In 2012 Netflix was challenged to change its strategy, because it registered severe drop in its total revenues, market share and rates, risking continuous depreciation and increased subscription cancellations.
- Develop strategic partnerships with production studios for obtaining exclusive streaming rights;
- Developing strategic partnerships with internet providers for proposing an add-on to the internet service for the provider’s internet users simultaneously in United States, United Kingdom and Ireland.
The recommended strategy is to close deals with internet providers, as it would have been easy to be implemented, implying limited budgets rapid synchronization of technologies and the so-gained clients could have been attracted for full subscriptions directly with Netflix.
The implementation stage would imply pitching the offer to internet providers through Netflix sales agents, developing the contractual agreements, creating marketing campaigns for promoting the partnership and the new Netflix streaming possibility. The implementation would also imply developing a data basis for the movies to be streamed through this service and signing up new deals with new customers. Limited financial investment, available technologies, human resources and a brief timeline would make this strategy possible.
The year 2013 was a decisive one for Netflix, which had to redefine its business strategy for repositioning itself on the online streaming market, after the sudden fall registered in the previous years, due to unsupportive strategies. The company had to reinvent itself, by employing the available technologies and market trends into its business strategy. By rightfully and creatively optimizing the available resources and by expanding into new territories, Netflix successfully repositioned as the leader of the streaming market, increasing its stock value and coming back strong from its recent fall.
After experiencing significant losses due to its strategy of separating the DVD by mail service from the streaming service and increasing the price for both services with around 60% (Thompson, 2012), Netflix’ leadership position on the online rental movies market was severely threatened. The company needed to reinvent itself, finding new strategies to gain back its customers, its reputation and the investors’ trust.
Reed Hastings, the company’s CEO pursued the brand’s international expansion, despite the visible losses. Entering new territories was not as profitable as expected and the investment did not generated immediate ROI. On the contrary, this costly move only produced further decreases for in the new subscriptions to the company’s services in United States, while many of its customers were cancelling their subscription due to the high pay rates for its services.
In 2013 Reed Hastings reinvented Netflix’s business model. It approached the movie industry from a holistic point of view. Not only did it continue providing the same services (without limiting, or encouraging the DVD by mail service), but it created its own highly popular series, such as “House of Cards” or “Hemlock Grove”, initiating the backward integration model (Cohan, 2013; Marketwatch, 2013).
Another successful business strategy that Netflix approached in 2013 for gaining back its market share and increasing it, while winning back the investors’ trust, was to re-think the worth of its services, in a strategic and creative manner. As such, the company introduced a new subscription option that allowed four simultaneous streams by sharing the password for its video streaming service, for $11.99, in addition to the existing $7.99 available for two simultaneous streams (Cohan, 2013).
Other options for revitalizing its situation from 2012 would have been to develop strategic partnership with production companies, for exclusive rights to stream the produced movies to its clients. Like this, Netflix would have been the sole beneficiary of the movies produced by specific production houses and the clients would have only two options for viewing the movies: either going to theaters or streaming the movie by subscribing to Netflix.
Another possible solution that Netflix could have adopted would have been to safeguard strategic partnership with big internet providers, for including in the internet package an additional service, of streaming a limited number of movies, for additional payment. For instance, for $3 extra to the regular internet subscriptions, the users could have received the Netflix add-on for streaming 10 hours of movies or series on a monthly basis.
Developing a strategic partnership with an internet provider for including a Netflix add-on for streaming 10 hours (or a limited number of movies) on a monthly base for $3 per month is the recommended alternative for Netflix. While continuing servicing its current subscribers through the available packages, Netflix could have increased the number of its subscribers and its market share. The strategy could have been implemented domestically, in United States, and in other countries that the company approached internationally, with good internet speed, such as United Kingdom or Ireland, in parallel. The strategic partnership, in this case, would have had to be signed with different internet providers, in each country. The strategy could have been further implemented in other countries wherein Netflix reached with its expansion, if the results in the “test countries” would have been good. This strategy would have been effective, as it would have not implied a significant investment from the company’s side, but it would have guaranteed growth, as the clients would have been eager to pay a small fee for a limited number of free movies from Netflix on a monthly basis. Moreover, the customers that would have paid only $3 for Netflix service through the internet providers, could have become full clients, by later subscribing directly to Netflix for the full, unlimited streaming package.
Searching for internet providers for developing the above mentioned strategic partnerships would have been the first thing the company had to do. Sales people should have been trained to explain the advantages for both parties. Practically, the internet providers would gain more new subscribers, or older subscribers could have renewed their contracts, attracted by the Netflix-included offer. A marketing campaign should have been deployed for promoting the new Netflix deals available in partnership with the selected internet provider. A technical team would have had to harmonize the technological requirements and to select the movies available for streaming through the internet provider, creating movie data basis for each country wherein this model would have been implemented.
The financial involvement would have been limited, as the company would have had to pay fees to the production studios for streaming the movies. The agreement with the internet provider would imply no financial involvement from either side to one another, as the benefits of the collaboration would have been mutual.
As fort the time component, implementing this strategy would require negotiation time, marketing the partnership, synchronizing the technologies and signing the deals with the new clients.
Cohan, P. (2012) How Netflix reinvented itself. Retrieved from http://www.forbes.com/sites/petercohan/2013/04/23/how-netflix-reinvented-itself/.
Marketwatch (2012) Netflix original – content strategy working. Retrieved from http://www.marketwatch.com/story/netflix-original-content-strategy-working-2013-04-22.
Thompson, A.A. (2012) Netflix in 2012: Can it recover from its strategy? Alabama: University of Alabama.