Netflix Tech Strategy PPT

STRATEGIC ANALYSIS

Presented by:Kevin Andrews • Ebube Anizor • Nasir Gondal • Mohammad Shafiei-Monfared • John Selvakumar

Schulich School of BusinessJuly 19, 2010

Thursday, 8 September, 11

“Netflix will forever change the way you

watch your TV & Movies.”


Company Overview

DVDs via mail, electronic delivery via the Internet -> great consumer value

14 million+ members in USA, projected to be 16 to 17 million by the end of 2010 (>10% of US household subscribe to Netflix)

2009 Revenue: US$1.67B

2010 forecasted: US$2.05B to US$2.11B

Several subscription plan choices: 3 DVDs at-a-time/Unlimited Streaming

- $17/month 2 DVDs at-a-time/Unlimited Streaming

- $14/month 1 DVDs at-a-time/Unlimited Streaming

- $9/month 2 DVDs /2 hours streaming - $5/month Netflix corporate headquarters

Los Gatos, California


11 Years of Strong Growth


Financial Highlights

Average Monthly Revenue per Subscriber: $13.30 Gross Profit: $4.71 Net Profit: $0.92

Profit (Gross/Net): 35.4% / 6.9% Cost Distribution:


Service Overview


DVD-by-Mail Service

58 distribution locations nationwide

Netflix ships 2+ million DVDs each day

97% of subscribers receive discs in one day


Instant Streaming Service


Netflix-ready Devices in 2009

Blu-Ray & HTiB Samsung LG Insignia (Best Buy) Sony NFLX check list in ‘10

DTV LG Sony Vizio NFLX check list in ’10

Gaming Xbox Sony PS3

STB Roku Tivo Sony BIVL


Netflix-ready Devices in 2010

Blu-Ray & HTiB VIZIO Samsung

LG

Sony

Insignia

Sharp Toshiba

Panasonic

Philips

DTV VIZIO Samsung LG Sony Insignia Sharp Toshiba Panasonic Philips Sanyo

Gaming Xbox Sony PS3 Nintendo WiiSTB Roku Tivo Western Digital SeagateOn-the-Go PC/Mac WMC HP TouchSmart Apple iPad & iPhone


Netflix-ready Device UI

Instant Queue Title Details

Streaming Playback Optimized FF/RW


Business Strategy

Customer Intimacy Strategy Subscribers are offered a choice of delivery method and

platform that is most convenient for them, all at one low price Focus on customer service and user experience

Core Business Objective: Grow a large subscription business consisting of streaming and DVD-by-mail content


Technology Strategy

Bowling alley approach

Shift to the next S-curve

Leader in technologies to enhance the subscriber experience and operate efficiently

DVD by Mail

Buildsubscriber

base

OfferStreaming

Customer Reference

DigitizeRelationship

WholeProduct


Technology Strategy

Create• Digitize customer

relationship• All you can use

content

Deliver• Personalized

Experience• Hybrid DVD/

streaming system

Capture• Strong installed

base• Multiple platforms • Monthly

subscription fee


Innovation Strategy

Disruptive innovation has been the hallmark of the company’s success One of the first companies to introduce DVD by mail over

the web

Innovation focus has been shifting to online streaming

Internal and open innovation $1 million competition to improve recommendation

engine by 10%

Investment Priorities Web based STAs Processing and distribution of DVDs and streaming

content


Intellectual Property

Netflix uses a combination of patent, trademark, copyright and trade secrets Patent for Online DVD Rental process (2006)

Netflix successfully sued Blockbuster for infringement

Patented in-house video streaming technology

Patented recommendation engine


Complementary Assets

14 million customers and counting Strong customer service

24/7 call center in US

High level of interaction with customers

Relationship with content providers and leveraging it to acquire licenses for online streaming content.

Netflix-ready Devices


Competition

Traditional DVD Rental Stores Blockbuster

Now near bankruptcy (delisted from NYSE) struggling to compete in digital and mail service space

Internet delivered video (video-on-demand, ad supported, and subscription) Cable / Satellite Providers / TV Stations Downloading Services (e.g. iTunes) Streaming Services (e.g. Amazon on Demand) Content Providers (e.g. Hulu+)

Shifting from an industry with a few players to one with several strong players!


Competitors

Source: Netflix 2.0


Competitive Factors

Factor 1: Access to Content / Release Window


Competitive Factors

Factor 2: Pricing / Service Model

Factor 3: Existing Business / Customer Base

Unlimited subscription

Newer TV shows, some new movies, older movies

17,000 titles and growing

DVD rental

$4-5 PPV Hot new

releases PPV: 24 hrs

to view

Ad-supported video

TV show centric Older movie titles Free for Hulu bas

and YouTube PPV Model for

Hulu+


Competitive Strengths

Brand Personalized Service Growing Scale (efficiencies, negotiations)

Convenience, Selection and Fast Delivery


Competitive Position - Summary

Netflix augments the standard video package. Its success is based on clearly defining where and how it competes:Segment. Consumer-paid streaming

subscription Content. Library and relatively new

content. Other content types not in scope. Revenue Model. Single, simple

subscription based revenue model.


Competitive Position - Summary

Netflix compares itself to a motorcycle Positioned to “augment” rather than

“replace” Standard video package is a car, Netflix

is a motorcycle Few people with a motorcycle, vast

majority have a car Need to offer a great experience to get

“car” owners to buy spend on Netflix


New Entrants

Independent offerings from content providers

Potential for M&A amongst players Alliances with content providers (a la

Hulu)


Outlook

What’s Growing? Declining?

Source: Netflix 2.0


Outlook

Studios need to protect high margin DVD sales and value chain Avoid iTunes-like domination by Netflix


Outlook

Studios goal is to manage online availability (what and when)

Net Neutrality


Recommendations

Focus on negotiating favourable long term content agreements

Deploy to as many devices as possible Geographic expansion Expand complementary assets Leverage DVD / Streaming hybrid model Long Term: apply model to books, video

games…


Are You In?

Poised for growth: Currently services the only the US (today, announced expansion to

Canada) Growth in smartphone and tablets Performance of broadband and mobile network improving IP connected devices on the incline Established “Gorilla” in Video Streaming market

In the 5 years heading into 2010 subscribers tripled, revenue up 20% annually, profit 23% and a market cap of US$6.2 billion.


In Canada

Streaming only – no discs

English at launch, French later

Public announcement July 19th

Target of less than $10/month unlimited streaming


Are You In?


Our Bet

“Medium” investment Ideal investment distribution:


Market Trends & Threats (to Cable)

Source: Rogers


The Impact of On-Line


Video Driving Growth in Network Traffic


Choice, Convenience and Control

Source: Rogers


Content Acquisition

Netflix focuses on getting Netflix members the highest total “viewing value” in our library

Not striving for a specific quantity Offer the best overall library Content obtained through direct purchases,

revenue sharing agreements and license agreements with studios, distributors and other suppliers. DVD content is typically obtained through direct

purchases or revenue sharing agreements. Streaming content is generally licensed for a fixed fee

for the term of the license agreement.


Continued Investment in Content


Netflix Tech Strategy PPT

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