growth. Netflix is a leader in its industry, so it has to confront threats and dangers. Netflix may have begun at the forefront of video streaming services, but they are no longer the only company providing worldwide video streaming services. There has been a surge of new entrants to the streaming industry. Competitors like Hulu, Apple TV, Amazon Prime, Paramount+, HBO Max, and Disney compete for the same subscribers and original content growth, leading to market saturation and making Netflix work harder to innovate to retain its subscribers. Government regulations are another external threat to Netflix. As Netflix continues to expand internationally, strict governmental regulations and rules will not permit it to do so in countries such as North Korea, China, Russia, and Syria (Netflix, 2023). Lastly, digital piracy is another sufficient threat that Netflix faces. Research has indicated that digital piracy costs the U.S. economy an estimated $29.2 billion annually (Frick et al., 2023). Netflix sees piracy as a tough competitor. Their annual report indicates that it is a gripping issue because it is free for consumers, making it very hard to compete against (Netflix, 2023). The SWOT analysis has revealed that Netflix has effectively capitalized on its strengths to maintain its primary position in the streaming market by being innovative and a global market leader. To reinforce its weak region, Netflix should consider alternative pricing strategies such as flexible pricing plans, annual subscriptions, customer loyalty programs, or bundle offers to help retain its subscribers and attract new ones. Netflix should also ensure regulatory compliance to avoid legal issues by adhering to all local laws and regulations within the regions they stream. It is implementing thorough content policies to address inappropriate content concerns. To address threats from its competitors, Netflix should perform competitive analysis frequently to understand its competitor's strategies and implement solutions to adapt appropriately. Netflix has

6 begun efforts to compete with piracy and password sharing by implementing new solutions like authentication mechanisms and encrypted license management (Netflix, 2023). Continued vigilance and strategic vigilance will be necessary to combat piracy. Overall, Netflix is well- resourced to navigate the complexities of the video streaming service industry if it continues to innovate and adapt to a constantly changing market.

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7 References Centuro Global. (2024, April 4). The Remarkable Netflix Global Expansion Journey. Explore the story of how Netflix became a global streaming powerhouse . https://www.centuroglobal.com/blog/netflix-global-expansion-journey/ Frick, S. J., fletcher, D., Smith, A. C. (2023). Pirate and chill: The effect on Netflix on illegal streaming . Journal of Economic Behavior & Organization. Volume 209. Pages 334- 347. ISSN 0167-2681. https://doi.org/10.1016/j.jebo.2023.03.013 Jain, S. (2024, March 26). History of Netflix – Founding, Model, Timeline, Milestones . VdoCipher. https://www.vdocipher.com/blog/2017/06/netflix-revolution-part-1-history/ Netflix. (2023). Netflix, Inc. 2023 Annual Report . https://s22.q4cdn.com/959853165/files/doc_financials/2023/ar/Netflix-10-K- 01262024.pdf Netflix. (2024, April 18). Q1 2024 Shareholder Letter . https://s22.q4cdn.com/959853165/files/doc_financials/2024/q1/FINAL-Q1-24- Shareholder-Letter.pdf Saljoughian, P. (2023, July 12). The Power of Upfront Annual Subscriptions: Leveraging Discounts for Retention and Cash Efficiency . Medium. https://medium.com/parsa-vc/the-power-of-upfront-annual-subscriptions-leveraging- discounts-for-retention-and-cash-efficiency-d5afe8a79b41 Shah, P. (2024, February 27). Mapped: Netflix Costs Per Country . https://www.visualcapitalist.com/cp/mapped-how-much-netflix-costs-in-every- country/

3-2 Final Project Milestone One_SWOT Analysis

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