Innovation refers to a process through which a company adds extra value to its existing offerings. The following report is based on Netflix, Inc. which is an American firm situated in Los Gatos, California. It is a media-services provider and one of the biggest companies in entertainment industry. The purpose of this report is to enhance the understanding about the concept of innovation in this company. It involves the organisational overview and an insight on its innovation history, its existing innovations as well as capabilities and current developments in entertainment industry.
The Organisation And Its Innovation History
In 1997, Netflix was found in Scouts Valley, California. It was set up as a start-up company with an idea to provide movies on DVD on rent through internet. This concept of internet and DVD was new at that time. PESTLE Analysis could be effectively performed to determine the role of innovation in shaping up the firm from a standard rental company to a global leader in the entertainment industry. It would help to identify external environment pointers which had an impact on the innovation happened in the firm (Stewart, Khare and Schatz, 2017).
Political- Back in the day, there were abundant DVD firms present in developed nations like the US and the UK, who sold pirated movies to their customers. The government and federations made strict policies against these contents to protect the original work of the film makers. To fight piracy, the firm launched its website “NetFlix,com” in 1998 to provide authentic content (What Netflix looked like when it first started out - and how it's changed over the years, 2018).
Economical- The economic environment of countries like the US and the UK helped to bring innovation in Netflix. The growth rate of both the countries in 1999 was 0.3% and 0.1% respectively (GDP Growth (annual %), 2018). The economic environment of these developed countries was stable as well as there was a growth in international market which helped the firm to innovate its standard methods and launch the subscriber model which allowed viewers to pay a standard price for subscription and enjoy their favourite movies free for a month.
Social- Netflix by 2014 established itself as a market giant. It was preferred by customers all around the world who wanted to watch quality content easily. Its subscribers increased by the end of 2013 to 44.35 million after the firm rolled out its first original series, House Of Cards (Netflix now has nearly 118 million streaming subscribers globally, 2018). More people from national and international market started to get attached from the firm as it built its app and enabled video streaming which enabled customers to save downloading and ordering time and see the content instantly when desired.
Technological- Netflix, Inc. is one of the most technologically advanced firms present in the world. In its shows like Stranger Things, Mr. Robot and so forth, it has enhanced the visual techniques used in film making. The impressive use of Visual Effects (VFX), sound qualities and 4K technologies, its shows are standouts from what the viewers have actually been viewing. Moreover, “Hermes” is a software developed by its R&D labs which grades a translation of its shows automatically which would expand its market in further nations (Netflix PESTEL Analysis, 2017).
Legal- The firm is currently strengthening its legal structure by innovating the methods of providing its services. In 2016, the firm used innovative technique to block Virtual Private Network (VPNs) because of restrictions in local and international law. Such restrictions won't allow the non-subscribers to evade and view the copyright and censored contents which are banned in their specific countries (NETFLIX, 10 INNOVATIONS THAT CHANGED THE WORLD, 2018).
Environmental- Netflix, Inc. has been very concerned about the environmental impact on its business. It knows how carbon footprint and deforestation are one of the major concerns for global warming, Users can surf the website for 30 minutes and could save more energy spent on delivery of a DVD. In addition to this, the firm has access to various online novels in exchange for a subscription fee. Depleting environment is a driver for innovation in the company to innovate new methods which could contribute in its improvement.
Industrial attractiveness of Netflix, Inc. on the basis of its innovations could be accurately determined by Porter's Five Forces Model which is discussed as under (Herber, 2018):
Supplier Power- During its inception, the suppliers, content proprietors in case of Netflix, were limited. This provided more bargaining power to them over the firm. Currently Netflix is producing its own TV shows and movies, for instance Narcos and 13 Reasons Why which gives the firm complete power over the suppliers and reduces their bargaining power.
Buyer Power- The bargaining power of buyers around 2000 was high due to presence of different DVD rental firms. However, after 2013, this bargaining power has witnessed a substantial reduction due to the original content being produced by Netflix like Black Mirror and Sacred Games which can be viewed only by its subscribers (Porter, 2018).
Threat of substitutes- When the company had its website to view online content, it was a new innovation and only few companies were present in the market. This made threat of substitutes low. Since company produces limited original content and the range of outside content is high, this makes the threat of substitutes higher with presence of other service providers like iFlix and Hulu. These threats are a driver for innovation in Netflix to keep bringing something new in the market.
Threat of new entrants- It was very costly back in the day to enter the entertainment industry which made this threat of new companies entering the market low for the firm. The industry currently is expanding on a wide scale and there are new firms entering the market constantly. This increases the threat on Netflix as these firms analyse the preferences of the customers well before entering the market. It is also easier now for the firms to enter as awareness about the operations in industry has increased as compared to the past.
Competitive Rivalry- The rivalry of the firm has been always high with presence of companies like Block Buster in the market. Even today, companies like Amazon is delivering similar services and is capturing the market on a wide scale which is a major driver for innovation in the firm.
Netflix- Innovation Performance And Capabilities
Netflix Inc. is one of those firms which sets an example for the competitive as well as other companies of the world in terms of innovation. The changes implemented by the firm in terms of its services, content and subscription policies are followed by other firms as well.
This existing performance of the firm in terms of innovation is very impressive. Netflix, Inc. was the first company which adopted Virtual Reality in 2015 (Netflix is taking a wait-and-see approach to virtual reality, 2018). Viewers could get access to a virtual space through a Gear VR which would allow them to grab a 360 degree view of the content they are viewing. Even after presence of competitors like Hulu, the firm is constantly increasing the customers through its innovative approaches and contents. All the major innovations in the entertainment industry are somewhat related to Netflix. To enhance its capabilities however, the firm could innovate its services to connect more from the customers. One such innovation can be Netflix U, a premium service given by the company that would enable the viewers to shape up the content they are watching. They will be given a choice during the middle of the episode with two alternatives which would allow the customers to choose the most desired option. This would be a breakthrough and would completely eradicate the concept of “IF”. It is very important that the company perform a development audit for which SWOT Analysis could be effectively used. It would also help the firm to determine the existing innovation performance of the firm (Muzumdar, 2014).
The biggest strength of the firm is that its a global leader in streaming services. It is experiencing constant rise in its subscribers and is still preferred by many users who keep testing other alternatives of the company like Amazon Prime. The key strength of the company is ''advertisement free content'', Netflix provide no-break viewing of desired content available on Netflix. These are few points which would really benefit Netflix U after its launch as customers trust the brilliance in the content provided by Netflix.
The cost incurred to develop movies and TV shows is incredibly high at Netflix. The company invested $2.5 Billion just to get the rights of its original content in 2017(SWOT Analysis Of Netflix, 2018). High cost of operations means put additional burden on profit. Another weakness of Netflix is their source of income. They are solely dependent on subscription fees which will always remain biggest risk in their business. It has also been relying on its original TV shows and movies to get viewers attention. Not all content perform great which reduces the trust viewers have on the firm. This weakness would affect Netflix U because even after the power given to the customers, viewers would judge the content rather than the concept.
Netflix's biggest opportunities is the inclination of the viewers on the online content available on the internet. These viewers seek something new every time they surf the internet. This can act as a driver for innovation in the company and will be an opportunity for Netflix U as well. This is because it is a totally new concept which would, in a way, turn the viewers into their own storytellers. Another opportunity for the company Is the efforts of its R&D divisions in the segment of language and technology (Jackson, Joshi and Erhardt, 2003). New concepts about science, AI, alternate realities, and so forth are being thoroughly examined and presented to the audience in various languages which will increase the number of customers in regional as well as international market.
The state of competition in entertainment industry is getting fiercer with time. More firms like Facebook, HBO and YouTube are creating their original content which are being acknowledged worldwide. This is a constant threat Netflix faces and also is a major driver for innovation. The content available on Netflix U must be innovative and according to customer preferences so that it benefits the market of this new service.
Entertainment industry all around the globe is evolving on a rapid scale. The reason is due to new and innovative advancements in technology. With rise in Augmented Reality (AR) and Virtual Reality (VR), the industry is modifying itself to enhance the visual experience of its audience. There are major trends that have shaped the industry recently. The major trend was use of IMAX technology to make movies and TV shows. Audience can view the content in 4K resolution which has enhanced the use of animation and VFX in movies, TV shows, and even in advertisements. Another trend was introduction of 4G technology which made streaming of videos even better. VR Gears are paving the way for the customers to experience a magnanimous outlook at the content they view.
Netflix officially overtakes Disney in terms of valuation with its market value of more than $150 (For a moment, Netflix was worth more than Disney, 2018). This has improved the firm's competitive position in the market which helped the firm to increase its number of customers. Currently, telecom companies are working on 5G which would cause evolution in watching content online. To regain the customers, firms are applying different marketing techniques to influence customers to view the content. They are penetrating new markets with new products and services. Netflix, for instance, has entered India recently with its original content like Sacred Games and Ghoul, which was purely based on the culture and concepts that attract Indian public. There are developments been made in the industry regarding the content as well as technology with a view to give a spectacular experience to the customers all over the world.
Thus, it is concluded by this report that innovation has the integrity to make firms competitive and sustain intense competition in the entertainment industry. Organisations' external environment could influence the innovation happening in a company. Porter's five force could effectively enhance the industrial attractiveness of an organisation if the strategies developed are in the favour of the firm. Lastly, SWOT analysis could strengthen the firm internally and help in successfully removing the weaknesses and grabbing the opportunities. Innovation in entertainment industry could maximize the experience of the viewers and could evolve the concept of evolution.
- Herber, Y., 2018. An overview of Netflix. Publications Oboulo. Com.
- Jackson, S.E., Joshi, A. and Erhardt, N.L., 2003. Recent research on team and organizational diversity: SWOT analysis and implications. Journal of management. 29(6). pp.801-830.
- Muzumdar, P., 2014. From Streaming Vendor to Production House: NETFLIX SWOT Analysis.
- Porter, M.E., 2018. On competition. Harvard Business Press.
- Stewart, B., Khare, A. and Schatz, R., 2017. Disruptions: Truth and Consequences. In Phantom Ex Machina (pp. 299-315). Springer, Cham.