EMBA Capstone Project - Netflix (Part 5): Recommendations

My entire Executive MBA program was awesome, but the pinnacle of that experience was truly the final capstone project. My final deliverables were a 62-page written report, and a roughly 10-minute-long video presentation on a slide deck version of the report. The project was compiled and written 10/23 - 12/23.

The brief was essentially this: In 2022, growth had stalled for Netflix. Unlike most of its competitors, Netflix offered no ad-based subscriptions. But in November 2022, they made the decision to offer a Basic with Ads subscription tier in 12 countries. While this strategy moved Netflix closer to the strategies of its competitors, was it the right move? What are the right recommendations for Netflix going forward?

In the report I explored four things in depth:

1. Netflix's 2023 financial performance
2. A comparison of Netflix to its closest competitors
3. An exploration of current trends and future predictions about streaming
4. A survey of what streaming customers want these days

Now, in Part 5, I'll go through my recommendations for Netflix in light of these findings.

SVOD Market Outlook

After putting together a very clear picture of the highly competitive streaming market as it currently exists, looking at how some of the customer base is shifting behaviors, as well as exploring where the industry is headed, it’s time to discuss some recommended actions for Netflix. The good news is, the market forecast for SVOD looks very good between now and 2027.?

The streaming industry was worth $60B in 2021 and is expected to be worth $330B by 2030. Not only does this represent massive growth potential, is represents accelerating growth as well.

First, should Netflix do less of, the same as, or more of the ad-supported subscription tier moving forward? Looking at the upward trending ROIC, the increasing subscription numbers across all regions, the projected continued growth of the market, along with the increasing trends in subscription fatigue and more people willing to trade ads for content, one could reasonably expect it to continue to be successful going forward as well. Netflix rolled out the subscription in its twelve largest countries by subscription number last November - yet 41% of people (in those countries) still aren’t even aware of it, so continued growth in those countries is to be expected. So I strongly recommend doing more with the ad-supported subscription tier.

Netflix also seems poised to continue being the most dominant competitor in the SVOD marketplace, though Amazon Prime will likely be its toughest competitor, with the largest library size and having other similar features. Disney is a bit more difficult to predict as it has multiple smaller ventures (Hotstar, ESPN, Hulu, Disney+) that make up its whole.

Recommendation 1 - continue to work with advertisers and internal development teams to increase the value and experience of the ad-supported tier for Netflix customers.

• This one is kind of obvious in that Netflix doesn't need to be told to continue down an avenue that likely adds another $2B to their revenue over the next two years. But it's recommended that they continue to seek to add value to the advertising partners and customers so that both have a desire to continue using the ad-based subscription service. Netflix is already doing this - they have improved their measurement capabilities already, are working on binge-watching behavior-based ads, and considering sponsorship opportunities.

Recommendation 2 - Netflix should add ad-supported subscriptions to more countries across its major regions in 2024.

Netflix has their global business divided up into four major regions, one of which has already been entirely moved to the new subscription tier (UCAN). Of the three remaining, two have experienced a roughly 10% growth in new subscriptions over the past year, showing high interest (EMEA and APAC), whereas LATAM showed a smaller growth percentage of around 4.5%.?

Netflix should likely adopt a similar cross-region strategy to what it did last year, and target some of the next-largest countries in each region, spreading the new subscription tier out amongst the largest customer bases remaining in each region. Considering countries with 1.5 million subscribers or more only, here are the total number of current Netflix subscribers by region that could potentially be affected, along with the countries that would be involved:

• EMEA: 12.8 millionNetherlands - 3.2 millionTurkey - 2.6 millionPoland - 2 millionSweden - 1.8 millionBelgium - 1.7 millionSwitzerland - 1.5 million
• APAC: 11 millionIndia - 5.5 millionIndonesia - 4 millionThailand - 1.5 million
• LATAM: 10.5 millionArgentina - 5 millionColumbia - 2.5 millionChile - 1.5 millionPeru - 1.5 million

https://flixpatrol.com/streaming-service/netflix/subscribers/

If growth rates stay about the same, Netflix could expect annual growth as follows:

• EMEA: 1.28 million new subscribers
• APAC: 1.1 million new subscribers
• LATAM: 472 thousand new subscribers

Total new subscribers expected within the first year after rollout: 2.8 million.

The larger subscriber countries in EMEA and APAC are prime for the ad-supported tier. LATAM may not provide as much return comparatively, but it is still trending with the rest of the world, and has shown already that growth is likely if you bring ad-based subscriptions to more people in the region. With the increasing prevalence of FAST (free ad-supported streaming television) in the world, Netflix should continue pushing its ad-supported tier in order to stay competitive and not lose too many subscribers due to pricing sensitivity.

Recommendation 3 - The last thing I will recommend is seeking blue ocean space amidst the red ocean of competition that Netflix is currently in.

It is worth re-examining Netflix’s value curve, comparing it to its competition:

Continuing to do the same things your competitors are doing will not ultimately make you successful - but making your competitors irrelevant WILL. An important analytical tool that will prove useful here is the Four Actions Framework, which helps a company create new value curves on (its) strategy canvas. There are four questions that will guide Netflix’s decision-making as it seeks to differentiate itself from competitors amidst the red ocean it is currently in.

1. Which factors taken for granted by the industry should your company eliminate?
2. Which factors that the industry takes for granted should be reduced below its standards?
3. Which factors that the industry takes for granted should be raised above current standards?
4. Which factors should be created by your company?

https://www.blueoceanstrategy.com/tools/four-actions-framework/

Below is a strategy canvas, showing in a more simple format the recommendations that answer these questions in the case of Netflix.

I don't believe there is anything significant that Netflix needs to eliminate or reduce at this time. They are already leading the way on in-app gaming within the world of SVOD, and given the future trends and predictions, they should continue to lean into that for the time being. Their original content has set them apart for a long time, and is their bread and butter - this too should continue to be leveraged as much as possible.

I believe that a) given their position that anything people choose to do other than watch videos is competition, but b) they are beginning to offer other things to do in-app in order to garner people's attention during free time (gaming), thus creating a new definition of competition: when people choose to do something other than use the Netflix app, c) they should create other new opportunities for people to use the Netflix app even more during free time - like streaming music. Given the increasing usage of music streaming apps, seeking a partnership with a music streaming platform, or seeking to create their own venture, is worth looking into.

Additionally, with the popularity of UCG (user-generated content) platforms like YouTube and TikTok, and the interest people have in more community-based, interactive content, and with the emphasis that exists on maintaining good partnerships with original content creators (who are creating the OC for Netflix - production studios, etc) - another new venture to explore and possibly create is UGC that is related to OC. Invite original content partners to create their own UGC that Netflix will feature in-app, and test more interactivity with those videos (liking, commenting, etc). It can be a separate part of the app, but it will elevate the story and brand of the people you rely on for original content (which is good for them), and will begin offering a type of content customers are also interested in (UGC). It could prove a mutually beneficial scenario all around.

Conclusion

Netflix is well-poised to dominate the market if they continue on the path that they have forged ever since the beginning, that of showing everyone else in the industry the path forward.

**I know there is way more involved in what I have very briefly discussed above - but I just wanted to share some of what I found so interesting while doing this project. Thanks for reading and I hope you found this interesting!