Netflix.
Intro.
Netflix was founded in August 1997. The founders were two entrepreneurs, Marc Randolph
and Reed Hastings. When it first started it was a website-based movie rental service
originally called Kibble, and after 23 years of growing the business is now worth an
estimated 150 billion dollars. Netflix headquarters is located in Los Gatos, California, United
States and it's mainly where it’s company executives and board members work. In addition,
the business has an employee count of approximately 7,100 (full time workers), and 6,900 of
those work in the company’s streaming segment (streaming segments are quite simply used
for delivery of ‘user segment memberships’ in real- time and are only used for off-site
activations) .
How is it so successful? What drives this business so hard? Did it face any negative paths?
This report will identify the way in which Netflix has and will respond to internal and external
factors.
External Environment.
PESTLE.
Political
Global political factors have a big influence on the performance of the business. Political
factors consist of factors such as tax rates, acts of legislation, trade restrictions, tariffs, etc.
Overall political factors relate to how government actions may affect existing and upcoming
businesses.
Content restrictions.
Content restrictions will have an immense impact on Netflix. Content restrictions pretty much
mean that Netflix can't offer their service in certain countries such as; North Korea, Syria,
Crimea etc. due to Government Restrictions. As a result of this Netflix has been restricted
from growing a customer base in certain countries. Overall this limits the business to how
much they can grow in the market and deducts a potential revenue which they could be
making, but a restricted to.
Censorship and permissions.
A second factor that can have an effect on Netflix is censorship and permission. If the
business did decide to operate their streaming service somewhere like China, it would have
to censor its content. It may even lead to the point where specific episodes or entire seasons
would have to be blacked out. However, places like China may even potentially remove
Netflix’s service in the long run, like they’ve done before with certain applications that Apple
have implemented in their phone since 2011. Such action will lead Netflix in losing huge
revenue, as less customers are allowed to watch their content. In the long run, this could
potentially restrict the business from certain investment spending since they have a smaller
budget to work with. All this may not seem as a huge problem, Netflix is restricted to the
amount of viewers it can get.
, Government interventions.
Lastly Netflix does see help from the government. In 2018, the business received a tax
rebate from the UK of £51,000 despite making £700 million from UK subscribers. Although
this budget may not be seen big for Netflix, it still helps them to manage certain costs in the
short run. The business may also decide to value the money as retained profit. This ensures
the business security if they ever have to pay dividends etc. As a result it could be said that
government help ‘interventions’ are useful in most cases as it pretty much helps the
business cover a certain percentage of their costs.
Economic
Economic factors are things that could influence investment value in the future. These
factors include interest rates, tax rates, laws, policies, wages and overall it’s based around
governmental decision making.
Currencies.
Weaker currencies. Netflix operates in 190 countries so their exchange rates fluctuate all
year round. This is seen as an opportunity for Netflix as the cost of recording in countries
with weaker currencies will be immensely cheaper e.g. If Netflix decided to record their own
series in somewhere like Canada, their costs of making the film would be cheaper than it
would be if it was recorded in America as the exchange rate from the USD to CAD is USD 1
= CAD 1.32444 As a result, the business can really benefit from exchange rates fluctuating,
as revenue could be grown more so than in other countries. More revenue annually means
that the business may cover their costs constantly and will also have greater profit leftover
after each expense.
Illegal torrenting.
Illegal torrenting. Illegal torrenting has been seen as a great issue, not just for Netflix but also
it’s competitors. People who don't want to pay a monthly fee for a streaming service like
Netflix know that there’s alternatives out there. Torrenting may be illegal but it certainly
hasn’t stopped people from taking advantage of it. Torrenting definitely holds Netflix back
from the potential revenue that it could be generating and customers that it could be
attracting. As a result the business still hasn’t ceased it’s potential market growth/share, and
still pays off hefty expenses that it could realistically pay off with ease and having more profit
leftover to be used efficiently.
Inflation.
Lastly inflation. Inflation is currently 2.73% in the US and has increased from last year which
was 2%. Inflation is the price level of a good and it can have major effects on people’s
willingness to spend. If the inflation rate is reasonably high in the US economy, Netflix will
soon realise that their membership subscription is really low, and this will affect the amount
of income which they will be receiving. Consequently, the business may struggle to cover
overall costs, as there's less of a budget being made. In the long run, this may potentially
lead the business into finding alternative ways to increase their revenue as they want to be
generating the same amount of revenue as before as well as survive in the market by paying
off it’s expenses with ease. A way which they might try and do this is by sacking workers.
Although this may lead to an increase in revenue, it will lower labour productivity and the
business will soon find themselves not producing as much as they used to. If this does
occur, Netflix won’t be supplying as much of their service as before and will have to increase
their prices since they have a shortage in their service. But, prices will already be
significantly high due to inflation which just leaves with me saying, inflation has a huge
impact on not just Netflix but it’s competitors as well, both in the short-run and long-run.
Although inflation is seen quite high this year, it is said to go down next year to roughly 2.1%
This may not be a major fall but will most certainly drop the prices of Netflix’s services which
they provide. To sum up, people will be demanding more of their service which will
Intro.
Netflix was founded in August 1997. The founders were two entrepreneurs, Marc Randolph
and Reed Hastings. When it first started it was a website-based movie rental service
originally called Kibble, and after 23 years of growing the business is now worth an
estimated 150 billion dollars. Netflix headquarters is located in Los Gatos, California, United
States and it's mainly where it’s company executives and board members work. In addition,
the business has an employee count of approximately 7,100 (full time workers), and 6,900 of
those work in the company’s streaming segment (streaming segments are quite simply used
for delivery of ‘user segment memberships’ in real- time and are only used for off-site
activations) .
How is it so successful? What drives this business so hard? Did it face any negative paths?
This report will identify the way in which Netflix has and will respond to internal and external
factors.
External Environment.
PESTLE.
Political
Global political factors have a big influence on the performance of the business. Political
factors consist of factors such as tax rates, acts of legislation, trade restrictions, tariffs, etc.
Overall political factors relate to how government actions may affect existing and upcoming
businesses.
Content restrictions.
Content restrictions will have an immense impact on Netflix. Content restrictions pretty much
mean that Netflix can't offer their service in certain countries such as; North Korea, Syria,
Crimea etc. due to Government Restrictions. As a result of this Netflix has been restricted
from growing a customer base in certain countries. Overall this limits the business to how
much they can grow in the market and deducts a potential revenue which they could be
making, but a restricted to.
Censorship and permissions.
A second factor that can have an effect on Netflix is censorship and permission. If the
business did decide to operate their streaming service somewhere like China, it would have
to censor its content. It may even lead to the point where specific episodes or entire seasons
would have to be blacked out. However, places like China may even potentially remove
Netflix’s service in the long run, like they’ve done before with certain applications that Apple
have implemented in their phone since 2011. Such action will lead Netflix in losing huge
revenue, as less customers are allowed to watch their content. In the long run, this could
potentially restrict the business from certain investment spending since they have a smaller
budget to work with. All this may not seem as a huge problem, Netflix is restricted to the
amount of viewers it can get.
, Government interventions.
Lastly Netflix does see help from the government. In 2018, the business received a tax
rebate from the UK of £51,000 despite making £700 million from UK subscribers. Although
this budget may not be seen big for Netflix, it still helps them to manage certain costs in the
short run. The business may also decide to value the money as retained profit. This ensures
the business security if they ever have to pay dividends etc. As a result it could be said that
government help ‘interventions’ are useful in most cases as it pretty much helps the
business cover a certain percentage of their costs.
Economic
Economic factors are things that could influence investment value in the future. These
factors include interest rates, tax rates, laws, policies, wages and overall it’s based around
governmental decision making.
Currencies.
Weaker currencies. Netflix operates in 190 countries so their exchange rates fluctuate all
year round. This is seen as an opportunity for Netflix as the cost of recording in countries
with weaker currencies will be immensely cheaper e.g. If Netflix decided to record their own
series in somewhere like Canada, their costs of making the film would be cheaper than it
would be if it was recorded in America as the exchange rate from the USD to CAD is USD 1
= CAD 1.32444 As a result, the business can really benefit from exchange rates fluctuating,
as revenue could be grown more so than in other countries. More revenue annually means
that the business may cover their costs constantly and will also have greater profit leftover
after each expense.
Illegal torrenting.
Illegal torrenting. Illegal torrenting has been seen as a great issue, not just for Netflix but also
it’s competitors. People who don't want to pay a monthly fee for a streaming service like
Netflix know that there’s alternatives out there. Torrenting may be illegal but it certainly
hasn’t stopped people from taking advantage of it. Torrenting definitely holds Netflix back
from the potential revenue that it could be generating and customers that it could be
attracting. As a result the business still hasn’t ceased it’s potential market growth/share, and
still pays off hefty expenses that it could realistically pay off with ease and having more profit
leftover to be used efficiently.
Inflation.
Lastly inflation. Inflation is currently 2.73% in the US and has increased from last year which
was 2%. Inflation is the price level of a good and it can have major effects on people’s
willingness to spend. If the inflation rate is reasonably high in the US economy, Netflix will
soon realise that their membership subscription is really low, and this will affect the amount
of income which they will be receiving. Consequently, the business may struggle to cover
overall costs, as there's less of a budget being made. In the long run, this may potentially
lead the business into finding alternative ways to increase their revenue as they want to be
generating the same amount of revenue as before as well as survive in the market by paying
off it’s expenses with ease. A way which they might try and do this is by sacking workers.
Although this may lead to an increase in revenue, it will lower labour productivity and the
business will soon find themselves not producing as much as they used to. If this does
occur, Netflix won’t be supplying as much of their service as before and will have to increase
their prices since they have a shortage in their service. But, prices will already be
significantly high due to inflation which just leaves with me saying, inflation has a huge
impact on not just Netflix but it’s competitors as well, both in the short-run and long-run.
Although inflation is seen quite high this year, it is said to go down next year to roughly 2.1%
This may not be a major fall but will most certainly drop the prices of Netflix’s services which
they provide. To sum up, people will be demanding more of their service which will
