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Netflix SWOT Analysis

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Read a SWOT analysis of Netflix – leading brand of online streaming movies. The article highlights the strengths, weaknesses, opportunities and threats of Netflix.

Introduction

Netflix has grown famous around the globe as an online entertainment company. While the brand had to initially struggle a lot to build a strong position in the internet industry, in recent years, it has seen its customer base and revenue rise very fast.  Today, it is the world’s leading internet television network with services available in more than 190 countries. The number of Netflix paid memberships has grown to past 139 million in 2019. Consumers from around the globe enjoy TV series, documentaries, feature films and Netflix original content across many internet enabled screens and devices.

Apart form a user friendly interface, the company offers content in HD and UHD. To further differentiate its offerings from the competitors, the company is investing in the creation of original content. However, there are challenges ahead as its services compete wth that  of many other online brands. Technological innovation also brings challenges since the competitors are striving to make their products more and more engaging.  

SWOT analysis of Netflix analysing the Strengths, Weaknesses, Opportunities and Threats before the online streaming business.

Strengths :-

Brand equity :- One of the primary strengths of Netflix is the strong brand equity it has built over time. It is among the most trusted brands in the internet television network segment. Continuous focus on customer experience and enter service has resulted in high level popularity, trust and customer loyalty. High brand equity has also led to higher sales and revenue. The company is enjoying fast growth in customer base despite fears that the US market was nearing saturation. Overall, Netflix is enjoying the consumers’ love and support which is very good for its long term future.

Original movies :- Netflix offers a very large collection of original movies, documentaries and video content series. The focus on creating original content despite the high-level investment is because it is helping the brand create a highly differentiated experience and grow its popularity in US as well as overseas markets. While the original content s more popular among consumers around the globe, it also helps reduce competitive pressure. Netflix is trying to differentiate its brand from the competitors to stand out from among the crowd of online entertainment services. 

User interface :- One of the main reasons behind the popularity of the Netflix platform is its customer friendly, easy to use and technologically advanced user interface. Netflix has a technologcially advanced and intuitive user interface which is tailored to the personal taste and usage of the users. It offers suggestions based on the users’ choice and is easy to use as well as attractive. This is also  reason that viewers like watching shows on Netflix. 

large user base :- In the recent years, the user base of Netflix has grown very fast. In 2017, its user base totalled around 117 million. It has now risen to past 139 millions in 2019. This has happened at a time when everyone was expecting that the US market was nearing saturation and Netflix had options to grow only in the overseas markets. However, Netflix expects to further grow its user base in US in the coming years. A large and loyal user base is one of the major strengths of Netflix. Growth in use base has led to growth in revenue and profits.

Global presence :- Netflix started expanding globally in 2016. Within just a few years, its network and parsec has grown to more than 190 countries from where more than 139 million users watch its shows and movies. Apart from being accessible on any internet enabled device, its shows can be watched anytime from anywhere as well as paused and recorded or saved for later viewing. Its global expansion has led to very fast growth of the total user base which is now closing 140 million overall. 

Fast growing company with an excellent culture :- Netflix is an innovative and fast growing company that is enjoying high level popularity throughout the world. The company has seen its revenue and customer base grow faster in the recent years. It has established an excellent culture which is one of the major strengths for any technology brand. Any technology brand needs an excellent culture to find faster growth and mot be productive. Peat from hiring productive staff, Netflix has also established a culture of innovation that helps maintain a productive and inclusive environment.

Weaknesses :-

Huge investment and operating costs :-

The focus of Netflix has remained on providing outstanding services to its consumers all over the world. To differentiate its products and services from its competitors it has focused on creating more and more original content. While this has led to growth in popularity and demand, producing original content is overall a lot more expensive than licensing. This has led to higher operational costs. Moreover, due to the growing user base and competition investment in marketing as well as research and development has also grown causing the operational costs to rise further. This is leading to lower profits despite higher revenues.

Dependence on the US market :-

US is the largest market for Netflix. Its domestic streaming segment generates the highest revenue of all the business segments. However, its revenue from international streaming segment has grown due to growth in the overall customer base from around the world. The domestic streaming segment generates more than 50% of its total revenue. this leaves the brand highly dependent on the USA market. Moreover, a stronger dollar means reduced profits from overseas markets.

Opportunities:

Growing internet usage globally:- 

The number of internet users around the world has kept growing. Since Netflix delivers its services through the internet, this is a profitable trend for the brand. With internet growth, it becomes easier to access Netflix shows for users. They can watch Netflix shows and movies from anywhere on any internet enabled device. rapid expansion of 3G and 4G and their availability around the world have led to growth in the number of total Netflix memberships in the recent years.

More low cost plans :-

While the number of international users of Netflix has grown in recent years, the main hurdle to making its services more accessible is the pricing. Its HD and UHD plans are costlier than the normal plan. It is why lower-income consumers may not be able to access the HD and UHD content. Netflix can expand the number of choices its users have as well as its number of users by making its plans more affordable. This will also help it find new customers from the middle-income and lower-income segments. 

Local content for emerging markets :-

Emerging markets can be a major source of revenue for Netflix. These are fast growing markets and offer a large audience which can help Netflix increase its revenue. The brand should seek to grow its customer base in the emerging markets and Asian markets like India and China. By creating local content for these markets it can attract local customers from the emerging markets in larger numbers.

Invest in R&D:-

Research and development is important for any technology business. Internet companies like google and Facebook invest  large sum each year on research and development. As the customer base and profits of Netflix grow, the brand might be able to invest much more in research and development.

Threats:

Competitive threat :-

Competitive pressure on Netflix is very high. It is because apart from the video streaming sites, the social media and gaming sites that offer online entertainment services are also important competitors of Netflix. Amazon Prime, Hulu as well as YouTube which has also started offering streaming movies are among leading competitors of Netflix. However, apart form these Facebook, Twitter and other social media channels also pose competitive threat. The rival brands like Amazon invest large sums in research and development and any disruptive innovation by these brands could lead to loss of customer base and market share for Netflix.

Regulatory threats :-

Regulatory threats for technology brands and particularly the internet companies has kept growing. Apart from user privacy and data security there are several more areas where these brands are facing higher compliance related pressures. Governments and legal agencies are tightening the noose around the internet companies since the Facebook data scandal. Technology industry itself is facing heavier pressure on growth due to increased oversight and regulation.

Economic fluctuations :-

Economic fluctuations are also hurting the revenue and profits of Netflix. Apart from a stringer dollar, economic fluctuations in key markets can hurt revenue growth and profits. US is its biggest market. While US is enjoying  impressive levels of economic activity, the situation is not the same across the entire globe. Economic declines can lead to educe consumer spending and can reduce revenue and profits.

Conclusion:-

Netflix is fast-growing online entertainment company with a global presence. It has seen rapid growth  and expansion since it started global expansion in 2016. The company is enjoying revenue growth and delivers its services across the globe in more than 190 countries. The number of memberships has grown past 139 million in 2019 and Netflix expects it to grow higher in the coming years. However, there are several challenges ahead in the Netflix and apart from the video content streaming websites, there are more sites including social media and gaming sites that pose a competitive threat before Netflix.

The company is trying to differentiate its services further from its rivals by creating more original content. However, this has also led to growth in investment and operating expenses. However, USA which is its largest market is enjoying strong economic activity and accounts for more than 50% of its revenue. Based upon its current position, Netflix can be expected to sustain its growth rate in the coming years.

  • Sources:
  • Netflix annual report 2018.