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Netflixs Strategy In 2018 Does The Company Have Sufficient Competitive Strength To Fight Off Aggressive Rivals? Case Solution

Solution Id Length Case Author Case Publisher
1794 4163 Words (16 Pages) A. Thompson The University Of Alabama
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Netflix is a company operating in the Internet streaming industry for entertainment content. During the last decade, the Company has faced exponential growth in its revenues and subscriptions, which has made the Company the global leader in entertainment content, with the largest content library. However, due to its heavy reliance on third party content, it has spent multi-billion dollars on original content, thereby harming its cash flows and financial position. The Company has spent heavily fighting its competitors. Furthermore, it can be seen that Netflix faced serious issues and barriers in its strategy of international expansion to broaden its market share around the globe. To make things better, three solutions have been proposed. Firstly, Netflix can diversify and enter into music segment to reduce its costs being incurred on publishing original content for the viewers as a means to achieve product differentiation, when compared with its competitors. The other recommendation is that Netflix can collaborate with the cable TV operators to provide its viewers with a broader content of live matches, as this would help target a completely different segment which, Amazon Prime has already targeted and used to grow its viewership base. Thirdly, it was proposed that Netflix enters into alliances with its small competitors in the industry and consolidate its position. Based on the resources and the current business model of Netflix, the most viable solution that has been recommended is to form alliances with its comparatively smaller competitors, which would give the company an edge over its bigger competitors, and some space to manage its cash flows, expenditures, and debt levels. The analysis has been further supported by the external and internal business environment analysis using different models. These include PESTEL analysis, SWOT, Porter's Five Forces, Industry Analysis, Financial factors and many other models used to evaluate the position and the key strengths of Netflix that would help it materialise and consolidate its position in the industry and strategize in the face of ever-growing competition and rising costs.

Following questions are answered in this case study solution

  1. Executive Summary

  2. Introduction

  3. Issue 1: Problems in International Expansion

  4. Issue 2: Growing Debt and Expenditures

  5. Issue 3: Heavy Reliance on third-party Content providers

  6. Recommendation 1: Diversification

  7. Recommendation 2: Create Alliances

  8. Recommendation 3: Pairing up with Cable TV

  9. Final Recommendation

  10. Conclusion


  1. ​PESTEL Analysis

  2. Five Forces Analysis

  3. Value Net Analysis

  4. Driving Forces Analysis

  5. Strategic Group Map

  6. Competitor Analysis

  7. Key Success Factors and Industry Outlook

  8. Financial Analysis

  9. Resources and Capabilities Analysis

  10. Weighted Competitive Strengths Assessment

  11. Value Chain Analysis

  12. SWOT Analysis

  13. Current Strategy

Case Analysis for Netflixs Strategy In 2018 Does The Company Have Sufficient Competitive Strength To Fight Off Aggressive Rivals?

2. Introduction 

Netflix is the world’s leading digital entertainment service provider with a large number of paid subscriptions from all over the world. It is a streaming service that allows the subscribers to watch different content, be it movies or TV shows, sitting in the comfort of their homes. However, more and more competitors are entering the market, making the business landscape very competitive. 

The report analyses Netflix Inc.'s strength to fight off aggressive rivals. The first part of the report focuses on the issues that the company is currently facing with respect to its competitive position. These issues arise out of the company's internal strengths and weaknesses, and the external factors that affect it negatively and positively. The second part highlights a number of solutions that the company could adopt given its current situation and then picks out one recommendation that is best suited to the company and makes the most out of its strengths and opportunities available. The third part of the report are appendices that highlight the whole business case. They are divided into two parts; internal and external. The internal analysis focuses on the company's financial strength, its strengths and weaknesses, available resources, strategy, etc. and the external analysis focuses on the position of the market, competitive analysis, industry and economy position, etc. The report then uses these to make a final recommendation.

3. Issue 1: Problems in International Expansion 

Netflix is a global Company with presence in more than 130 countries, as explained in Appendix L. Further, as stated in Appendix M, its long-term business strategy is to undertake global expansion. However, the Company has been facing political issues when it comes to expansion. In China, Netflix faced several barriers when trying to expand into China, the world's most massive entertainment market. (Appendix A) The Chinese government had refused to give license to Netflix, as they wanted to control the content that the residents would see. Apart from the censorship issue, they also wanted to protect the local content providers from foreign competition. Further, the U.S government-imposed restrictions on U.S based countries from entering into some of the markets, such as North Korea, Syria, etc. Netflix is now facing problems with global expansion, which is one of its key success factors, as explained in Appendix G. political reasons and restrictions from certain countries has prevented Netflix from expanding further.

4. Issue 2: Growing Debt and Expenditures

To deal with existing competitors like HBO and Amazon, and to protect itself from new entrants like Walmart, as explained in Appendix B, Netflix enhanced its focus on original content creation, which is now one of its key success factors (Appendix G). However, this has resulted in increased expenditure and increased operational costs, and Netflix is taking on more and more debt to cover its negative operational cash flows, as shown in Appendix H. Netflix has spent multi-billion dollars on new collaborations and original content, which has left the company with negative cashflows. However, as the content is one of Netflix's value-adding players as per Appendix C, it has no choice but to continue spending on value addition.  Moreover, the Company's strategy is cost leadership and differentiation (Appendix M), which the Company is pursuing through original content creation so that it can differentiate itself from its competitors. Further, collaborations with mobile operators to include Netflix titles in devices drove their costs up.

5. Issue 3: Heavy Reliance on third-party Content providers 

A key player in Netflix’s value net analysis is the content providers (Appendix C) which means that part of the company’s value comes from content providers. Appendix K also shows the Company's value chain, in which a key input is licensing agreements from third party content providers. This has given the suppliers a high bargaining power (Appendix B) and they are commanding higher prices for their content. Since Netflix depends on third parties for content, it is forced to pay higher prices for content, as otherwise, it would lose its key success factor (Appendix G) of having the biggest content library. This is also a reason why the Company needs to spend on original content, so it can partly free itself from third-party dependence. This has put the Company in trouble, as going for third party content is costly and risky, and going for original content also raises operational costs by a huge margin. This requires a permanent and sustainable solution that the company needs to focus on.  

6. Recommendation 1: Diversification 

Netflix can diversify into other categories, such as Music. Appendix F provides an analysis of the Company’s competitors, and Amazon, one of the biggest competitors as per Appendix E, has an option of Music streaming. To compete with Amazon, Netflix can consider diversifying into music, as this would decrease its dependence on the few content providers. It would also diversify its products, decreasing some of the risks it is currently facing. As music streaming is an industry that is growing rapidly, it would prove as a good chance for Netflix. However, this would require system development costs and marketing costs, which would add to the Company's existing negative cashflows.

7. Recommendation 2: Create Alliances 

Creating alliances is a feasible option which Netflix has not considered at a large scale. Right now it is under pressure from increased competition, as per Appendix B. Creating alliances with its competitors would reduce the pressure that Netflix is facing right now. It would also help it to manage its cash flows and expenditures on original content properly, as it would have a lower threat. Pairing up with Hulu or HBO can be chosen as this would give them both an edge over Amazon, and more strength to deal with new entrants like Walmart. With alliances, both companies would thrive and co-exist.

8. Recommendation 3: Pairing up with Cable TV 

Pairing up with Live TV could be another option. As Netflix is just about movies and TV shows, partnering with Live TV would enable to opt for live matches, news, and sports. This would target a whole new market. People who have still not shifted to internet streaming and prefer watching Live TV will be targeted by this strategy. This would reduce the Company's dependence on third party content, and would open up another avenue for the company. However, this would incur additional costs for the company, and as shown in Appendix H, the company is not in a position to incur additional costs.

9. Final Recommendation 

Considering the strengths and weaknesses of Netflix, its internal and external key factors, and the issues that it is currently facing, the most feasible option for Netflix at this moment would be to form alliances with one or two of its competitors. Considering the Company's negative operating cash flows, and its multi-billion dollar investments on new content, any more expenditure for the company is not feasible at this stage. Further, the company is indebted and does not have enough financial strength to fight its existing competitors and new entrants. Therefore, the most feasible option would be to form an alliance with Hulu. This would give Netflix an edge over Amazon and would give Netflix access to 20 million of Hulu's subscribers. Further, it would also help Netflix is expanding to other countries, as the other brand would have different product designs that would enable it to access other markets. Also, this would reduce the competitive pressure from Netflix, and the company will be able to manage its outflows and expenditures efficiently.

10. Conclusion

Netflix is an internet streaming service provider that has a business model highly dependent on third-party content providers. Further, it has severe growing competition from existing and new players. To deal with competitors, Netflix invested heavily in developing its original content, thereby harming its debt levels and operational cashflows. A recommended solution to this problem after considering the business case of Netflix, which is explained in Appendices A-M below, is to form alliances with its competitors. This would reduce the competitive pressure on Netflix, and would give the Company access to new markets, and at the same time help it materialise on its key strengths that have been identified through its strategy and external and internal environment analysis.

Appendix A: PESTEL Analysis 


  • In the US, telecom giants like AT&T are insisting on stricter usage regulations. If stricter usage regulations are imposed, then internet prices would rise, which would threaten the business model of Netflix.

  • Tax structures in countries differ, which directly impacts the Company's cost structure. For example, in the EU, Netflix is taxed the same way as traditional media.

  • Netflix also faces resistance from certain governments. For example, China does not allow streaming of foreign content, which is why Netflix sells licenses to local companies. This limits the revenue-generating potential of the company.

  • U.S government also restricts U.S. based companies from setting up operations in certain countries, like Syria.


  • Netflix has around 117 million memberships which makes it a global leader in internet streaming

  • The Company’s pricing structure is competitive compared to traditional television services

  • Issue of exchange rates affects Netflix the most, as countries with weak currency deem Netflix as a luxury


  • Netflix has shifted the demand from tv sets to smartphones as most people watch movies on phones now

  • Entertainment is fitting more in the busy lives of the consumer


  • 4k technology, if implemented, will give Netflix a competitive advantage

  • Investment in Hermes technology for fast translation

  • 5G technology in smartphones allow faster streaming


  • Carbon footprint due to access to data server

  • Netflix accounts for around one-third of internet traffic in North America and is being pressurized to shift to renewables

  • Rated D by an independent agency


  • Blocking workarounds imposed which would restrict users from accessing content from other countries

  • Confusing contracts with customers

Appendix B: Five Forces Analysis 

The threat of New Entrants

The threat of new entrants is moderate. Netflix is facing competition in different parts of the world. In the US, HBO and CBS both have launched their online streaming services. As demand for internet streaming is expected to rise in the future, new businesses are emerging to make profits out of this sector. Amazon Prime and Hulu have both been right after Netflix in leading the market. More entrants are emerging worldwide but not at Netflix's level. Walmart is also looking to enter this market.

Bargaining Power of Customers

The bargaining power of customers is high, as customers can cancel their subscription any time. Netflix has no cancellation fees and no other consequences of cancelling the service. Moreover, the customers have many other options of internet streaming, the most common ones being HBO, Amazon Prime, and Hulu.

Threat of Substitutes

The threat of substitutes is low, as the current substitutes available in the market are not as efficient as Netflix. Internet streaming is more cost-effective and economical than traditional TV services, DVD rentals, and others. Internet streaming is likely to grow with the demand of the internet, and no possible substitutes of this product can be seen.

Bargaining power of Suppliers

The bargaining power of suppliers is moderate because Netflix gets most of its content through licencing. Netflix has agreements with content providers, and once they expire, Netflix will no longer be able to stream the content, limiting the options that are available on Netflix. When contracts expire, most of the content providers can bargain for better terms and conditions.


The competition in the industry is high, as there are well-known and strong brands operating in the industry. Amazon Prime, HBO, and Hulu all have similar internet streaming products that are in direct competition with Netflix. Furthermore, new entrants have also started to enter the industry as can be seen in the case of Walmart which was looking forward to a collaboration with an online content service provider.

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