PESTEL Analysis of Netflix

Author- | Posted- | Updated: April 25, 2020 |

Netflix is the leading streaming services provider with a global presence. It serves more than 169 million subscribers from 190 countries around the world as of 2019. In recent years the brand has seen very fast growth driven mainly by increased use of smartphones and the proliferation of 4G. The high popularity of Netflix is due to several factors including customer experience, a large collection of original content as well as an effective marketing strategy. Following the spread of coronavirus, as more and more people around the world are staying indoors, the demand for its services has grown fast abruptly. Starting in 2019, Netflix is running its global operations as one segment instead of three different segments. As the consumption of digital services grows worldwide driven by increased use of the internet and mobile devices, Netflix continues to enjoy growth in popularity and sales. 

This is a pestle analysis that analyzes how these forces affect the business of Netflix worldwide.

Political:

Political forces continue to grow in relevance for tech companies worldwide. While Netflix is mainly a streaming services company, it is also a tech company and therefore also subject to government scrutiny like the other tech firms.  Governments around the world have tightened their grip on the technology companies with regard to their data collection and other practices. In the European Union particularly, the government has taken a very strict stance against technology brands indulging in anticompetitive behavior or targeting users through their data collection practices. Depending upon the level of regulation in each market, Netflix has to tailor its services accordingly for each region. Another area where the government’s role is highlighted in the context of international tech businesses like Netflix is taxation. In many countries inside the EU, the governments are actively considering new tax laws for such companies which could significantly grow the tax liability of Netflix.

Economic:

Economic factors also play a direct role in the context of international business. Higher economic activity and employment level lead to higher spending on leisure activities and entertainment, For the past several years, the performance of the global economy has remained impressive which has resulted in people around the world spending more on services like Netflix. However, trends have slightly changed since the spread of the coronavirus and while the economic activity around the world has gone down, Netflix has experienced a significant rise in its memberships. Economic activity is expected to start rising again once stay at home rules are relaxed in the United States and other regions of the world. In some areas including China where the situation has been brought a lot under control, economic activity has started rising. Low economic activity for prolonged periods can have an adverse effect on the business of Netflix since people will try to save more if lockdown extends. Moreover, unemployment has risen heavily and if the situation persists soon people will start cutting down on all unnecessary costs.

Sociocultural:

Sociocultural factors are also playing an increasingly important role in the context of international business and considering their importance businesses are making them a part of their operational and marketing strategy. Netflix is catering to a global audience and as such, it becomes essential for the company to pay attention to the varying tastes and preferences of people from different societies and cultures. This is why Netflix has brought content that spans several genres and languages. It offers a wide range of content suited for audiences of various ages and from different regions. However, this has helped the company attract a diverse set of customers from worldwide since people can find a nice collection of movies and shows in their native languages on Netflix. The demographic composition of the global population has changed a lot during recent years. The millennials are the main target of Netflix and the brand has tailored its products to cater mainly to the taste of the modern generation. This generation is highly tech-savvy and consumes most of its entertainment online.

Technology:

Technological factors have been driving a lot of growth and competition in the business industry. As in the case of Netflix, technology is at the core of its business model. Inside those Netflix offices, there is a lot of technology-related stuff going on all the time. One of the most important reasons behind the fast surge in its popularity during the last several years is its focus on customer experience. The company has continued to improve its user interface to provide the subscribers best-in-class experience. Technology is the main source of competitive advantage for Netflix. The company uses various algorithms and machine learning to recommend the shows and movies worth watching to individual subscribers. This is how the streaming brand has created an exclusive and unique experience for its subscribers. However, technology is not just a source of competitive advantage but it is also driving higher competition in the industry. Netflix competes with several businesses including gaming, social media, and other online streaming services Due to the intense competition in the industry, it is important for Netflix to continuously improve its technology and overall services to overcome the competitive pressure. The company invests a large sum each year in research and development to drive higher user engagement and grow its popularity. 

Environmental:

Environmental factors are of relevance in the context of nearly every large business which is because how businesses impact the environment has a direct impact on their social reputation and brand image. Every large brand invests in the environment including Netflix. Since Netflix is a company whose entire business is operated online such businesses do not have a direct and heavy environmental impact. Despite that all business processes related to a large and global business cannot be run without consuming resources. It is why Netflix aspires to understand its environmental impact and minimize it as much as possible. While its dependence on the environment for raw material is very low still the brand consumes electricity heavily in its operations. In 2019, the company used around 94,000 megawatt hours of energy directly. A part of the energy that the company consumes in its business operations including its offices and studios as well as the telecommunications facilities that are a part of its content delivery network comes from non-renewable sources and so in order to minimize its environmental impact the company matches that portion with regional renewable energy certificates. Apart from that the company also supports renewable energy projects in 20 countries and across 15 states in the United States. Apart from that the company also strives to be as sustainable as possible in its office operations. The sustainability practices it has adopted across its offices include reduced paper usage as well as donating extra food to the needy.

Legal:

Legal factors will continue to play a major role in the context of the technology and digital entertainment industry since the laws in this area are still evolving and governments around the world are working on developing a strong legal framework to regulate the technology industry. A large number of tech players in the world including tech leaders like Apple, Google, Amazon, and Facebook have faced a large number of cases against them related to anticompetitive behavior and user privacy. Several of them including Google and Facebook have paid large fines. In the case of Netflix, user privacy is one of the most important concerns apart from the protection of user data. Legal compliance is now more essential than ever for the technology firms since noncompliance can result in hefty fines and also cause severe damage to a brand’s reputation.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.