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NETFLIX
International Business Strategy
Academic Year 2022-
Giovanni Bernabei (720328)
Inès Levieux (715858)
Anais Aissou (
Lucile Friche (711851)
Table of Contents
1. Introduction........................................................................................................................
- Introduction........................................................................................................................
- About Netflix.......................................................................................................................
- 2 Company overview..........................................................................................................................
- 2 Business Model................................................................................................................................
- 2 Competitors and target customers..................................................................................................
- 2 Success: customer satisfaction and innovation................................................................................
- International strategy..........................................................................................................
- 3 Strategy implementation.................................................................................................................
- 3 Main challenges: all that glitters is not gold..................................................................................
- Netflix failures and successes: a closer look.......................................................................
- 4 Why Netflix is struggling to crack the Indian market?.................................................................
- 4 Netflix and COVID –19 pandemic.................................................................................................
- 4.2 An exponential growth..................................................................................................................
- 4.2 The challenge of keeping the boom......................................................................................
- Netflix strategy grounded by theory....................................................................................
- 5 Uppsala Model...............................................................................................................................
- 5 Ghemawat AAA framework..........................................................................................................
- 5 The Porter’s diamond concept.......................................................................................................
- Conclusion........................................................................................................................
- 6 Netflix international strategy fits the theory.................................................................................
- 6 Main findings about Netflix internationalization process.............................................................
- 6 Key learning points........................................................................................................................
- 6 What’s the future for Netflix?........................................................................................................
- Sources..............................................................................................................................
traditional television. This choice has been made for the first time in 2013, when "House of Cards", the very first Netflix Original series, was broadcast on the platform. Netflix's advance is confirmed by its choice to develop internationally, understanding global culture made possible by the Internet, but without avoiding the particularities of the new targeted territories. Netflix's conquer of the global market is a case that can be noted and studied. Three years after starting the adventure in the streaming world at home, the brand is launching its service in Canada. A first excursion outside its borders that will very quickly call for others. In 2011, Netflix arrives in Latin America and the Caribbean. The following year, the European market is targeted, starting with the United Kingdom, Ireland, and the Nordic countries. In 2013, it is the turn of the Netherlands, then came Germany, Austria, Belgium, France, Luxembourg, and Switzerland (2014), followed by Australia, New Zealand, Italy, Spain, Japan and Portugal (2015). In 2016, less than a decade after the first plays on its platform, Netflix is available almost worldwide and joins the Natu 1. This desire to step back from the American market alone seems way logic as it is paired with a strong investment in partnerships and original productions specific to these new targeted countries. Like McDonald's, which offers variations and new sandwiches in most of the countries where it operates, Netflix has also chosen to diversify from American culture (even if its catalog remains a great showcase for American show business). Those culturally connoted creations became, still, big successes ("Narcos", "Orange Is the New Black", "Stranger Things", etc.), it also takes bets on a local scale, with productions sometimes shot in several languages, hoping to make them profitable in other countries. The promotion on its own platform and the recommendations between users relay these programs. Without Netflix, the Spanish series "La Casa de Papel" would probably not have become an international icon, as well as "Marseille", a French blockbuster (starring Gérard Depardieu) which, despite its resounding flop in France, found its audience... in Brazil! From Germany to Italy, from India to the Middle East, the entity is playing the audiovisual witch- apprentice, testing its broadcasting, making its productions profitable and breaking down clichés and preconceived ideas about the supposed expectations and reticence of "viewers". A "Tower of Babel" strategy that is really the only one to apply among the entertainment pundits and that, despite the potential hazards of the next technological or economic revolutions, allows the brand to assert itself at the moment. No matter what the future scenarios are, the name "Netflix" will always be engraved in the heads of Internet users. Like Google.
2. About Netflix.......................................................................................................................
2 A Brief History
Netflix was co-founded in 1997 by Reed Hastings and Marc Randolph, two American software engineers who came up with the brilliant idea to launch a DVD rental and sales organization based on a pay-per-rental model. Two years after its creation, in 1999, the company added and implemented a subscription service, enabling customers to rely on unlimited DVD rental at a reasonably low monthly rate. Between 2000 and 2005, Netflix continued its exponential expansion thanks to the introduction of a personalized recommendation system which used members’ rating to correctly predict movie preferences of the users. In 2001, the company hit one million subscribers. Despite this ongoing growth and the decision to go public in May 2002, Netflix struggled to become profitable until the mid-2000s but survived the catastrophic dot com bubble. The turning point for the breakthrough success of Netflix was, no doubt, the introduction of streaming services. This move allowed the company to establish relevant partnerships with huge electronics companies and enable customers to easily watch movies on their own personal devices; therefore, drastically increasing the number of its subscribers. Driven by this winning innovation, Netflix started going global, launching its first services in Canada and Latin America before entering the European
1 An acronym symbolizing, in Gafa, the power of Netflix, Airbnb, Tesla and Uber.
Market. From 2013 to 2016, Netflix launched its own programming like the well-known “House of Card” while expanding its business in more and more countries all around the world. After receiving several Awards and signing historical producers deals, nowadays Netflix is one of the world’s leading entertainment services with 223 million paid memberships in over 190 countries enjoying TV series, documentaries, feature films and mobile games across a wide variety of genres and languages. Despite the introduction of mobile games on its platform, the fierce competition together with the rebound after the COVID-19 pandemic has made Netflix lose 200,000 subscribers during the first quarter of 2022 (Exhibit 1), the first time in over ten years.
Exhibit 1
0,
50,
100,
150,
200,
250,
Q1 20
16
Q2 20
16
Q3 20
16
Q4 20
16
Q1 20
17
Q2 20
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Q3 20
17
Q4 20
17
Q1 20
18
Q2 20
18
Q3 20
18
Q4 20
18
Q1 20
19
Q2 20
19
Q3 20
19
Q4 20
19
Q1 20
20
Q2 20
20
Q3 20
20
Q4 20
20
Q1 20
21
Q2 20
21
Q3 20
21
Q4 20
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Q1 20
22
Q2 20
22
Q3 20
22
S ubscribe
rs in millions
Quarterly Netfix subscribers count worldwide 2 016 -2 022
Source: Statista
2 Company overview..........................................................................................................................
Netflix Inc (Netflix) provides internet entertainment services for watching TV shows and movies such as original series, documentaries, and feature films through an internet subscription on the TV, computer, and mobile devices. Headquartered in Los Gatos, California, where its main offices are located, Netflix also licenses, acquires, and produces content, including original programming. The company markets and promotes its service through various marketing partners including multichannel video programming distributors, streaming entertainment providers, consumer electronics manufacturers, mobile operators, and internet service providers. It successfully runs its business worldwide, operating in over 190 countries across the Americas, EMEA, and APAC. Netflix operates through 3 major business segments: Domestic Streaming, International Streaming and Domestic DVD. The Domestic Streaming segment derives revenues from monthly membership fees for services consisting of streaming content paid by its members in the United States while the International Streaming segment includes fees from members residing outside the United States. The Domestic DVD segment, which represents the minor business units, covers revenues from services consisting of DVD-by-mail. Netflix’s mission statement reads “We want to entertain the world by giving you access to best-in-class TV series, documentaries, feature films and mobile
still, by far, the dominant player on the market (Exhibit 2), and it may rely on a huge edge. The company’s massive global audience makes it the most attractive streaming partner for creators, who want to get their content in front of as many eyes as possible. Apart from the direct competitors in the streaming video section, there are other competitors coming from the social media and gaming segment, namely, Facebook, Twitter, and YouTube. It goes without saying that another major threat cannot be ignored and become a long-term issue, that is, video piracy.
Exhibit 2
Source: Statista
As previously highlighted, more and more users are flocking to online channels to meet their need for entertainment, meaning that there are huge opportunities for Netflix to broaden its customer base. Generally speaking, Netflix target audience encompasses young, tech-savvy users and anyone with a good digital connectivity. However, most of the customers are represented by teenagers, collegegoers, working professionals, entrepreneurs, families with low-middle income. In other words, the audience of the company is well diversified both in terms of age groups, income, and demographics. As for this type of business, Netflix aggressively works on content expansion and personalization to continuously enlarge its user base. Indeed, A larger customer base goes hand in hand with higher possibility to engage in successful relationships with creators, higher reach, and more word of mouth.
2 Success: customer satisfaction and innovation
The success of Netflix is generally reconducted to two main cornerstones: innovation and the ability to make customers glued to its platform. First and foremost, Netflix has completely shaken up the video streaming industry, by changing the way as how and what people watch in their everyday life. Indeed, Netflix has brutally disrupted the international stage by bringing great technological innovation like digital streaming and machine learning. As of today, the company is one of the biggest streaming content platforms, it is continuing to bring innovation on daily basis with the prime aim to guarantee to the users a remarkable experience. For this reason, Netflix is giving the customer the possibility to watch a broad range of original content with convenience- anytime,
anywhere and on any device. Secondly, the personalized recommendation system and the so-called “Binge Watching” are two noteworthy features which have strongly contributed to enhance the worldwide notoriety of Netflix. The company platform is, in fact, built around the concept of personalization system, that using an algorithm can match the users tastes with the perfect content. This move is probably one of the main reasons which made Netflix the platform with the churn rate worldwide. “Binge watching” instead refers to the possibility granted to the users by the company to watch as many episodes at a time, at any time on demand, as they liked. It goes without saying that by giving the possibility to enjoy an entire “marathon” in a single shot, Netflix has attracted more and more customers, while drastically increasing the loyalty rate. Last but not the least, in recent years Netflix has also made a move which may be defined as “incredible innovations”, that is, blocking VPN’s. This has allowed the company to further differentiate itself from competitors, allowing the subscribers to enjoy a 360° experience all around the world. All in all, it can be said that original programming, exclusive content, disruptive innovations, and international presence make Netflix the most popular international movie streaming service worldwide. It is wise not to forget that even though the international strategy has also played a key role in the success of the company, we will be treated in the following section.
3. International strategy..........................................................................................................
3 Geographic expansion
Netflix is probably the most iconic example to illustrate how, in specific industries, international expansion is the major key of success. To give a brief and panoramic view, by 2017 Netflix was already operating in more than 190 countries (Exhibit 3), a noteworthy achievement for a company that was only present in its country of origin in 2010. Today, 132 million out of the total 220 million subscribers, rough 60%, are coming from outside the US. For Netflix, international expansion was a methodical, well-calculated and data driven process. In particular, its bright success all around the world must be reconducted to two well-thought strategic moves: a three-step expansion process into new markets and the way in which Netflix was able to adapt and establish solid relationships with the countries it entered. By adopting a step framework, Netflix reduced the high risks associated with rapid internationalization, by gaining capabilities in a low-risk environment. This meant that if the company had been unsuccessful in its new environment, they could have left the market incurring only limited losses. The first stage of the company internationalization strategy was not out of the ordinary and consistent with the traditional theories of expansion like the Uppsala model. Indeed, Netflix decided to first penetrate countries that were geographically, culturally, and regulatory close to its country of origin. For this reason, after being well-established in US, Netflix disembarked to Canada in 2010. From the experience learned and data collected from that first step, the company developed the knowledge to broaden its horizon to a set of diversified markets in a very limited period: the second step of expansion. Gaining momentum of the Canadian entrance, Netflix prioritized countries with relatively low psychic distance, and the availability of streaming infrastructure. In this second phase, contradistinguished by a faster spread, Netflix extended its activity to more than 50 countries, mainly located in Latin America and the Caribbean. Reaching more distant markets required more investments both in terms of content creation to meet the preferences of this new geographies both in technologies like big data and analytics. This second stage allowed the company to keep improving and gaining insights about internationalization, establishing partnerships with local strategics players while increasing revenues. Basically, it paved the way to the last step of internationalization, that is, reaching EMEA, APAC and remaining countries. This third step allowed the company to be available in 190 countries. As now, Netflix is
only Netflix localized but it also made it original based on local preferences. Moreover, to ensure its movies and shows were accessible to as many users as possible, Netflix also translated its content into local languages and introduced subtitles and dubbing. “Each country is different and must be treated as such 5 ”. On top of that, the role and management of data has been key in Netflix international strategy implementation. Netflix has always disembarked into new markets by means of a limited time offering. This allows the company to minimize the risks associated with expansion while retrieving meaningful data from the user of the new countries. The data collected was then used to grasp insight into subscribers’ needs and preferences, to figure out which offer would have been the best and improve the efficiency of the company’s personalization algorithm. In doing so, Netflix has been able carefully select its next market as well to shape successfully region-specific business model, always backed by the fundamental principle to put the customer at the center of its business. All in all, this overall framework can be seen as a template used by Netflix for any expansion: enter a new market, adapt to local preferences by gaining expertise and streaming patterns and, review and going ahead with the expansion or alter the previous step. It goes without saying that Netflix always pays great attention to details and how viewers of different geographies reacted to the company initiatives.
3 Main challenges: all that glitters is not gold..................................................................................
Despite the undeniable and phenomenal success, Netflix global expansion has not been without obstacles. First and foremost, Netflix had to face several national regulatory restrictions, regarding the content that could have been made available in each local market. While entering most of Middle East and African markets, the company experienced strict censorship challenges. Based on culture and values governing this region, certain content relating to the consumption of drugs, alcohol, or of a sexual nature has been reshaped or removed completely to meet local societal beliefs and rules. For instance, the Kenya Film Classification Board criticized the streaming service in 2016 for having "challenged the moral values of the Kenyan people" with some of its content. Likewise, the Indonesian, Vietnamese and Malaysian governments blocked Netflix from expanding because the firm was not respecting their censorship policies. Similar regulatory concerns prevented Netflix from disembarking into the most attractive and flourish international market, namely, China. Secondly, it goes without saying that even many legal issues have frequently arisen, slowing down the globalization process of the company. In Australia, TV stations repudiated Netflix's classification as a tech company rather than a broadcaster as this allowed it to avoid having to comply with certain local regulations. As a response to defend its local businesses, the Australian government passed an ad hoc new law obliging streaming platform like Netflix to undertake huge investments in the local economy. Thirdly, due to the fierce competition and presence of well-established incumbents, Netflix has been forced to secure content deals on a region-by-region and sometimes country-by-country basis. In some countries, in which most of viewers were users were accustomed to free content, promoting a shift towards paid streaming plan has been far from easy. Furthermore, the difference preferences of users have obliged Netflix to continuously undertake drastic change of its offering and platform features, putting the company in a clear disadvantageous position. For instance, most of Netflix users are not fluent in English or prefer watching movies in their languages, meaning that all the programming has been translated and dubbed. Last but not least, when entering Latin America and the Caribbean, Netflix faced problems related to connectivity, internet speed and novelty factors. Indeed, since Netflix was the first streaming platform to enter these regions and the financial banking system was not prepared to deal with
5 Famous statement of Netflix CEO, Reed Hastings
monthly recurring fees for a service, there has been a high degree of hesitation to embrace this innovative concept. Moreover, to get rid of connection issues Netflix was called to make an additional technical and technological effort and to sign powerful agreement with internet service providers. Keeping in mind all these obstacles, it goes without saying that Netflix faces a major challenge all around the world regardless of its new country of expansion, that is, piracy. Indeed, in recent years, data showed that people are increasingly watching movies, series, documentaries and shows on illegal streaming websites, that obviously rip off the company content. For this reason, Netflix has recently intensified contact with major peers like HBO and Disney + to launch a noteworthy fight against this pirate site. Despite these hard challenges, Netflix has been able to achieve an astonishing growth and become one the most popular streaming services worldwide, conquering around 190 countries. The company expansion has been carefully orchestrated, executed at high speed, to an ever-increasing number of countries and customers. This approach has helped the company to expand much faster than its competitors.
4. Netflix failures and successes: a closer look.......................................................................
4 Why Netflix is struggling to crack the Indian market?.................................................................
India is one of the fastest growing markets in the world for OTT or video on demand platforms, a space that is currently experiencing intense competition between Netflix, Amazon Prime or Disney
- Hotstar. The latter has the largest number of subscribers, accounting for 50 percent of the market, followed by Amazon Prime with 9 percent and Netflix with 5 percent (Exhibit 4). But the market is attractive in India, OTT/video on demand platforms revenue realized is 2 billion U dollars in 2020 and 2 billion U dollars in 2021. The trajectories of this market are more than florid. Indeed, the market is expected to reach its all-time high in 2026, at around 6 billion dollars. These platforms have transformed spectator habits and now have access to many international and local content.
Exhibit 4
Source: Omdia
After its entrance in 2016, it turned out to be a difficult market to penetrate for the streaming giant Netflix. The path towards toward success has been though in India for several reasons. First and foremost, there are issues when it comes to content. The content is essential when entering such a demanding country and Netflix does not bring the appropriate regional content within India, resulting in a less established proximity with the target. For example, Amazon Prime,
frustration with the lack of progress in India, Netflix is still confident an exponential and significant growth will soon take place in the region.
4 Netflix and COVID –19 pandemic.................................................................................................
4.2 An exponential growth
The pandemic has accelerated new digital uses, including video-on-demand. It was the big turning point that allowed Netflix to dominate the streaming platform market all around the world. Almost a quarter of a century after its foundation, the company is already on the rise when the year 2020 begins and has achieved a double record in turnover and number of subscribers. In 2019, annual sales increased from 20 billion to 25 billion in 2020. The streaming platform thus gained around 15 million new paid subscribers between January and March 2020, against 9 million last year for the same period. Passing the 200 million subscribers, marked and imposed its dominance on the streaming platform market from 2020. At the end of 2020, the total number of subscribers was 183 million, the all-time high for the American company. In the first two months of 2020, growth was basically the same of the entire previous years. It goes without saying that with mandatory lockdown announcements in many countries starting in March, many more households joined the platform. It was like that during the pandemic, Netflix became an essential service like “food and water”. Covid has plunged the world into a real standstill with the closing of cinemas. People are confined at home so to escape stress; they change their ideas and relax with entertainment. That’s why Netflix reports on the play button and seizes this opportunity to offer even more originals content and achieve its record results. Moreover, over this period in 2020, Netflix is a success because it is the only streaming service really implemented all over the world. Because it is at the international level that the greatest growth drivers are located. In addition, thanks to its "originals", Netflix can offer its own catalogue anywhere in the world, without difficulties. Conversely, at this time, its Hollywood competitors Disney+ or HBO are entangled in the jungle of broadcast rights in each country. Their catalog is huge, but they have very little content produced specifically for their new platform. Netflix has armed itself effectively and multiply the programs that make the public buzz like Casa de Papel or Elite. These programs promote well-being, become a therapy to flee information channels that demoralize.
4.2 The challenge of keeping the boom
Now, post-pandemic, the trend can reverse, and we must prepare for it. Netflix’s challenge is not only to attract new subscribers after the lockdown, but also to keep those they have acquired. The American giant did not escape from that. For instance, the number of subscribers has slowed down because of the Covid-19 breakthrough in 2020, which is bringing things back to normal with the daily newspaper’s activities and because of a smaller content offering due to pandemic production delays. Netflix finished the first quarter of 2021 with nearly 208 million paid subscribers worldwide, 2 million less than the video streaming giant promised investors. Competitively this may be seen as a cause for concern because Disney+, Hulu, HBO Max and others are catching up with them in terms of subscribers. While Disney+ took service in November 2019 and 5 months after launching wins 50million of subscribers. So, Netflix is counting on its hit series such as “La Casa de Papel” and the resumption of filming. CEO Hastings' attack plan is to spend "17 billion dollars in content this year and continue "to offer an incredible variety of titles with even more original productions than last year". Netflix remains without any doubt the video-streaming platform spending the most in original content (Exhibit 5).
Exhibit 5
Source: Statista
With the aim to stop this downward trend, Netflix is undertaking an aggressive, but, at the same time, well-calculated strategy. Other than evaluating the potential introduction of an ad-supported tier to compensate for the decrease in revenue, the current main focus of the company consists of massively reinvesting in content, technology, talent and infrastructures. All these initiatives fall under the same goal: reducing at minimum the churn rate. As today, indeed, one of the major strengths of Netflix was to rely on very loyal customers that were after subscription, difficultly deciding to cancel the service. Now more than ever, stressing this point and devolving most of its effort on keeping the churn rate under control, it is fundamental for Netflix.
5. Netflix strategy grounded by theory....................................................................................
5 Uppsala Model...............................................................................................................................
Netflix global strategy is perfectly coherent with several traditional theories of internationalization. In particular, Netflix first phase of expansion was conducive with the main principles outlined by the Uppsala model, which highlights the fundamental importance of experience gains. Indeed, Netflix did not disembark all markets at once - which contrasted a trend that tech companies must rapidly expand- but rather proceed with a well-calculated step-by-step process. As previously explained, Netflix targeted firstly those markets that were geographically, culturally, politically, and regulatorily close to its country of origin. For this reason, the company entered Canada before expanding in other countries with a low “physical distance”, namely, Latin America and the Caribbean. This move allowed Netflix to minimize risks while gathering vital information about internationalization process and competitive reaction in a market where the company had enhanced knowledge and more control over its resources. The data collected was used to better figure out country-specific needs and characteristics as well as to develop fundamental capabilities to later intensify the activities in more and more foreign markets. It goes without saying that as emphasized by the Uppsala model, Netflix can be considered a perfect example of a firm that is a “learning organization”. Having learned from previous experiences and already being a solid well-respected company, Netflix pursued a more rapid international expansion during the second and third step of its overall global strategy. In doing so, Netflix abounded its first strategy to entry new markets once by once by rather targeting entire geographical area with similar characteristics like most European and Asian countries. Therefore, Netflix was able to rapidly increase revenues and save costs by not repeating all the necessary steps of adaptation for every single market, definitively becoming the most prominent player in the video streaming industry.
5 The Porter’s diamond concept.......................................................................................................
Porter Diamond suggests that countries can create new factor advantages for themselves, such as a strong technology industry, a skilled workforce and government support for a country's economy. Most traditional theories of the global economy differ in mentioning elements or factors that a country or region inherently possesses, such as land, location, natural resources, labor force and population size as key determinants of a country's competitive economic advantage. Another application of the Porter Diamond is corporate strategy, to be used as a framework for analyzing the relative merits of investing and operating in various national markets. The first point of the Porter Diamond is corporate strategy, structure and rivalry. Netflix was founded in arguably the most innovative and entrepreneurial country in the world, with early rivals such as HBO, HULU, Amazon video, and Disney + all competing for a share of the consumer streaming market. Today, Netflix's strategy is to have a strong knowledge of the countries in which the giant has established itself in order to provide an enhanced customer experience. The second point is the factorial conditions. Netflix is based in Silicon Valley, California, so the company may rely on several advantages. For instance, Netflix may easily access a large skilled workforce as well as find funding opportunities and fruitful partnerships. The high concentration of early adopters, corporate innovation outposts, and tech giants combined with like-minded entrepreneurs played a fundamental role in optimizing product-market fit and accelerating the company growth. However, always driven by the goal to minimize costs, most product assembly takes place in China where labor is cheaper. The third point of this strategy is demand conditions. Netflix enjoys significant demand for its films and series around the world. The current economic situation is also in line with this, as television is increasingly being abandoned in favor of streaming. Finally, the fourth point of Porter's diamond strategy is the related and supporting industries. As mentioned earlier, Netflix benefits from increased collaboration with producers around the world, which facilitates its establishment in countries and improves its visibility. The Porter Diamond Model is a business model that argues that an organization's global competitiveness depends on the country in which it operates. However, it has been criticized for its lack of scope and its focus on certain non-service industries.
6. Conclusion........................................................................................................................
6 Netflix international strategy fits the theory.................................................................................
Netflix may be seen as a commendable example of a business that should expand its operations internationally. Starting out in just one country, the United States, Netflix has expanded into over 190 countries in just seven years! Today, Netflix is currently the world leading company in the movie streaming space, operating all around the world with subscribers numbering around 220 million people. The path towards its global success has been plenty of obstacles but backed by a great and well-calculated strategy. By combing internationalization and internalization in a gradual step-based approach Netflix managed to triumphantly expand at an international level at a conceivable rapid pace. Geographically speaking, Netflix disembarked into its first new markets by literally following the core principle behind the Uppsala model, according to which a company should initially target countries similar to the one of origin. Then, only once knowledge and skill has been gained, intensifying activities in
more and more countries are wised. It goes without saying that entering a culturally, politically, regulatorily close country like Canada seemed to perfectly fit the theory. Even in the second step of its international expansion, Netflix followed a calibrated approach, that looked to trace the traditional research. Indeed, the choice of disembarking into Latin America and the Caribbean must not be reconducted only to the lack of strong competition but to proximity in terms of “physical distance” with US. Using everything that it learned in the antecedent stages in term of content preference, company organization and how to market the product, between 2013 and 2016, Netflix ramped up entering the remaining markets, establishing itself in most countries in EMEA and APAC. The choice to complete the expansion by simultaneously disembarking in entire similar areas rather than country by country seems to recall to some extent what the Ghemawat Framework proposes. Ghemawat AAA framework that has probably been carefully “applied” by Netflix during all its expansion process. Indeed, as analyzed in the previous section, Netflix strategy is consistent with the three main pillars on the aforementioned framework. When entering new market, the American Giant undertake a careful work of adaption by focus, externalization, variation, and design. It goes without saying, that at the same time, Netflix continuously proposed disruptive innovations to perfectly country- specific needs and differentiate to local competitors. However, Netflix's new local content has always been minimal to the overall worldwide offering. This move, which recalled the aggregation concept, was essential to exploit economies of scale. When it comes to arbitrage, Netflix choice to enter into agreement with local players perfectly reflects the company ability to combine regional efficiency with economies of scale and scope.
6 Main findings about Netflix internationalization process.............................................................
The in-depth analysis of Netflix internationalization proposes many insights that cannot be ignored. The elements behind the successful expansion of the company are numerous and intriguing. Barring already treated aspects more related to theories, the main findings may be summarized as follows. Netflix has adopted a strategy of aggressive market expansion. The company has sought to enter new markets as quickly as possible in order to gain a first- mover advantage. This has been a key driver of Netflix’s growth. The company has been able to quickly establish a leading position in new markets. In terms of pure strategy implementation, Netflix always relied on the same two- step strategy in foreign countries as it did in its home market: first control the channel and then own the content. The company engaged in partnerships with local players for successful entry, in order to suit both customer preferences, political requirements and country-specific regulations. After disembarking in each new market, Netflix undertook a heavy process of localization and adaptation by adding new languages and showcasing regional content. However, after relying on local partners to overcome the liability of foreignness, Netflix began internalizing the local content. This is coherent with strategic management research, especially with the so-called eclectic paradigm (OLI framework) emphasizing that an increase in foreign market knowledge goes generally hand in hand with a rise in the pressure to internalize.
experience possible, culture by culture as well as getting a real understanding of the audience becomes fundamental to perfectly adapt to the new markets. Thirdly, it is worth noting to say that localization is not a simple process at all. It always includes several factors ranging from language, passing to culture and ending up technical efforts that need to be considered. As Netflix example suggests, translating the website of the company is often not enough to create a business in a foreign market. Putting in even more effort can assure you an excellent return on investment and long-term relationships with the customers. For instance, from our Netflix case, the American giant was able to turn a local success into a global phenomenon. Netflix offers content in 190 countries and its platform is fully translated in 24 languages, other than offering movies, documentaries and shows in which you can easily select the proffered languages even for subtitles. Indeed, as we have shown, the main challenge in terms of localization is to be able to offer its content and platform in a culturally and linguistically relevant way in its target markets in order to tap into the global consumer base that offers higher growth rates. Regardless how big and well-established you are, innovation always remain a key aspect. Constant technological innovation has kept Netflix ahead of its competitors for many years now. Other than the disruptive innovation highlighted in the previous section, Netflix has built its own IT infrastructure using technology solutions provided by big companies such as Amazon, Microsoft, and Level-3. It used dynamic streaming over HTTP or DASH, which provides good quality levels of entertainment based on the user's bandwidth and Internet connectivity. Moreover, used high-speed data centers with state- of-the-art content delivery networks. If Netflix is still dominating the international scene after long time, innovation is probably the main driver. Netflix is, without doubt, an interesting case to study when it comes to steps of internationalization, which always has been one of the main goals of the company.
6 What’s the future for Netflix?........................................................................................................
The pandemic sparked a boom for all the video streaming services, Netflix included. During the lockdown Netflix has seen their revenues and subscription rocketing, becoming for most people an essential tool to face the boring and grey days. Now, the wind is changed. The company lost subscribers (around 200,000) for the first time in its history, cut around 25 people from its marketing staff, and has begun piloting ways to crack down on sharing passwords. Netflix is facing such a fierce competition as never, continuing to lose market share (Exhibit 7), especially in US. Moreover, there is a particular trend to keep under investigation. Figures indeed show than young generations are increasingly shifting away from watching movies and documentaries, devolving their attention towards simple videos. The power on some platform like YouTube and Tik Tok may become a threat to not under evaluated.
Exhibit 7
Source: Just Watch
In light of these considerations, it goes without saying that Netflix board of directors may be at least a little be worried. So, what could be done? Netflix's new advertising strategy, announced by Reed Hasting in a recent conference, could enable the company to extend its reach against similar options coming from Disney+ and HBO Max and try to reach for free advertising platforms like the Roku channel. In such a period of slowdown, it may be for sure represent a lifeline to increase revenues. Moreover, this ad- supported tier could also diversify from rigid subscription fees that do not correspond to every customer. This diversification could of its business could even go beyond video streaming with video games and other very popular digital assets. Obviously, Netflix will still have to deal with competition coming from other platforms because of the consumption trends going on, but its algorithms could help develop more original hits (such as Squid Game, Stranger Things and Bridgeton) that are not based on existing IPs and trends. This strategy could further differentiate it from its major competition that enjoy big funding like Disney. Finally, cracking down on shared accounts (and passwords) could obviously create a backlash against the group, but it could also allow Netflix to progressively regain paying customers in mature markets like the U., Canada, and Europe, while meeting one of the most prominent goal of Netflix at the moment, that is, minimize the churn rate.
Netflix
Matière: Strategy Management
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