Netflix - Strategic Plan

Netflix.com - Strategic Plan

Netflix is the world’s largest online entertainment subscription service, providing more than U.S. 4 million customers with access to over 100,000 DVD titles. Netflix’s business is renting DVD titles on a subscription basis, with different plans ranging from $9.99 a month to $47.99 a month. Nearly 95% of Netflix subscribers are within a one day ship point, which means most customers will receive the movies within one day of ordering. Their deep movie selection, personalized recommendations, and quick delivery have made Netflix the top-ranked Internet company in customer satisfaction, which has driven rapid growth in subscribers, revenue and earnings (Netflix, 2008).

Netflix started out as a regionally based online movie store in 1998, servicing the San Francisco Bay Area. Their initial model was similar to ground based movie rental companies, such as Blockbuster and Hollywood Video, offering movie rental for a per-unit fee and charging late fees when necessary. The companies first year of operation resulted in a loss; expenses were far greater than revenue and it was clearly time for change.

Following the first year’s dismal financial results, with their knowledge of the video rental business and it shortcomings Netflix decided to change its business model. The traditional video rental business was based on the customer selecting videos to rent, for a predetermined period of time, and paying a set rental fee for each of the videos rented. This model inherently created late fees because customers either forgot to return the videos or they became too busy and didn’t have time to return them. Late fees are an additional revenue stream for the rental companies but it was a point of aggravation for the customers.

In 1999 Netflix saw an opportunity to eliminate both the rental fees and the late fees and implemented a subscription service. For a reasonable monthly membership fee a customer can rent a number of movies and keep them for an undefined period of time. The customer can rent more movies when the first set is returned. This model eliminates late fees altogether.

Netflix also renegotiated with Hollywood to accelerate access to recent titles; which gave the company an advantage over the traditional video rental companies. Additionally, Netflix expanded the functionality of its website, and changed its strategic marketing objectives toward becoming a nationally recognized online brand name.

The Business Opportunity

Netflix has been an innovator since the company began and it has initiated new business models and entered new distribution channels well before its completion. The company is not only and innovator, but it is also a strong market leader. Netflix’s next innovation and newest opportunity is digital delivery of movies and television programs downloaded to subscribers’ PC’s.

The public is becoming more comfortable with e-commerce and downloading computer software and music from the Internet. Digital delivery of movies is the next logical step for the home entertainment product industry. Digital delivery of movies should follow the same success experience by the software and music industries.

The Vision

Digital delivery marks an important enhancement to the Netflix service. Its customers will continue to receive movies by mail from their vast catalog of over 70,000 titles and will have the additional option of instantly watching movies and TV series on their PCs. The new feature will be included in subscribers' monthly membership plans at no additional cost (MovieWeb, 2007). Netflix rolled out the new service by offering 1000 titles and expanded the digital catalog over time as licensing for electronically delivered movie rentals widened. Currently, Netflix offers 10,000 titles for digital delivery.

Netflix’s immediate viewing feature differs from other services in that it does not require time consuming file downloads. The new service uses streaming technology to allow the user to watch the movie as it is being downloaded. The new service will require a one-time installation of a browser applet which should take less than one minute. Once the applet is installed movies can begin playing within 30 seconds after the rental is imitated. Additionally, the movie can be paused and restarted at the user discretion, and the digital delivery service only requires a minimum of one megabit per second of bandwidth. The more bandwidth a user has higher quality the video displayed (MovieWeb, 2007). A 3 megabit connection will provide almost DVD quality video.

Netflix believes its mail-based Internet rental business will continue to grow, taking market share away from its competitors, such as Blockbuster. Since the public has embraced