MBA-FPX5006_RockholdAmy_Assessment1-Attempt1

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1 Netflix - Strategic Process and Analysis Amy Rockhold Master of Business Administration, Capella University MBA-FPX5006: Business Strategy Professor Connie Brewer July 12, 2023

2 Table of Contents Executive Summary Netflix ............................................................................................................ 3 AFI Strategic Planning Framework ................................................................................................. 3 Netflix Value Chain Analysis ........................................................................................................... 3 Internal Analysis .............................................................................................................................. 4 External Analysis ............................................................................................................................. 4 PESTLE Analysis ............................................................................................................................ 4 Porter’s Five Forces Analysis .......................................................................................................... 5 The Role of Leadership in the Strategic Planning Process .............................................................. 6 Recommended Course of Action ..................................................................................................... 6 Conclusion ....................................................................................................................................... 7 References ........................................................................................................................................ 8 Appendices .................................................................................................................................... 10

3 Executive Summary Netflix Netflix, Inc. (Netflix) is a global media entertainment company primarily known for its subscription streaming services. Netflix offers various content, such as movies, documentaries, and television series in multiple genres (horror, comedy, thriller, sci-fi, romance, etc. (Netflix, Inc., 2022). It is headquartered in Los Gatos, California, with additional corporate locations in 14 countries. Netflix uses an over-the-top (OTT) platform to provide its online entertainment services, which allows Netflix’s content to be viewed virtually anywhere the subscriber would like and on many device options, such as mobile phones, laptops, desktop computers, smart televisions, etc. Many OTT service providers exist, including Netflix’s competition: YouTube, Hulu, Disney+, Apple TV+, and Amazon Prime Video (Soren & Chakraborty, 2023). Netflix is a well-known streaming service provider that has been around for over two decades. It has gained popularity through its time in the market; it was founded in 1997 and has become almost a household name. When Netflix was founded by American entrepreneurs Marc Randolph and Reed Hastings, its e-model was designed to disrupt the video rental industry (Fleischman et al., 2021). Like any company in business for a long time, Netflix has had a few ups and downs, but it has retained its competitive advantage and bounced back from adversity. Strategic planning methods will allow a plan to be made to keep Netflix at the top of the streaming industry. AFI Strategic Planning Framework Strategic planning is an integral part of developing a solid business plan. Several strategic planning processes can be used to plan a company’s immediate and long-term success. The Analysis, Formulation, Implementation (AFI) Strategy Framework is a model that allows a company's leadership to take a deep dive analysis into its processes to create a plan and methods to obtain and maintain a solid competitive advantage in its industry. AFI strategic planning uses studies and models, such as the PESTLE analysis, Porter’s Five Forces Model, and Value Chain Analysis, which will also be discussed in this document. AFI strategic planning is valuable because it allows a company to analyze the impact of both internal and external forces. The internal factors reviewed include leadership’s role in strategic planning and implementation and its resources, core competencies, potential, etc. External factors will vary based on the industry being reviewed; however, the analysis focuses on the impact these factors will have on a firm’s ability to obtain and gain a solid competitive advantage ( Rothaermel, 2020) . Netflix Value Chain Analysis A Value Chain Analysis outlines a company's primary activities and support activities. This analysis focuses on the company's core and supporting business operations to highlight the strengths and weaknesses in several important internal factors for success. Netflix has been successful for many years due to its ability to adapt to the ever-changing entertainment technology environment. Netflix’s Value Chain Analysis reveals that Netflix operates in a manner that is going to allow it to stay at the top of its market and maintain a high-profit margin and competitive advantage.

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4 Internal Analysis The Value Chain Analysis provided a good baseline for internal analysis of Netflix’s operations. Entertainment contracts, licensing, copyright laws, and other factors affect many aspects of Netflix’s core operations. Netflix works to control many facets by keeping most of its production logistics and processes in-house. They produce content in-house, which lowers costs associated with obtaining new content, and it manages its servers using cloud-based programs to host content. Netflix’s subscribers use their own devices to view content of their choosing using the Netflix app or website, so the company does not provide any viewing devices to subscribers. As an employer, Netflix has adopted a “freedom” style workplace, which allows employees to work when and how it suits them, as long as they finish their work in a manner that is in the company's best interest. Netflix’s core philosophy is “people over process,” which allows them to recruit people who take pride in their job and the company. Because technology is constantly changing and improving, Netflix invests a great deal of time and money in researching new ways to adapt, find ways to stay on top of the market technologically, and stay in the know as technology evolves. Netflix’s firm infrastructure is handled effectively and is the backbone of its core operations. Netflix has a solid competitive advantage because it has been in business so long and has already worked out a lot of the kinks other, newer streaming services are still working on. External Analysis Many external factors impact the business environment of any industry and companies therein. Global entertainment media companies, like Netflix, are exposed to many legal, economic, social, and environmental forces that impact their success. Addressing the external factors’ impact and effect on Netflix is a large part of their business plan, as the company’s leadership needs remained focused on these areas to stay at the top of their industry. Several analysis methods can be completed to assess these external factors’ impact on a company and the direction management must take to become/remain successful. PESTLE and Porter’s Five Forces are just two models that can be used to plan for success. PESTLE Analysis A PESTLE Analysis is a strategic framework commonly used to evaluate the external business environment and its effect on a company’s operations. The six PESTLE factors can profoundly impact a company’s opportunities and risks (Peterdy, 2023). This analysis will examine the political, economic, social, technological, legal, and environmental impacts of Netflix’s business plan. Political: The media industry and information technology have been a political topic for many years. Netflix has been thought of as having Liberal views. In recent years, Netflix’s original content has become increasingly politicized, with interview documentaries from former presidents, series dedicated to political injustice, and other filmmaking to “disrupt the media industry's white American status quo” (Avery, 2023). Currently, Netflix does not appear to be stating a clear political agenda. Some politicians, such as Donald Trump, have called for media companies to become more transparent with user information and demographics. Netflix continues to resist policies that risk its consumers’ privacy. Economical: Since the COVID-19 pandemic, the economy has been through many ups and downs. The cost of going to the movies has dramatically increased over the years, so consumers

5 are looking for more budget-friendly entertainment options. Due to the competition Netflix faces (other streaming services) and the increasing costs of production, Netflix has raised its prices more than any other streaming service has in recent years. Netflix combats this by offering more original content than its competitors, which only helps so much as more and more services offer live TV options and streaming. Despite the effect of Netflix’s cost increase on consumers, the company is still gaining new and returning subscribers. Social: The social aspect of Netflix’s success ties in with the economic impact. Consumers are choosing to stay home over going out for entertainment. “Netflix and chill” has become a popular term for going to someone’s house for entertainment rather than going out. It is much more cost-effective for a family to stay home and watch TV or a streaming service than going out to the movies. People have also grown to enjoy “binging” series, watching as much of a series in one sitting as possible. Netflix is one of many cost-saving ways people find entertainment at home. Technology: Netflix has no choice but to stay on top of its technology. Technology is ever- changing, evolving, and expanding, which forces entertainment media companies to invest a large part of their budget in advancing technology. Netflix uses Amazon Web Services (AWS) to broadcast its context, giving it a global reach for its services. Legal: Entertainment technology is always under scrutiny by the governments of the countries where it has a presence. Netflix is available in many countries and must be aware of and in compliance with many privacy, copyright, and anti-competitive practices. The company has always worked to protect customer data. They only share the necessary viewing and demographic information with government and tracking agencies. Piracy is a genuine concern for Netflix as well. While piracy is illegal, it is widespread and a considerable loss source for streaming entertainment providers. Environmental: One might assume an industry that streams entertainment would not face much criticism for its environmental impact. However, streaming services use large amounts of energy and electricity and have high carbon emissions from network infrastructure and devices used for viewing. Netflix has a sustainability plan with a target of halving emissions by 2030 (Netflix, 2022). Porter’s Five Forces Analysis Michael Porter created the Five Forces Model to help strategic leaders understand the profit potential in their market so they can position themselves to gain and sustain a competitive advantage (Fleischman et al., 2021). The model identifies competitive forces that must be considered when leadership analyzes the industry environment and formulating a strategy. The strategy created and implemented as a result of this analysis allows the company better to position itself in the industry against its competitors. Threat of New Entrants: The threat of new entrants in the global entertainment industry is high. Established organizations (i.e., Disney, HBO, Apple) have launched their own streaming services. These competitors have the necessary funds and reputation to succeed immediately. Some large television networks are partnering with streaming services to offer movies and television series on that service exclusively.

6 Bargaining Power of Suppliers: The bargaining power of suppliers is high. Suppliers can dictate how long a movie must be out of theaters before moving to a streaming platform; the standard wait time is 90 days. Netflix works to negotiate the wait time to as few as 45 days. As new competitors emerge in the streaming market, there is more competition to have big-name movies and TV series to be moved to competitor platforms. Bargaining Power of Buyers: Netflix has increased its prices more than any other streaming service. Subscription-based streaming services do not require contracts, so consumers can jump from service to service based on which show or movie they want to have access to at the time. Netflix works to combat this competition by producing original content, so viewers are more apt to stay for those shows. Threat of Substitute Products: The threat of substitute products holds a medium risk for Netflix. The threat is inevitable due to the number of streaming services on the market. Netflix’s original content offsets this threat by giving Netflix the advance of exclusive content. Rivalry Among Existing Competitors: Competition will always be a high risk for the company due to the number of streaming services. Netflix must stay diligent to remain among the top competitors in the streaming market. Several streaming services offer live TV options with their plans for an increased cost; Netflix does not offer live TV. The Role of Leadership in the Strategic Planning Process Leadership at Netflix must be diligent in all aspects of the company’s obligations to consumers and stakeholders. Netflix has a “freedom” management style, allowing creativity to flow from the bottom up and through the entire company, providing excellent support to leadership. Netflix’s leadership has an ethical responsibility to its employees, industry, stakeholders, and the countries it has a presence in. Leadership must be part of planning and delivering reasonable and appropriate business plans to each company area and ensuring employees have the proper support to carry out these tasks. Leadership must show integrity and respect toward the employees who work for the company to keep morale high and production at its best. Recommended Course of Action Internal Recommendations: Leadership should strive to continue to obtain deals and contracts with big-name actors/actresses, production companies, and TV networks to provide as much unique content as is manageable at any given time. Original content is going to sustain Netflix during the changes that are occurring in the streaming services market. As new entrants emerge, Netflix must continue to find ways to differentiate itself from the competition. Netflix’s reputation is one reason it has been successful for more than 25 years, so that reputation must be upheld, and the Netflix name must remain in the media almost constantly. Netflix should also consider adding live TV to its subscription plan options. This is one advantage several competitors have over Netflix. External Recommendations: One of consumers’ most significant gripes with Netflix is how often and how much it raises its prices. While pricing is an internal factor, it also affects external factors, as consumers do not like to see price increases, especially not as often as Netflix implements them. Another area Netflix could improve on is its political and social bias. Netflix is considered to lean to the “left” and has Liberal views and target audiences. Political and social neutrality would help Netflix obtain and retain more subscribers. Most consumers want to watch

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7 the material they choose without feeling the pressures of hidden agendas. For most people, electronic entertainment is considered an escape from reality, and Netflix would benefit from respecting that. Conclusion Netflix has been at the top of the global electronic entertainment industry for many years. Analysis shows that Netflix is at the top of its industry; however, some process improvements should be made to allow the company to remain at the top. Strategic analysis and planning are critical to success in any industry. Netflix has an opportunity to remain at the top for years to come. Examining business analyses and implementing beneficial changes will give Netflix the long-term competitive advantage it needs.

8 References Avery, C. (2023). Netflix: The New Outlet for US progressive politics? University of Birmingham. https://www.birmingham.ac.uk/research/perspective/netflix-us-progressive- politics.aspx Fleischman, B., Ondracek, J., Saeed, M., & Bertsch, A. (2021). Netflix: Strategizing Corporate Resources and Capabilities: A Quarterly Peer Reviewed Multi-Disciplinary International Journal . Splint International Journal of Professionals, 8(4), 363-375. http://library.capella.edu/login?qurl=https%3A%2F%2Fwww.proquest.com %2Fscholarly-journals%2Fnetflix-strategizing-corporate-resources%2Fdocview %2F2728523647%2Fse-2%3Faccountid%3D27965 Netflix, Inc. (2022). Long-term View. Netflix . https://ir.netflix.net/ir-overview/long-term-view/default.aspx Netflix, Inc. (2022). Netflix Corporate Information . Netflix Help Center. https://help.netflix.com/legal/corpinfo Netflix, Inc. (2023). Netflix Culture — Seeking Excellence . Netflix jobs. https://jobs.netflix.com/culture Peterdy, K. (2023, May 10). Pestel Analysis . Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/management/pestel-analysis/ Soren, A. A., & Chakraborty, S. (2023). The formation of habit and word-of-mouth intention of over-the-top platforms . Journal of Retailing and Consumer Services, 75, 103460. https://doi.org/10.1016/j.jretconser.2023.103460

9 Rothaermel, F. (2020). Strategic Management (5th ed.) (pp. 21-27, 72-111). McGraw-Hill Higher Education (US). https://bookshelf.vitalsource.com/books/9781264103713 Wayne, M. L. (2022). Netflix audience data, streaming industry discourse, and the emerging realities of ‘popular’ television . Media, Culture & Society, 44(2), 193–209. https://doi.org/10.1177/01634437211022723

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10 Appendices Exhibit 1: Value Chain Analysis Netflix, Inc. – Value Chain Analysis Firm Infrastructure Netflix has a solid firm infrastructure. Human resources, finance, management, legal, quality management, etc., are all handled effectively. HR Management Netflix has an inclusive, diverse workforce that allows employees to contribute to the decision-making process. They have a relaxed work atmosphere that does not have many restrictions if the employees complete their tasks efficiently and effectively. Tech Development To remain at the top of its industry, Netflix must constantly stay on top of tech development. Netflix invests a great deal in research and development to meet this need. Procurement Netflix has production deals with many big-name production companies and actors/actresses. They also produce content "in-house," which gives them unique programming. Inbound Logistics Operations Outbound Logistics Marketing & Sales Services Netflix has production deals with many big-name production companies and actors/actresses. They also produce content "in-house," which gives them unique programming, has lower costs, and does not have copyright restrictions. Netflix manages its servers. It uses cloud-based programs to host streaming content. Viewers use their own devices to view desired content. To stream content, Netflix offers mobile applications, a website, and other technology (TV, Casting to a device). The cloud infrastructure allows Netflix to provide fast download and streaming times. Netflix has been in business for over 25 years. This time has allowed Netflix to become a household name in many cases. It offers a 1- month trial. They have ads on many popular websites. They offer multiple subscription types, allowing a few budgeting options for the consumer. Netflix offers 24/7 customer service to its subscribers. It offers a DVD delivery service and several cost- based streaming plans for customers’ unique needs. Netflix operates in a manner that allows it to remain at the top of its market and to maintain a high profit margin

11 Exhibit 2: PESTLE Analysis Netflix PESTLE Analysis P Politics Each country has different rules and regulations for streaming services Information security and government scrutiny are present and change with each country E Economy Netflix has growth potential through the production of its original content The current economy makes consumers hesitant to pay Netflix's rates due to its increasing costs compared to streaming services that offer that same or similar content S Social Streaming services have become more popular than movie theaters due to lower costs The changes from COVID-19 social distancing practices have expanded the available content on streaming platforms T Technology Netflix strongly focuses on technology and uses programming that allows tracking of customer preferences, machine learning, and various algorithms to provide customized customer recommendations Amazon Web Services allows a global reach for Netflix's services L Legal Entertainment and technology are under government scrutiny regarding privacy, copyright laws, and anti-competitive practices Piracy is a concern for companies that offer streaming services E Environmental Streaming services have been found to use large amounts of energy/electricity and carbon emissions from network infrastructure and devices Netflix has a sustainability plan with a target goal of halving emissions by 2030

12 Exhibit 3: Porter’s Five Forces Model Porter’s Five Forces Model Threat of new entrants High Established organizations (i.e. Disney, HBO, Apple) are launching their own streaming services The companies that are able to compete with Netflix have a huge amount of funds and other necessary resources to launch successful streaming services Bargaining power of suppliers High Suppliers able to dictate the amount of time a movie will be in theaters before moving to a streaming platform. Netflix works to lower that timeframe. As new competitors are entering the streaming market, there are more companies to bargain with, resulting in some big name TV series and movies being moved to other platforms. Bargaining power of buyers High Netflix has increased its subscription prices more than any other streaming service, so more buyers are moving to competitors who offer similar content. Buyers often choose a streaming service by which series or movie they want to watch at the time. Most streaming services do not require a contract, so buyers are able to move from service to service at any time. Threat of substitute products Medium The threat of substitute products has increased due to all the competitors who are creating their own streaming platforms. Netflix is able to offset this threat by creating its own original content. Rivalry among exisiting competitors High Competition will always be a high risk for Netflix and the company will have to stay diligent to stay a leader in the streaming market at all times. Several streaming platforms also offer live TV options with their plans for an additional cost. Netflix does not offer this option and that is drawing customers to competitors.

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