Netflix Swot Analysis
Netflix is the leading online entertainment across the world. Founded in 1997, Netflix has tremendously grown over the years to hit over 137.1 million subscribers from over 190 countries. While the Netflix brand started as an online DVD rental and sales site with just 30 employees and 925 titles, today you can stream movies, documentaries, films in various genres and language wherever you are in the world.
But, how is it so successful? Has it faced any challenges before? To give answers to these questions let’s look at a comprehensive Netflix SWOT analysis.
- Brand Equity: The strong brand equity Netflix has managed to build and nurtured over the year is one of the major strengths of the company. It is one of the most trusted brands when it comes to internet television network segment. With the continuous focus on customer experience and quality service, Netflix managed to maintain a high level of popularity, customer loyalty and trust. Moreover, high brand equity has resulted in higher sales and revenue. Despite the US market is said to be nearing saturation, the company still enjoys fast growth in the customer base. Generally, Netflix is good consumer relations and support which is good for its future.
- Original Content: Netflix produces original content with the best quality that is unrivalled in the market. The original content in all its productions has helped the company to create a highly differentiated experience while growing its popularity across the globe. Moreover, original content significantly reduces competitive pressure while making the company stand out from its competitors in the online entertainment service provision.
- Large Customer Base: Netflix has exponentially grown in recent years with the user base standing at 139 million in 2019. Surprising, this high number has come when the US market is expected to be nearing saturation and the only options Netflix has was to expand to overseas markets. Nonetheless, this company is still expected to further expand its user base both in the US and overseas in future. A large customer base is another primary strength of Netflix that has led to the growth in both revenue and profits.
- World-Wide Presence: By 2016, Netflix had already started to expand outside the US market. With a few years, the network has already extended to more than 190 countries where it derives over 139 million users. Besides being able to be accessed by any internet-enabled devices, one can watch its shows anywhere, anytime as well as record or save for later viewing. Its worldwide expansion strategy has led to the exponential growth of its total customer base.
- Adaptability: Netflix can quickly adapt to various technologies. For an instant, it quickly adapted to different technologies and started providing streaming on all internet-enabled devices such as iPads, television, personal computers, tablets and mobile devices. The aspect of adaptability has seen Netflix grow quickly over the years.
- Exponential Growth: Netflix is a fast-growing and innovative company that is enjoying great popularity around the world. Its revenue and user base has grown faster in recent years. This growth has been attributed to excellent culture the company has established which is one of its strengths. Any technological brand requires an excellent culture to attain faster growth and become more productive. Known for hiring the most productive staff, Netflix has also founded a culture of innovation that ensures productive and inclusivity is maintained.
- Increasing Operational Cost: Netflix has always focused on providing exceptional services to its consumers across the world. To make its products and services exceptional from its competitor it has concentrated on producing original content which is more expensive than licensing. Additionally, due to the growing customer base and the competition investment in marketing and research and development has also increased the operational cost. The higher operational costs have led to the lowering of profits despite the increasing revenues.
- Dependence on the US Market: The US provides the largest market for Netflix. This domestic streaming segment delivers huge revenue of all the business segments. Conversely, the revenue from the international streaming segment has also grown due to growth in the overall user base from around the world. Since the domestic streaming segment produces more than 50% of its total revenue leaves the brand entirely dependent on the USA market. Moreover, a steady dollar means reduced profits from external markets.
- Limited Copyrights: Netflix doesn’t own the copyrights of most of its original programming and this impacts the company negatively. This is because the rights they source form other studios often expires after one year and thereafter the content starts featuring in other sites.
- Rising Debt: Netflix is providing its differentiated content in different countries across the world which needs a lot of financing. As such, Netflix adding to its long-term debt to finance the new content. By the end of September 2018, Netflix’s long-term debt was reported to be $8.34 billion. The increase in long-term debt every year is a sign of major weakness for Netflix.
- Lack of Green Energy: Netflix is yet to install and use renewable energy as well as build a business model to promote environmental sustainability. Huge technological companies such as Google, Amazon, Facebook and Apple are using renewable energy which aims at sustaining the environment. Al these four companies have dedicated to using 100% renewable energy in running their business. Therefore, the lack of renewable energy for use in Netflix negatively impacts the brand’s image.
- Increasing Internet Usage across the World: Internet usage across the world has been on the rise and since Netflix delivers its services via the internet, it is a profitable trend for the brand. As the internet becomes easier to access, the easier it becomes for more users to watch movies and show from wherever they are across the world on any internet-enabled device. Moreover, the rapid expansion of 3G and 4G internet connectivity around the world has led to an increase in the Netflix memberships in recent years.
- Local Content for Emerging Markets: New markets can be the main source for Netflix revenue. The emerging and rapidly growing markets offer a large audience for Netflix and can lead to an increase in its revenue. Netflix should consider growing its user base in the emerging markets like in Asian countries like China and India. Moreover, creating and delivering local content for these markets can help attract more local users in big numbers.
- Invest in Research and Development: Research and development is an important aspect of any technology business. Huge technology companies like Facebook and Google invest a colossal sum of money every year on research and development. As the user base and profits of Netflix continue to grow, the brand might be able to invest more money in their research and development agendas.
- Partnership and Alliances: Netflix can partner up with various telecom providers to offer affordable bundle packages in various countries. These partnerships and alliances can be beneficial or Netflix. For instance, Netflix partnered with Channel 4 in the past, therefore can form more solid partnerships with local broadcasters for its benefits.
- Regular Refreshing of Content Library: Netflix can expend and refresh its content licensing by increasing the contracts with various movie distributors. Besides, the brand should consider refreshing its content library regularly since it is now producing its original content.
- Competitive Pressure: Netflix isn’t the only brand providing digital streaming around the globe. It has a competitor base that continues to increase each year. Amazon, Hulu, HBO, YouTube and AT&T are some of the competitors that are giving Netflix a run its money by providing easy access to new and original content to their subscribers.
- Government Regulation: Some governmental rules and regulations are very strict regarding the service providers like Netflix in most countries and this can be a big blow to the brand. Netflix’s expansion to China is doubtful mainly due to China’s strict restriction on foreign content.
- Economic Fluctuations: Unpredictable economic fluctuations are also negatively impacting the revenue and profits made by Netflix. The US is the biggest market for Netflix and mostly it enjoys stable economic activities, but this is not replicated across the world where it has extended to. Economic declines often lead to reduced consumer spending thus reducing revenue and profits made.
- Piracy: The monthly costs are out of reach for most people. As such, thousands of individuals around the world always find ways of downloading media content from Netflix without pay. Digital piracy is a big threat that Netflix faces today.
Netflix is no doubt the fastest growing online entertainment company with a worldwide presence. Its rapid expansion has been witnessed since it launched its global expansion in 2016. The brand continues to enjoy revenue growth while delivering its online entertainment services around the world in more than 190 countries.
With 139 million memberships across these countries, Netflix is projected to continue growing in the coming years. However, there are several challenges that the brand has to overcome. Besides getting competition from video content streaming websites, other websites like social media as well as gaming sites also pose a very competitive threat to Netflix. Therefore, it has to put up strict strategies to overcome its weaknesses and threats to keep growing in future.