Introduction
Netflix is an American multinational corporation (MNC) that has its headquarter In California at Los Gatos (Canady, 2017). Its founders are Marc Randolph and Reed Hastings who founded it in 1997 (Canady, 2017). The firm’s primary business is its subscription-based streaming video-on-demand that offers a great variety of television and film programs. It also produces and distributes original television series and films exclusively. The initial business model of the organization was DVD rental by mail and sales. A year after its foundation, Hastings began to focus on rental DVD business (Goetz, 2016). In 2007, Netflix expanded its business by introducing streaming media but retaining its rental services. It is in 2010 that the organization expanded to Canada, leading to the first step in its global dominance (Goetz, 2016). Currently, the company operates in over 190 countries except for Crimea, North Korea, Syria, and Mainland China (Canady, 2016). Although the primary strength that Netflix has is the amount of content available in all genres, its two main weaknesses are international market regulations that limit its international profitability and its declining DVD membership.
Netflix Business
Netflix products include video-on-demand and film production. Its services are television production, film distribution, and film production. As by 2017, its average revenue was $11.692 billion while its operating income was $839 million (Canady, 2017). Its average net income was $559 million, and its total assets were $19.013 billion (Canady, 2017). Its total equity by 2017 was $3.582 billion (Canady, 2017). The company has over 5,400 employees (Canady, 2017). The one strategy of the organization has is to continue growing its subscription business both internationally and domestically. According to Frey (2015), Netflix developed an ecosystem of internet connections that include mobile devices, computers, and televisions.
Furthermore, it aims at increasing its content amount and improve the experience of users. It has over 54 million members in the whole world with statistics showing that it will continue to increase its membership in the coming years (Canady, 2017). Since the market base for internet client consumers is growing globally, it will continue to expand internationally. It is the reason why its main strength and opportunity is the amount of content that it has, leading to its increasing consumer base. Muzumdar (2014) also points out its excellent marketing strategy, intuitive platform, positive brand image, evolving technology, and great customer service.
Weaknesses
Netflix has many weaknesses and threats. One of them is the international regulations that limit its global success. There are also high programming costs, cultural and political censorships, high global unemployment, especially in international states that limits its subscriptions, high rates of inflation, and competitors such as YouTube and Google (Muzumdar, 2014 and Frey, 2015). However, the two primary weaknesses that Netflix has are the declining memberships of its DVD section and the fact that international laws and regulations limits its profitability in international business.
According to Goetz (2016), in recent years, the firm’s domestic DVD rental operations declined significantly. The reason being, online streaming became more important than it. Before the middle of 2011, DVD by mail and streaming were a single business operation where its members received both offerings. It was a hybrid plan. When it separated them and made it a necessity for members to have both the two offerings, it led to a decrease in its original business plan. Statistics show that DVD rental service membership declined to only 5.9 million members from the initial 11 million by 2014 (Frey, 2015). It is expected that the reduction of membership will continue further. The result will be significant losses to the organization which will affect its operations.
There is no doubt that Netflix’s revenue growth was dramatic in recent time. However, its global presence and growth remain a grave problem because of the international regulations. Different nations have different laws and regulations about film and television. It is the primary limiting factor for Netflix. In 2013, the total loss for international business that the firm experienced was $274 million (Frey, 2015). In the first nine months of 2014, its losses totaled $81 million (Frey, 2015). By the end of 2015, its losses totaled $95 million. The reason for these losses were the international regulations that limit the company’s growth.
Between 2015 and 2016, there was a drastic decline in the losses due to growth in global subscribers (Goetz, 2016). Nonetheless, with its expansion into the European market, there are fears of more losses than before due to the increase in expenses. In the same school of thought, there were changes in European law that will make it pay higher Value Added Tax (VAT). As it makes an effort to expand further into global operations, it is expected that the losses will increase. The result will be a constraint in profitability in the next few years. The reason being that the firm prioritizes its long-term performance over the short-run. It must identify a way to deal with its losses. It will reduce its uncertainty in the near term.
Conclusion
Netflix is an American multinational corporation (MNC) with two primary weaknesses. The first one is the declining membership of its DVD rentals. The reason for it is because it divided its business operations. The second primary weakness that the firm has is the international laws and regulations that limit its operations, hence profitability. As it continues to expand globally, it will experience loses it the short run because it focuses on the long run strategy. Despite experiencing these weakness and many other threats, it has significant strengths and opportunities. The firm will be able to implement solutions for the losses that it continues to have.
- Canady, V. (2017). Netflix series prompts need for conversation, information. Mental Health Weekly, 27(17), 4-6. doi: 10.1002/mhw.31018
- Frey, M. (2015). Netflix Crit in the Twenty-First Century. Film Criticism, 40(1), 119-188. doi: 10.3998/fc.13761232.0040.111
- Goetz, D. (2016). Broadband Mergers and Dynamic Bargaining: An Application to Netflix. SSRN Electronic Journal, 44(17), 93-146. doi: 10.2139/ssrn.2847861
- Muzumdar, P. (2014). From Streaming Vendor to Production House: Netflix SWOT Analysis. SSRN Electronic Journal, 24(78), 1-21. doi: 10.2139/ssrn.2377151
