Introduction
Video-on-Demand (VOD) is essentially a system that allows the consumers to select and watch video content or TV shows on demand. This is a modern video streaming technology where internet downloading merges with pay-per-view programming. Netflix is an online subscription-based Digital Video Disk (DVD) rental company. Reed Hastings established this company with a vision to offer a home movie service, which would essentially do a better job satisfying the clients than the old-style retail rental model (Lüsted, 6).
The company entered the movie industry with a disruptive technology of providing online video rental whereas the incumbent competitors such as Blockbuster were providing retail rentals. The company’s incumbent competitors ultimately followed its direction when its new strategy interfered with their capabilities (Lüsted, 12). Additionally, this company was a technological frontrunner, which invested in the new technologies like Video-on-Demand.
Problem Statement
VOD as a modern video streaming technology is going to dominate the video industry in the near future. This technology will become the norm in this growing industry, and similarly a threat to the Netflix current business model that is, an online subscription-based Digital Video Disk (DVD) rental service that is dependent on the internet for sending out the physical DVDs to their clients. An important question in this case is how Netflix should establish itself in the online video market. It is worth mentioning that any decision made regarding the issue at hand would essentially affect the company’s existing business model as well as its capability to maintain its position in the industry.
Analysis
This part of the essay presents the company’s strengths, weaknesses, opportunities, and lastly its threats. In addition, this part describes the strategies that the company has used so far. Lastly, the essay describes how this company should respond to the VOD trend.
Strengths
Netflix Inc. was the first company to venture into online Digital Video Disk (DVD) rental retailing. For this reason, it has acquired a good reputation and a large base of clients over the years. Additionally, the company has a strong and good relationship with a number of major studios, and this makes it to acquire the latest releases at a lower cost and faster (Shih et al, 3). What’s more, the company has successfully gained resources from the independent film studios and hence creating a niche in the movie market. Thus, many customers prefer the company to its competitors.
In addition, the company provides a web portal that has powerful features like propriety recommendation system, which was accurate in recommendations, because of exploiting the knowledge of selections made by the masses in its web portal and having the biggest collection of movie ratings. Its clients recommend various movies grounded on their preferences and movies availability.
Moreover, it provides a subscription service where its clients just need to sign-up and pay a monthly subscription fee for unlimited rentals. Since the company has cancelled the late fee system, its clients will now be comfortable when returning their movies late. The model that the company has adopted enables it to justify its slower delivery times as compared to a brick- and- mortar model used by its competitors. The company made the un-subscription process easy, and adopted a strategy of regaining its churned clients instead of forcing their unsatisfied clients to stay.
Weaknesses
Even though the pre-paid subscription service helped the company to gain additional customers as well as revenue, this model does not work with those customers who do not rent DVDs frequently. There will be high replacement inventory costs as DVDs might be damaged or get lost in the course of the mail transit. Additionally, the time of delivery is still a weakness for the company compared with the brick-and-mortar store such as Blockbuster (Shih et al, 7).
Opportunities
With the technological advancement, the company can effortlessly source for the infrastructure and technology to offer VOD services to its clients. Additionally, this company can evaluate the existing competitors in the Video-on-Demand market to have a harmless measure prior to entering the video market. Already the company has an infrastructure for its online clients that is, its point of contact. Therefore, this can be an added advantage for the company to change its business model to offering Video-on-Demand online. It is important to mention that the company will eliminate the problems related to inventory control like lost DVDs and damage if it adopts this new model. Furthermore, many individuals have higher purchasing power, and this is a better opportunity for the company to provide VOD to its customers.
Threats
Over the years, video streaming technologies have continued to evolve. The company management knows that VOD will soon become the most commonly method of viewing media by the public. However, the company’s management does not know when this will be. If the company continues to use its current model, it will face stiff competition from its competitors and eventually collapse.
In United States, the liberating law permits the consumers to buy a Digital Video Disk and lease it as many times as possible. However, the issue of piracy is essentially a major concern and hence a threat to the company.
Alternative approaches to the current problem
The alternative approaches for the company to venture into the VOD market include integrating the streaming online video feature into its core service, licensing the agreement where it will provide its recommendation system to the cable providers that are planning to improve their VOD services, and building separate online video business.
Each of three approaches has its costs and benefits. Integrating the streaming online video feature into Netflix’s core service will make good use of its current strengths like its recommendation system, its large market share, and its brand. However, to integrate the streaming online video feature into its core service, the company will have to incur additional costs and time since it will have to develop a big infrastructure capital outlay to provide the video content to its subscribers. In the event, if Video-on-Demand will be unsuccessful, the company will experience huge losses, and this will affect its reputation.
Through licensing agreement with the cable providers approach, the company will be in a position to avoid the technology challenge of linking the computer with TV successfully, without spending cost, effort, and time in solving the difficulty of establishing a big infrastructure capital outlay to provide video content to its subscribers. In addition, it can capitalize on the cable providers’ current infrastructure and networks to enhance their services further, specifically their core Video-on-Demand rental service. Moreover, the VOD feature that cable providers will provide will help to reduce the issue of piracy and accelerate the premium content acquisition since it does not depend on downloading. However, collaborating with its competitor will be a challenge, and this will make it lose a big portion of its VOD market share.
Through the strategy of building separate online video business, the company’s strengths and brand name will offer competitive advantages against the new entrants and current competitors like “MovieLink” and “Vongo.” With building stand-alone online video business, the company will be in a position to diversify its Video-on-Demand risks from the central business of online Digital Video Disk rental if there will be an establishment of different profit center. Nonetheless, a separate online video business needs significant network and computer support, and the company presently has to deal with the problem of limited connectivity and online content.
Works cited
Shih, Willy C., Stephen P. Kaufman, and David Spinola. "Netflix." Harvard Business School Case 607-138, May 2007. (Revised April 2009)
Lüsted, Marcia A. Netflix: The Company and Its Founders. Minneapolis, MN: ABDO Pub, 2013. Print.
