In the years 2010 and 2011, Netflix recorded a high number of movie enthusiasts who subscribed to their products. This was evident among shareholders who became overwhelmed and pleased with their skyrocketing stock prices. During this period, the number of domestic subscribers to Netflix increased from 12.3 to 24.6 million (Baltzan, 2009). As a result of this swift growth at Netflix in United States, the company increased its potential to expand its market internationally. Additionally, this pushed the stock price at Netflix by increasing it to a maximum of $304.79 in July 2011.
In the mid 2011, Netflix gained popularity when it became the biggest subscription service at the internet for watching movies and television shows. At Netflix, their strategy was to offer subscribers with a comprehensive choice of DVD titles. The firm also acquired new content by developing and enhancing relationships that were of mutual benefits with entertainment video providers. The company made it easier for subscribers to identify movies and television shows that were enjoyable. This granted them popularity for offering DVD services by mail or instant streaming that they expanded to international levels.
At first, Netflix had announced a new price in 2011 that effectively increased the monthly subscription price by 60 percent. Each month, subscribers received unlimited numbers of DVDs, watched various TV episodes and movies which they streamed on the internet. The new arrangement in the firm put a halt to unlimited streaming and DVDs. The objective was to reflect and improve various expenses that are related with two delivery methods to grant subscribers a choice. For instance, subscribers at Netflix had options to either select a streaming only plan or a DVD only plan. Furthermore, clients who needed both unlimited DVDs and unlimited streaming had to pay 15.98 dollars in a month. This meant that whether clients were streaming or purchasing a DVD, the price for each went for $7.99. The company also discontinued all initiatives that incorporated streaming and subscribing DVDs via mail.
The new changes at Netflix negatively affected the reaction of customers. Numerous subscribers became unhappy and decided to post their reactions on Netflix’s social site. In the following eight weeks after the reaction, the stock price at Netflix dropped steadily to approximately $210-220 shares (Ferri, 2013). This was partly due to rumors that were spread by 600,000 clients at Netflix who decided to cancel their subscriptions. In response to the damage control, the CEO at Netflix Reed Hastings posted at the firm’s blog and apologetically said that the basis for new pricing had been communicated poorly to the public. Hastings personally blamed the miscue and elaborated the initiative behind the new pricing plan.
It was evident that Netflix had plans to separate its operation by mail and subscription services into two businesses that could be offered at different websites. In addition, Hastings revealed in his blog that he had messed up when he announced the separation of streaming, DVD and change in prices. It is clear that stake holders of this organization felt humiliated and disrespected. Personally, the CEO justified that they had to change prices because they wanted to make their services a great option, to cater for clients who were interested in comprehensive and huge selection on DVDs. The DVD that they offered by mail could not last forever and they wanted it to benefit their customers by lasting for a long period.
He termed the benefits of their streaming services to be different from those offered on DVD by mail service. In this regard, there was need to focus on rapid improvement to ensure that streaming technology evolved at the market. To accomplish this, they had to stop rendering services without maintaining compatibility with DVD by mail service. The firm identified streaming and offering DVD by mail to be two different businesses. This is because they incorporated various benefits, and cost structures that were supposed to operate and grow independently. At this point, the company chose to rename their DVD by mail services as Qwikster because it reflected quick recovery. Conversely, Netflix was reserved for streaming to avoid confusion.
As much as a section of members felt that there was no need to split the business, the perception of the firm concerning the split remained positive. This was to improve their services independently both at offering DVD by mail and streaming. In regard to this progress, Qwikster will proceed to offer the best DVDs by mail service within United States. Netflix will also offer best movies and Television shows across the globe to improve its services (Jackson, 2015).
The major issues that faced Netflix began in 2012 due to its poor Strategy Missteps. This was evident when the firm announced a series of changes in its operation. The new initiatives tarnished the reputation of the company and reduced the stock price of the firm.
The announcement by the CEO at Netflix to split the business of streaming and DVD by mail into two drew harsh criticisms from business commentators and Wall Street analysts. Furthermore, all the skilled industry observers were amazed by the fact that Netflix would take such a step. Netflix had estimated to take approximately two years to attract enough subscribers to generate a positive contribution profit after its initial launch. The firm defines contribution profit as cost of revenues and marketing expenses that are incorporated in order fulfillment and subscription costs. In October 2011, Netflix identified various domestic subscribers who dropped by 810,000. This contributed to net incomes, earnings per share, and operating profits to be below investor expectations and Wall Street estimates.
Internationally, the reports of the firm indicate that it had I million subscribers. The executives at Netflix claimed that the company did not intend to spend the newly capital that was raised. On the contrary, the intention of the company was to put the capital into safety use to improve its streaming services. Additionally, the purpose of this capital was to absorb the expected losses in contribution from international operation over the following five to seven quarters (Baltzan, 2009).
Analyzing the environment of this industry, it is clear that the initiation of electronic products and modern technologies since 2000 had increased rapidly the client’s chances to view movies. In 2012, it became common for individuals to view movies at theatres, hotels, flights, using personal computers and smart phones devices. This increased the number of devices from the electronic stores and made it easier for customers to access TV episodes and movies by being connected online. For instance, a viewer could subscribe to several movie channels with aid of a cable or fiber optics provider. The industry also facilitated the service TV everywhere by allowing subscribers the option to watch programs on internet connected devices.
As a result, majority of multichannel television providers in 2012 explored packages and the options for TV everywhere to suit interested viewers. In this regard, television networks and movie studios were also expected to proceed and experiment timing of releases to providers and distribution channels. This was an ongoing effort to realize the best way in which they could maximize their revenues. The market trends that supported the view of movies from home incorporated internet connection from both computer and mobile devices. In 2012, majority of viewers from home preferred subscription services that offered unlimited internet streaming to be of better value contrasted to the pay per view services. This made the firm to plan for various strategic initiatives that could promote and increase use of video streaming in 2012.
Evaluating the competitive intensity, it is evident that the movie rental business became intensely competitive in 2012. In this regard, the operation of Blockbuster that was once a movie rental powerhouse in US, and foreign states granted them a winning bid of $321 million. However, in the first half of 2012, was to close a section of stores due to weak levels in their financial performance. Competitors who offered unlimited internet streaming plans tended to be the most convenient and economical choice (Roebuck, 2012). This benefited the audience who watched an average of three or more titles in a month. In 2012, it was apparent that Netflix was a clear leader in streaming the internet. This was evident when it recorded 23 million streaming subscribers an average of 30 hours of video in a month.
Netflix had two major rivals and the first one was Hulu Plus who offered entertainment as a way of reducing their monthly subscription prices. The second rival was Amazon Price Instant Video that offered its members free two day shipping on all Amazon orders. Additionally, they were competitive in a way that they offered instant videos and pay per view services.
At Netflix, their business model and strategy was to transform into the globe’s largest online subscription service to provide entertainment. Their intention was to revolutionize the manner in which various individuals rented recorded TV shows and movies. Hastings’s goals were to ensure that he managed the world’s best movie service by improving them. This attracted huge numbers of subscribers each year and growth in long term earnings per share.
Netflix’s subscription in relation to business model allowed members to select various subscription plans whose terms and prices varied over years. Subscribers who choose DVD by mail option were given over 120, 000 titles to select from, and received their movies by first class mail. Conversely, customers who choose the streaming option were granted instant watching capability for 2,000 titles on personal computers (Lusted, 2013). In 2012, the performance prospects at Netflix increased the total number of subscribers to 22 million totaling to a profit of $146.1 million.
The alternatives course of action that could be implemented include:
- Reduction of prices to allow subscribers to access services at Netflix online.
- To improve technology that would enable viewers to stream fast to motivate others about the site.
The company should formulate best strategy which is to offer high quality video brands to outshine their rivals at the market. It is clear that their rivals were Hulu plus and Amazon who offered advertisement, instant videos and entertainment. This implies that only quality video product will aid Netflix to beat their rivals (Ferri, 2013).
- The company will implement its plans through the CEO who will initiate strategic changes to assist Netflix to strengthen its brand image and reputation.
- Furthermore, Hasting will fortify his position as the leader of the industry by acting fast against rivals to outcompete them.
- To accomplish their objectives, the management at Netflix will have to set aside sufficient cash to cater for the expenses.
Baltzan, P. (2009). Business driven technology. Boston: McGraw-Hill Irwin.
Ferri, M., & University of Chicago. (2013). Rent, buy, or pirate: Consumer preferences in the movie industry.
Jackson, A. (2015). Netflix: How Reed Hastings changed the way we watch movies & TV.
Lüsted, M. A. (2013). Netflix: The Company and its founders. Minneapolis, MN: ABDO Pub.
Roebuck, K. (2012). Netflix: High-impact Strategies – What You Need to Know: Definitions, Adoptions, Impact, Benefits, Maturity, Vendors. Dayboro: Emereo Pub.