Netflix: An Introduction
Netflix is the world’s leading online streaming entertainment platform with a strong global presence. The company serves its content worldwide across 190 countries. BY the end of 2021, the company had around 222 million paid subscribers.
While Netflix has experienced strong growth in the recent years, its user base growth has stalled in some regions. The company has also experienced reduction in market share recently.
However, it is still undoubtedly the leading online streaming platform globally. The level of competition in the online streaming industry sector has increased. Netflix invests heavily in innovation and creating original content, which has helped it strengthen its competitive edge. Despite its leadership position in the online streaming industry, the company is facing increasing competitive pressure.
In this swot analysis, we will analyse the strengths, weaknesses, opportunities and threats of Netflix.
A swot analysis of Netflix
Largest user base:
Netflix is the largest brand in its industry sector. Its user base, which touched nearly 222 billion in 2021 is the largest of all the online streaming platforms. The company has experienced very fast growth in its user base in recent years. While its growth rate may have reduced in 2021 compared to the previous year, the company is still the dominant player in the streaming industry.
Excellent financial performance:
The company is performing well financially. Its average monthly revenue per membership also increased in 2021 compared to the past year. The company generated $29.7 billion in 2021 compared to $25 billion in 2020, or year on year growth of 19%. In 2021, its average revenue per member increased to $11.67 compared to $10.91 in 2020.
Strong Brand awareness:
Netflix enjoys very strong brand awareness compared to most of its rivals globally. There are several factors that have helped the company grow its brand awareness faster including its focus on quality, excellent marketing strategy, technological innovation and unique content. It enjoys a cult status and despite the growing competition, the company continues to rule based on existing level of brand awareness worldwide.
Netflix is a global brand and while it generates a substantial part of its revenues from the North American market, it serves content worldwide across 190 countries. Its global focus is one of the important drivers of its leadership position in the industry sector. Worldwide around 222 million subscribers stream Netflix videos on various devices.
Large collection of original videos:
There are several factors that have driven the fast growth of Netflix online streaming platform. However, the most important differentiator which has helped Netflix achieve a unique advantage is its vast collection of original videos. Netflix offers films, shows and documentaries in several languages apart from English. It also offers localized films and shows for various markets outside the United States. It has enabled faster growth for the company outside the US where it has successfully attracted and retained local users from diverse regions.
Netflix is a unique brand and its marketing is also a key factor driving its faster growth worldwide. The company has marketed its brand in a way that strongly appeals to the millennial and GenZ generation globally. It has used digital marketing channels mainly. Its focus on content quality and user experience have also driven higher growth for the brand and helped it establish itself as a customer friendly and popular entertainment brand. Each year, Netflix invests a vast sum in marketing and promotions. The company spent $2.5 billion on marketing in 2021.
Netflix is an online streaming platform, whose popularity and worldwide growth are a result of its investment in technology and innovation. The company streams its content worldwide through the help of AWS. It also uses several other innovative technologies for content distribution and user engagement. The company also uses data and analytics for content suggestion and for offering a more personalized experience to the Netflix users.
Stalled subscriber growth:
Netflix is at a critical turn in its history. The rate at which its user base had kept growing in the recent years has started declining. In 2021, the company could not achieve the target it had set for itself. The company has also reduced its projections for the first quarter of 2022 in terms of new additions to its subscriber base. Asia Pacific region had remained a key driver of user base growth for Netflix in recent years. However, the situation has changed and Asia pacific is not driving user growth at the same rate as it did in previous several quarters.
Falling market share:
While Netflix is still dominating the online streaming industry, the company’s market share has declined now. There are very few players in the market with a larger than 5% market share. However, Netflix is no more holding as large a market share as it did a few years ago, which means rivals have somewhere successfully grown their audience and competitive strength. The decline has been most steep in the United States for Netflix. According to a report, the company lost nearly 31% market share in one year since 2020.
Focus on regional content for areas outside Americas:
The Americas and Europe generate a substantial part of the annual net revenues for Netflix. However, the company can continue to grow its user base in the other regions by offering more regional content tailored to the needs of local users. Apart from offering content in languages like Spanish, French and Mexican, it must also focus on Asian audiences that like content in regional languages like Hindi, Chinese and Japanese.
While it might seem a bit difficult option, Netflix can also try diversification for growth. It has a large user base and the company can benefit by adding new services like music and gaming. It might appear a little difficult since Netflix has established itself mainly as a provider of movies and shows, but the company can use its global presence and existing technological capabilities to grow its business through diversification.
Netflix has already started trying its hands in gaming and introduced five mobile games that subscribers can play just anywhere.
Competitively priced mobile only plans:
Netflix is facing intense competition globally and at this critical point, maintaining its growth momentum will not only require making its content and platform more attractive, but also making its prices more appealing. Mobile only plans can help the business penetrate into new user segments and especially the more price conscious user segments in the emerging markets.
Partnership with telecom brands:
Netflix has benefitted from partnership with telcos in various market regions in the past. It can be a major driver of growth in the highly regulated markets like India especially. In emerging economies where the use of mobile data has grown fast in the recent years, Netflix has a lot of scope of growth through partnership with telecom players.
Growing competition from the rivals:
The level of competition that Netflix is facing from its rivals worldwide is growing faster. Other players are also investing in original content including Amazon Prime, Walt Disney and others. Apart from that, leading players like prime are also partnering with entertainment brands to grow their content collection and user base. Netflix is experiencing a decline in market share mainly due to increased competition.
The technology industry worldwide is facing more and more regulatory challenges compared to some years ago. Apart from privacy and user data related regulations, there are more areas in which remaining compliant is essential for them to avoid a penalty. It is just as much true in the case of Netflix as in the case of Facebook or Google. Especially in the Asian countries including India, expansion can become more challenging for Netflix given the tight regulatory environment.
Heavy operating expenses:
Netflix is the leader in the online streaming industry but maintaining its lead also requires a significant financial investment each year. Apart from content creation related expenses, there are more expenses like R&D and marketing expenses that keep increasing each year. Its cost of revenues grew to $17.3 billion in 2021 according to its annual report compared to $15.3 billion in the previous year. The good news is that the company also enjoyed a significant growth in its overall net revenues compared to the previous year and its cost of revenues were only 58% of its net revenues compared to 61% in the previous year. However, the company needs to maintain its growth rate in the face of growing costs and expenses to beat the challenge.
Suggested Reading: Netflix Sustainability Goals and Actions.