Introduction
Many articles and works related to the popularity and development of Netflix were studied to write the work. This streaming service has brought many innovations to the streaming industry over its history. The target market for Netflix includes men and women aged 17 to 60 and middle-income families. Netflix also reaches out to various racial/ethnic groups with an assortment of foreign and international films. After analyzing all the information received, it was concluded that Netflix successfully remains relevant and in demand thanks to the latest marketing strategies and recommendation algorithms.
The paper aims to analyze and compare the management strategy of Netflix with its closest competitors. The article discusses the main management models that are implemented by Netflix, its target audience. It also analyzes the most effective ways to expand for streaming services. Netflix is one of the most popular video streaming services in the world. Under his leadership, many successful projects were released that even people who could not hear anything about Netflix itself saw. All these projects are distributed through Netflix and produced by it. Netflix is available in any country and works on a wide variety of devices: both Android and iOS smartphones, tablets, computers, T.V.s, set-top boxes, game consoles, DVD, and Blu-ray players. A convenient, competitive advantage is that viewing synchronization is supported on all devices. It is realistic to start watching a movie, for example, on a T.V., then launch Netflix on a smartphone, continue watching from the exact moment, and finish watching in a browser on a laptop. All these factors make Netflix one of the most successful companies leading in its field for many years.
Market structure of the streaming media industry
The critical income sources in the streaming media industry segment are predominantly digital destinations. The traditional and most prominent companies in this market today are such services as Netflix, Amazon Prime Video, AHBO, Apple TV, Disney Plus, and Hulu. Video on Demand (VoD) is a system of individual delivery of audiovisual content to a subscriber via a digital cable, satellite, or terrestrial television network from a multimedia server using various formats.
However, it should be noted that this type of distribution requires a large number of marketing activities to attract the viewer’s interest in viewing this type of service. Studies of the potential audience have shown that the peculiarity of the video-on-demand service market is that the frequency of access is quite high here. This, in turn, gives reason to believe that the target audience for this type of service is much wider than for cinemas., which, as world practice shows, services try to generate independently.
Competitive threats to Netflix
Netflix has been in the news lately, sometimes for downright reasons. After years of being first in the once sparsely populated streaming market, the company lost subscribers earlier this year. However, more than that, now it seems to have lost the viewers’ trust as well: recent polls have shown that Netflix is ranked almost last in terms of audience value (Streaming Satisfaction Report Evolving Perceptions of Value: The Shifting Sands of SVOD, 2022).
All mentioned above may seem counterintuitive as Netflix dominates the streaming segment. It is considered indispensable for its subscribers. In addition, it still boasts the most extensive user base of any streaming service. Nevertheless, why does the service cause so much negativity on the network and lose subscribers? The service upset people with its recent price hikes, announcements, and catalog cuts. The numbers must be studied to assess where the streaming wars are at. According to Whip Media’s 2022 Streaming Satisfaction Report (2022), “Last year, 32% of our respondents said that in the last 12 months, they canceled at least one of the SVODs.” Such a thing puts service behind Disney Plus, HBO Max, Apple T.V. Plus, Hulu, Paramount Plus and Amazon Prime Video. This fact means that Netflix is the number one must-have streaming service and last in value.
A price competition strategy is a pricing policy based on the use of competitors’ prices to form one’s own prices. This strategy is often referred to as competitive pricing. In most cases, businesses come to competitive pricing after costly exercises that do not add value. Non-price competition strategy indicates that the price is used passively. The goal is to make a profit, not to expand market share. The company is trying to achieve this goal, not by cutting prices. Typically, the prices for products of companies that adhere to this strategy are higher than the average market prices. To increase profits, non-price tools of the marketing mix are used. This strategy focuses on product differentiation and market specialization or focus.
Non-price competition is classified in different ways. Service competition aims to provide customers with the best user experience. It can be round-the-clock support, a children’s corner in the sales department and an extension of the warranty period. Functional involves the introduction of additional services in which there is no urgent need. Non-price competition is a profitable way to become a leading company in any market. This can be achieved since this method minimizes the role of price as a selection criterion. However, this strategy is still more suitable for small and medium-sized companies to compete with market giants. At the same time, large established companies may raise the price, as Netflix recently did.
The innovative Netflix business model emerged as a natural response to the demands of the video rental market of the late 90s and early 2000s, which were not yet satisfied by other participants at that time. The service started as a mail-order DVD rental company and has now become a global video service (Lobato and Lotz 2020). The company determined that the home media sector of that period consisted mainly of disc rental and sales, cable and satellite television, pay-per-view services, and broadcast television. These options aimed to satisfy customers’ need to access media products without leaving their homes. According to Jenner (2018), Netflix “became a powerful player in the reorganization of what television is.” Netflix was able to identify two elements that made it difficult for the company to work under the existing conditions. Due to the growth in the number of films, customers had no clear idea which films they had access to, and customers also did not have a mechanism to help them make a choice. In response, the company created an updated business model that brought innovation to the video rental sector.
Netflix’s growth has exposed several weaknesses in the traditional video rental business model that have helped it become a leader in its industry. The innovative approach allowed the company to innovate in distribution channels, such as mail-order disc rentals and pricing models, monthly payments instead of fixed-period DVD rental fees, and penalties for late returns. In 2007, the company introduced a subscription system for watching videos online. This innovative aspect was fatal not only for Netflix’s competitors but for the entire video rental industry: the company predicted that streaming media would eventually supplant DVD rental, which happened shortly. Netflix’s business model gave the company incredible competitiveness, which later helped it squeeze out the most severe competitors from the market.
Dominance of Netflix
Netflix’s success was fueled by an innovative entrepreneurial strategy at its inception, which later became known as the Long Tail concept. The combination of the recommendation and subscription systems that already existed at that time made it possible to add another innovative layer to the company’s activities. According to Steck et al. (2021), “The main task of our recommender system at Netflix is to help our members discover content they will watch and enjoy.” The main reason for the emergence of Long Tail markets was the development of the Internet. The company knows that new films, shows, and other video content are more expensive than the same production of an earlier release due to higher initial fees and revenue-sharing mechanisms. According to Hamedani and Kaedi (2018), “Netflix datasets method overcomes the long tail recommendation problem and diversifies the recommendations according to user needs.” Thus, the recommendations are constantly being improved and have a greater chance of being liked by the viewer, who will later repurchase a subscription for the sake of the recommended content. It is worth saying that fierce competition in any market will always improve the product for the user.
Conclusion
An innovative business model directly impacts a company’s market position. In the conditions of continuously developing modern economic relations that have entered the era of globalization, it is becoming difficult for enterprises to maintain their positions. Nevertheless, Netflix is showing great results with its audience retention, and there is every reason to believe that it will remain a leader in the streaming services industry for a long time.
References
Hamedani, M & Kaedi, M 2019, ‘Recommending the long tail items through personalized diversification’, Knowledge-Based Systems, vol. 164, pp. 348-357.
Jenner, M 2018, Netflix and the re-invention of television, Palgrave Macmillan Cham, Springer.
Lobato, R & Lotz, D 2020, ‘Imagining global video: the challenge of Netflix’, JCMS: Journal of Cinema and Media Studies, vol. 59, no. 3, pp. 132-136.
Steck, H, Baltrunas, L, Elahi, E, Liang, D, Raimond, Y and Basilico, J 2021, ‘Deep learning for recommender systems: a Netflix case study’, AI Magazine, vol. 42, no. 3, pp. 7-18.
Whipmedia 2022, Streaming satisfaction report evolving perceptions of value: the shifting sands of SVOD, Web.