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Case: The Video-Streaming Wars in 2019: Can Disney Catch Netflix? Case Questions: 1. Have Iger and his team of executives found the right formula to

Case:

The Video-Streaming Wars in 2019: Can Disney Catch Netflix?

Case Questions:

1. Have Iger and his team of executives found the right formula to unseat Netflix as the leader in

video streaming?

2. Should Hastings and his team at Netflix respond in some way to the looming threat posed by

Disney? If so, how?

3. In general, what factors drive the success of video-streaming services?

4. When you regard the evolution of the video-streaming space, do you feel that traditional media

companies dropped the ball by allowing Netflix to become so dominant? Is there still time for them

to catch Netflix?

5. How do you see the future of this space? Is there room in the market for multiple large video-

streaming services? What will it take to win?

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Sequential Decisions > Possibility for some firm(s) to act before competitors, who can thus observe past choices I e.g., pharma. firm with patent acts before generic producers > Better to be leader or follower? > Firm gets higher payoff in game in which it it a leader than in symmetric game in which it is a follower => firstmover advantage > Otherwise :> secondmover advantage > Depends on nature of strategic variables and number of firms moving at different stages > First mover must have some form of commitment > When and how is such commitment available? One Leader and One Follower- Stackelberg Model Assume firm 1 is the leader and firm 2 is the follower, no production costs Compete in quantity Inverse demand function P (q1, 92 ) = a - 91 - 92One Leader and One Follower Stackelberg Model (cont) Y Solve the model by backward induction > Follower's decision I Firm 2 observes (71. then chooses q2 to maxnz = (a - 11 72) 72 I Reaction function: q2(q1) = (a q1)/2 b Leader's decision I Firm 1 anticipates follower's reaction, then chooses q1 to max7T1 = (a 71 - 72)q1 = (a (lth/2 > Equilibrium L_a F_a 1?'7 Z DP: 5 Q a 4 One Leader and One Follower Stackelberg Model (cont.) > As firms are symmetric and leader makes higher profit than follower : Firstmover advantage > Comparison with simultaneous Cournot > => Higher quantity and profits for leader with respect to Cournot > => Lower quantity and profits for follower with respect to Cournot > Intuition: leader has stronger incentives to increase quantity when follower observes and reacts to this quantity, than when follower does not > Note: if one firm chooses its price before the other firm 2 CAI-AHA MAI In- an" lnnll'nlrn One Leader and Several Followers b E.g., market for a drug whose patent expired > Leader: patent holder; followers: generic producers > Observation: leader cuts its price, possibly to keep the number of entrants low > Theoretical prediction > Leader always acts more aggressively (i.e., sets larger quantity or lower price) than followers. I Intuition: leader is also concerned about the effect of its own choices on the number of firms that enter; nature of strategic variables is less important. Extension: Updated Data Streaming service giants: Netflix and Amazon Service * Type * Subscribers (Q4 2020) Netflix Video 203.7M Amazon Prime Video Video 150.0M Spotify Audio 144.0M Tencent Video Video 120.0M iQIYI Video 119.0M Disney+ Video 94.9M Youku Video 90.0M Apple Music Audio 68.0M Amazon Prime Music Audio 55.0M Tencent Music (Group) Audio 51.7MExtension: Updated Data (cont. ) Disney leads in streaming growth Service * Type Percentage Growth (2019) Disney + Video New Apple TV+ Video New Disney+ Hotstar Video 516.7% ESPN+ Video 475.0% Starz/StarzPlay/Pantaya Video 211.4% Paramount+ Video 123.8% HBO Max Video 115.0% Amazon Prime Video Video 100.0% Alt Balaji Video 100.0% YouTube Premium Video/Audio 100.0%Extension: Updated Data (cont. ) Netflix's growth rate: 34.4% Service * Type Percentage Growth (2019) DAZN Video 100.0% Eros Now Video 92.6% Amazon Prime Music Audio 71.9% Tencent Music (Group) Audio 66.8% New York Times News 60.5% Spotify Audio 44.0% Hulu Video 38.6% Viu Video 38.0% Netflix Video 34.4% Tencent Video Video 27.7%

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