Consulting Methods

Final Project

Objective: Help Netflix Improve Profitability To Sustain Market Leadership

Team 4 GreenwichAlexandra Bayet Christina Alvarado Atman Bhesdadiya Anastasia Toumazou Daniel Marczinek Jargalan Amarsaikhan

• Market leader• Key figures in 2011:

• 90% of customers are from the USA• 61% market shares • Share prices: $299/share in July versus $62/share in December

• Split between DVD and Streaming offers.• 60% increase in price and miscommunication • Increasing competition• Loss in market share

• Licensing contract expiration• Increasing licensing prices• Loss of subscribers • Loss of investors confidence• Decreasing liquidity

Can Netflix improve profitability to sustain market leadership?

Problem definition SCQ Analysis

Approach Issue Analysis

1. Can Netflix reduce costs?

Can Netflix improve profitability to sustain market leadership?

2. Can Netflix attract more customers?

3. Can Netflix reduce negative risks associated with content licensing?

1.2

Can Netflix reduce

identified costs?

2.2

Can Netflix deliver

identified customer wants?

2.1

Can Netflix identify what

customer wants?

3.2

Can Netflix develop a plan to reduce negative

outcomes?

3.1

Can Netflix identify negative

outcomes?

c

• Conduct secondary research on the major cost drivers within the company.

• Interview the controllers and accountants to identify cost drivers and saving solution.

• Conduct secondary research on solutions cost saving.

• Interview employees to evaluate

feasibility of found possibilities.

.

• Conduct primary research on customer wants through surveys and telephone interviews.

• Conduct secondary research on technological adaptation of new devices.

• Conduct secondary research on competitor products and services.

• Launch pilot project to research customer wants

c c

1.1

Can Netflix identify cost

drivers ?

• Interview risk management department on current risks & outcomes connected to the library content.

• Interview independent expert to benchmark level of retrieved information.

• Develop ranking of major negative affects.

• Develop plan to reduce maor negative risks.

• Analyze whether organizational capabilities and internal knowledge of company are sufficient to create their own studio.

Approach Work Plan

MEETING CHECKPOINT PRESENTATION

Netflix can improve profitability to sustain market

leadership

Netflix can reduce costs.

Netflix can attract more customers.

Netflix can reduce negative risks

associated with content licensing.

Findings and Recommendations Final Presentation

Findings and Recommendations Final PresentationNetflix can reduce costs

Netflix can identify cost drivers.

Netflix can reduce identified costs.

Cost driver identification

Findings and Recommendations Final Presentation

Cost of Sub-

scription; 53.40%

Fulfill-ment Ex-

penses; 9.40%

Technology and Devel-opment; 7.60%

Marketing; 13.60%

General and Administra-tive; 3.30%

Interest Ex-pense; 0.90%

Income Tax; 11.80%

Netflix can reduce costs

Netflix can reduce identified costs

Decrease Marketing costs by switching TV and radio advertisements to online advertising, specifically by using social media.

Decrease Fulfillment expenses by creating efficiency in content processing and customer service.

Achieve economies of scale by spreading high content acquisition costs over increased number of subscriptions.

Findings and Recommendations Final Presentation Netflix can reduce costs

Netflix can attract more customers

Netflix can identify customer wants.

Netflix can deliver customer wants.

Findings and Recommendations Final Presentation

Customer want identification

Variety in content: movies and TV shows

Low prices

Availability on the greatest number of devices

Ease of use

Findings and Recommendations Final Presentation Netflix can attract more customers

Netflix can deliver identified wants

What Netflix deliversWhat Netflix can do

(extra)

• Variety: largest content with 60% TV shows

• Greatest number of devices: Xbox, Wii, PS3, PC, Mac, iPad, Apple TV, smart TV, Blu-ray players, iPhone, Android, smartphones with Windows

• Offer different type service options: pay- per-view and advertising supported online content

• Competitive price strategy

• Develop a software to offer all-in-one service

Findings and Recommendations Final Presentation Netflix can attract more customers

Netflix can reduce negative risks associated with content licensing

Netflix can identify negative outcomes.

Netflix can develop a plan to reduce identified negative outcomes.

Findings and Recommendations Final Presentation

Situation

Online streaming through licensing by studiosLicensing periods & terms depend on individual contracts

Conflicts

Studios discontinue licensing on short notice

Studios raise

licensing prices

Studios do not want to renew licensing

(on acceptable terms)

Netflix can not retrieve new content from

studios on acceptable terms

Increased costs

Lower profitability

Loss of market value

Loss of subscribers& lower revenues through

subscribers

Slower subscriber base growth

Negative outcomes

Negative outcome identificationFindings and Recommendations Final Presentation Netflix can reduce negative risks

Studios raise licensing prices

Netflix can not retrieve new content from studios on acceptable terms

Ranking of risks by expected negative outcome impact (from high to low)

Plans to reduce risks Plans to reduce outcomes

Studios discontinue licensing on short notice

Netflix implements punishment clause

Netflix receives licenses by several studios

Studios do not want to renew licensing (on acceptable terms)

Netflix implements priority clause Netflix contracts new studios

Netflix partners with other distributors Netflix sources content in foreign markets

Netflix buys on pay-per-view base Netflix (co-) produces content

Plan to reduce negative outcomes

Findings and Recommendations Final Presentation Netflix can reduce negative risks

Netflix can improve profitability to sustain market

leadership

Netflix can reduce costs.

Netflix can attract more customers.

Netflix can reduce negative risks

associated with content licensing.

Findings and Recommendations Final Presentation

ReferencesAccenture. (2011). Reshaping The Business For Sustainable Digital Growth. www.accenture.com Accessed: February 22, 2012. Available: http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Entertainment-High-Perfromance-Study-2011.pdfNetflix. (2011) 2010 Annual Report. www.netflix.com. Accessed: February 22, 2012. Available: http://files.shareholder.com/downloads/NFLX/1707858920x0x460274/17454c5b-3088-48c7-957a-b5a83a14cf1b/132054ACL.PDFNetflix (2012) 2011 Annual Report. www.netflix.com. Accessed: February 22, 2012. Available:http://files.shareholder.com/downloads/NFLX/1707448931x0xS1193125%2D12%2D53009/1065280/filing.pdfWiley (2009). Economies Of Scale and Scope. www.wiley.com Accessed: February 22, 2012. Available: http://media.wiley.com/product_data/excerpt/45/EHEP0002/EHEP000245-2.pdfPBS NEWSHOUR, (2011). Interview “While Netflix Stumbles, Competitors See New Opportunity” Interviewee: Eric Schmacher-Rasmussen and Cecilia Kang. Last Accessed on 22ND February 2012. Available: http://www.pbs.org/newshour/bb/business/july-dec11/netflix_10-27.htmlITVS, and Corporation for Public Broadcasting. 2011. “2011 Digital Survey”. Accessed on: 22 February 2012. Available: http://www.pbs.org/newshour/bb/business/july-dec11/netflix_10-27.htmlNetflix (2012). Accessed: 21 February 2012. Available: www.netflix.comFoxnews.com (2011). “Netflix Sags As Wal-Mart Video Streaming Service Debuts”. Accessed: 22 February 2012. Available: http://www.foxnews.com/scitech/2011/07/26/wal-mart-takes-on-netflix-offers-video-streaming/Amazon.comWalmart.comStore.apple.com