Movie streaming industry analysis - isolation driven analysis
Executive summary
Over time, individuals have changed the type of activities performed in leisure time. Likewise, these activities respond to the tastes and customs rooted in different cultures and contexts and are also influenced by new patterns of consumption that occur in the world. According to Laudon (2013), e-commerce is the use of the internet, the web and the mobile software applications to do business. It is in electronic commerce where the business of streaming is developed.
This essay aims to analyse the streaming industry and its surroundings in an attempt to describe how macro and microenvironment affect the company and the product delivered and/or produced by them.
Introduction
In the UK, movie and TV show streaming services have increasingly become important. Movie streaming sites steadily gained a market (Bhandari et al. 2000; Chao & Zhao 2013; Krikke 2004) However, analysts now claim the industry will go down soon, and only a handful of companies will be able to hold on as Illegal downloading continues to be a big threat (Wang, Shoshitaishvili, Kruegel, & Vigna 2013).
Technological advances have been determinant in the patterns of consumption. In the late 2000s video streaming became popular and the industry that markets streaming content uses technology that requires a connection to the internet. Consumers of streaming service require certain features of the service that do not align with the traditional business such as ease of ordering, customer support, on-time delivery, and more.
Movie streaming service companies should now be evaluating their options to innovate and combat challenges. Online content consumers are a fragile group hard to please, simply because they know there are always options eager to meet their content needs (Seetharam, Somasundaram, Towsley, Kurose, & Shenoy 2010; Venkatesan et al. 2017).
In order to further analyse this industry, this essay will firstly perform the micro-industry analysis the Porter's Five Forces tool will as it is a simple but powerful tool that helps us underline where power lies in a business environment. Then, to examine the macro industry environment the PESTLE methodology will be used. Lastly, the segmentation of Netflix will be described as a sample for the industry. The sample was selected considering the properties of the company and the broad expertise of information.
1. Specific sector analysis
To analyse the online streaming services environment three approaches will be examined: the macro industry environment, the micro-industry environment and the segmentation.
1.1 Porter's five forces analysis
The graphic below explains how the five forces affect the industries’ market and therefore, all the companies that compete in it.
Suppliers
When it comes to distributors, movie streaming sites do not seem to face a lot of pressure for now. Apart from keeping their partner studios happy, movie streaming sites must continue to produce fresh and quality online content that can rival that of huge movie networks (Chopra, Chopra, Veeraiyan, & Veeraiyan 2017; Voigt, Buliga, & Michl 2017).
Customers
The bargaining power of movie streaming sites can be quite powerful, even though this is sometimes underestimated. With so many streaming sites (illegal and legal) customers can quickly decide just to cut off their subscriptions (Netflix, n.d).
Distributors
Regarding distributors, movie streaming sites do not seem to face a lot of pressure for now. The company should just have enough titles by securing and keeping contracts with the most popular networks. The studios should be kept happy or else they can leave or engage in self-distribution (Nagurney, Li, Wolf, & Saberi 2013).
Competitors
Companies such as Netflix, Amazon Prime Video and Now TV, among others have to compete with each other heavily to attract consumers who will subscribe and patronize their content. There are many more new sites emerging every day in the UK. Apart from competing with each other, a movie streaming service company also has to deal with threats such as illegal downloads and torrents (Wang et al. 2013).
Threats new entry
Threats of new entrants are not yet that significant because the trust gained by known movie streaming sites cannot be easily undermined by a new company (Greenstein, Peitz, & Valletti 2016; Jackson, Amin, Fu, & Martin 2015). In addition, the huge cost of launching new streaming services may limit it. However, TV channels may enter the industry of movie streaming by inauguration movie streaming service in order to satisfy the customer.
PESTLE methodology
In order to better understand the movie streaming industry and its singularities we will take the company Netflix as an example and case study of this immense industry.
When you think of movies at home and on a mobile device, Netflix is the brand that has achieved the position as the most recognized alternative in the market
The company Netflix began operations in 1997 with its line of DVD rental business followed by another line of business in domestic streaming in the year 2008. Then in international streaming which is the two lines of business that currently operates. Based on its results, it presents a competitive landscape in the global entertainment industry as the streaming line in the United States reveals a saturation of the market and the line of business of the international streaming shows a growth that is increasing.
According to the analysis the company faces high costs for the acquisition of content of films and series, presence of strong and great competitors in the market, personnel specialized in technology, high costs of marketing in the streaming Domestic in the United States and international streaming, factors that - as will be seen in the work - can be mitigated or reduced with the implementation of alternative strategies.
For the analysis of the macro-environment, the PESTLE methodology will be used, in order to list the different factors of relevance for the industry.
Analysing the industry of movie streaming services in terms of Political, legal, technology, economic, social and environmental
Political and legal
The government has set laws and regulations of copyright to protect movies and TV shows from illegal display on websites. In addition, the United Kingdom government-funded ￡3.1 million to campaign on nationwide education to advise consumers on how to legally access TV shows (Russon, 2015). Moreover, it further funded the Police Intellectual Property Crime Unit with ￡5.56 million for investigation of copyright violation (Russon, 2015). Consequently, many movie streaming services ventured into a licensing agreement with production companies, filing legal precautions against unauthorized viewing by customers. As a result of this training on how to avoid legal problems on movie-streaming services, people who use the services have thus increased. According to the UK's Intellectual Property Office, the numbers of users accessing movies through legal websites online are 10 million consumers, which was an increase of 10% since 2013 (Russon, 2015).
Technology
Advancement in technology through the use of the Internet and broadband in recent years has led to the development and growth of movie-streaming opportunity (Netflix Inc., 2012). Having a variety of newly released movies and TV shows available on the Internet provides consumers with wide options of favourite TV shows. Additionally, having the opportunity to watch programs using computers, mobile devices, Play station4 and Xbox gives the consumer easier access to them (Netflix Inc., 2012). Also, the ability to easily watch it in HD streaming quality has significantly revolutionized the entertainment industry.
Economy
Most of the movies streaming services offer a reasonable price to its subscribers. Therefore, the growth of the economy has a strong connection with the consumer. If the growth rate of the economy is high, then there will be an increase in consumers' approach to movie streaming services; but this greatly depends on the income and spending rates of consumers.
Socially
The popularity of movie streaming is increasing, and its usage has become more a lifestyle to people (Martin, 2017). Also, it became part of the modern lives, which means growing of it and less use of watching TV.
Environment
Use of movie streaming services could affect the environment regarding the usage of energy (Wang, 2014). For instance, streaming a video uses less energy compared to watching DVDs (Idle). Therefore, switching from renting videos or DVD's to movie streaming may be more helpful to the environment. As a result, movie streaming is more efficient than DVDs regarding the emission intensities as well.
2. Netflix segmentation
As a way to develop and determine the industry segments, Netflix has named its business units as segments (Netflix, n.d):
· National or Domestic Streaming: Reports revenue for monthly subscriptions for streaming service within the United States.
· International Streaming: Reports revenue from monthly subscriptions for streaming service outside the United States.
· National Domestic DVD: Reports monthly subscription revenues for DVD service by the postal service within the United States.
Until 2011 they were for hybrid segments that allowed the subscriber to access the streaming service and at the same time to have DVD in physical at home. A relevant aspect of these business segments is the trend of Netflix subscriptions.
The segmentation of the market must be measurable and able to be supplied by the company. In this sense, the complexity of consumers grouped by geographic, demographic, behavioural, occasional, psychographic or cultural segments brings Netflix to a particular type of segmented supply, since it turns out that each subscriber "builds" their consumption profile with personalization which is one of the key differentiation factors Netflix proposes within its value proposition (Netflix 2015).
Three segments can be determined after reviewing Netflix’s’ marketing strategy:
· Demographics: The first filter or segmentation that Netflix has is a sector of the community that are online buyers and by default has a credit card, which in itself results in a medium to high-income range among its subscribers.
· Behavioural: Another segment that Netflix has targeted is movie fans and enthusiasts. Being an entertainment provider, motion pictures are one of the most bankable sectors to be targeted by any movie streaming company.
· Cultural: The last segment is that of leisure time. Netflix has realize that the general customer uses the internet as a leisure activity, therefore movies and series are in demand by people who want to spend time enjoying themselves.
3.1 Opportunities
Netflix and other streaming companies can strive to come up with better original content. Looking into fresh digital content makers, even students and kids who are making it big on YouTube and social media could be an untapped sector for the industry (Investopedia, n.d).
3.2 Threats
With so many contents to consume a currently well-established movie streaming company should really be so good that they can hold people’s attention enough to continue subscribing (Addison Johnson, n.d).
One great threat is if movie studios themselves engage in self-distribution or streaming, which can be the huge force in the streaming market. Sony for instance, in the wake of the controversy surrounding the backing of “The Interview”, decided to release the movie itself digitally because most theatres and distribution challenges dropped the movie. It was a success (Investopedia, n.d).
Conclusions
Streaming services have a competitive advantage of differentiation based on their original productions, broad content, personalized service, high technological capacity and personalized recommendations to the subscriber. However, it has weaknesses in relation to its operating capacity which is limited by its ability to offer films and series worldwide due to technological limitations. However, this weakness can be overcome by the globalization of technology and rapid expansion of worldwide internet access.
Furthermore, the rapid growth of this industry is based on its strengths, applying a strategy of concentration based on differentiation, taking advantage of the opportunities that the growth of technology presents for the future years.
As a negative conclusion, one must take into consideration the high licensing costs that must be paid to purchase series and movies, which generally refer to a geographic region meaning that every country has a fee and new rules that streaming services need to adjust to in order to expand to a world audience.
The streaming industry presents an attractive market, due to the penetration of broadband and new visualization equipment such as smartphones, tablets, computers, which will allow you to deliver better quality content immediately to the consumer.
Recommendations
This industry needs to stay in its business segments and take actions to:
· Grow in the international market.
· Invest more in series/feature films.
· Promote focused marketing to different age segments and idiosyncrasies of each country and alliances with manufacturers.
· Invest in the development of customer analytical CRM.
This industry needs to strengthen and continue its activities of innovation, customer relationship and strategic alliances with its suppliers. The industry needs to produce their own content in order to strengthen the brand name, to create unique and valuable content and to create a loyal fan base that believes in what the company can do.
While expanding cultural barriers must be taken into account and as streaming services has expanded rapidly internationally to more countries a more careful internationalization should be considered in countries with Internet coverage and purchasing power where cultural brakes remain, for example, the Arab countries. An error in the way that this market is accessed would unnecessarily delay the possibility of reaching a very attractive market from the financial point of view.
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