“Things don’t usually turn out the way we plan them; all we
can do is strategize to better position ourselves in this ever-changing world”
Sources:
The three industrial revolutions – The Age of Mechanical
Production, The Age of Science and Mass Production, and The Digital Revolution –
shaped the economies around the world. However, ‘The Digital Revolution’
reshaped industries entirely. One such industry being the ‘Media and Entertainment’.
The shift from traditional CDs and Cassettes to online streaming led to massive
disruption in this industry (Refer Exhibit-1). The shift in ‘Media and
Entertainment’ over the last two decades resonates well with the second force mentioned
in the article ‘The four global forces breaking all the trends’: Accelerating Technological
change.
Netflix and Spotify were the early adopters that utilized internet
for streaming service, and it served these companies well (Refer Exhibit-2). Netflix’s
business model carefully considered, analyzed, and conquered ‘Porter’s Five
Competitive Forces That Shape Strategy’: Buyer, Supplier, Substitutes, New
Entrants, and Existing Rivals. By providing a user-friendly platform that
streamed high-quality content at a convenient price, Netflix won over the buyers.
By purchasing media content from production houses and generating billions of
US$ in revenue at a retail cost, Netflix won over its suppliers. Netflix’s exclusive
content prevented its customers to switch to supplements. For instance, an
acclaimed TV series such as ‘House Of Cards’, which is owned and streamed by Netflix,
cannot be streamed by any other company, and, on the other hand, a customer with
a mindset of watching ‘House Of Cards’ will only look for ways to stream ‘House
Of Cards’ I.e. the customer will not pivot to any other similar TV show. The
competitive advantage of a having a huge subscriber base (100 Million+), and media
content rights, prevented a lot of new entrants from moving into the market.
However, the high barriers to entry were still overcome by some deep-pocketed
players such as Amazon Prime Videos. By constantly investing in infrastructure
to provide better services than its rivals, Netflix managed to stay on top of
competition. Today, the market leader, Netflix, accounts for 15% of the world’s
internet traffic (Refer Exhibit-3).
“Getting on top is one thing, but staying there is another”
The shift in industry – Media and Entertainment – dynamics called
for a shift in strategy of Media companies. Production houses, such as Disney
and Warner Brothers, have started pulling off their content from Netflix to
stream that content on their homegrown platforms such as Hulu and Disney+ (Source:
[2]). The key idea: Why not leverage our own content to penetrate the streaming
industry? The short-term loss in revenue, which was generated by Netflix for these
production houses, can be covered hundred folds in the long run (Source: [3]). On
the other hand, Netflix anticipated a move like this long time ago, and strategized
to rely less on third party content; Netflix pivoted from being a streaming
service to a production house with its own streaming service in 2010, and
released its first production ‘House of Cards’. Currently, 85% of all Netflix’s
spending on content is towards producing their own content (Source: [4]). The amount
of content Netflix owns will help it stay competitive, at least, for the next five
years. Analyzing the market shift and adjusting the company’s strategy
accordingly can serve a company well.
[1]: https://trailhead.salesforce.com/en/content/learn/modules/learn-about-the-fourth-industrial-revolution/meet-the-three-industrial-revolutions,
Accessed September 10, 2019
[2]: https://www.cnbc.com/2017/08/08/disney-will-pull-its-movies-from-netflix-and-start-its-own-streaming-services.html,
Accessed September 10, 2019
[3]: https://www.cnbc.com/2019/08/07/disney-strategy-could-limit-netflix-pricing-power-hurting-long-term.html,
Accessed September 10, 2019
[4]: https://qz.com/1545594/netflix-doesnt-make-most-of-its-originals-now-thats-changing/,
Accessed September 10, 2019
Exhibit-1: https://www.riaa.com/u-s-sales-database/,
Exhibit-2: https://www.macrotrends.net/stocks/charts/NFLX/netflix/revenue,
Exhibit-3: https://www.pcmag.com/news/364353/netflix-and-youtube-make-up-over-a-quarter-of-global-interne,
 |
| Exhibit-1 |
 |
| Exhibit-2 |
 |
| Exhibit-3 |
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.