Netflix's challenges in the future: what's next?

Whether we like it or not, Netflix has redefined the way we watch television. Traditionally, people used to gather around one device (the television) at home to watch a movie or a TV show. If they are lucky enough to have it on DVD, then they can avoid interruption caused by commercials; if not, they have to watch what the channel has to offer. With the introduction of Netflix, people can watch from any Internet-connected device (e.g., computer, tablet, mobile phone, gaming device), anytime, anywhere without being limited to their home TVs. Additionally, Netflix offers the concept of video on demand, meaning viewers can watch, pause, and repeat at their convenience and without having to follow TV channels' showtimes. This offers the added value of comfort and flexibility to viewers that they were not getting from the traditional way of watching TV.

This transformation ended the brick-and-mortar video rental industry and forced cable companies and TV networks to offer their online streaming services. Netflix competed with them by attracting series producers and showrunners, offering them generous contract terms, including the upfront featuring full seasons, whereas networks only approved shows after their pilots have hit specific metrics. Netflix's model of uploading full seasons at once made binge- watching became inevitable.

Starting as a small DVD rental business, Netflix is currently worth more than $100 billion. Yet, with the upcoming competition from Disney, Hulu, and Amazon, all with the aim of aggressive expansion, Netflix is at risk of not being able to stay on top as licensing costs are continuously on the rise.

The company's strategy of spending money on content acquisition to crush the competition is no longer enough. To stay in the game, it has to focus on a growth strategy targeted toward the production of original content. Netflix plans to keep viewers glued to their screens by spending $8 billion on production projects that are fully personalized to the audience's preferences. It also plans on increasing its market share globally by partnering with international broadcasters and creating foreign-language shows to attract audiences worldwide. Targeting different age groups is another objective as the company is offering content such as The Crown, which appeals explicitly to the older generation. This constitutes a challenge for Netflix as most individuals in this age range are used to traditional TV and are not at ease when it comes to using technology.

Channels such as HBO, NBC, and CBS have gained the loyalty of older viewers who have been watching for decades, with many not ready to switch to digital platforms. Netflix currently plans on making its ads more inclusive by promoting content that is predicted to appeal to the older generation. Besides, it is expected to launch reality TV and unscripted content as well as live TV, covering everything from concerts to sports events.

However, with increased financial pressure facing new competition, Netflix was forced to raise prices in 2017 by 20 percent for many customers around the world, including the UK and the U.S. So far, price increases have not affected the number of subscriptions. However, with the arrival of Disney+, which will start at half Netflix's price and include content such as Marvel's superheroes, Pixar productions, and the Star Wars saga, Netflix might need to rethink its price increase plans, especially since specific international markets, such as India, have lower average incomes. If the company is unable to lower its prices to stay competitive, a challenge would be to decide whether or not introducing advertising into the platform would be a good idea.

According to Hastings, introducing commercials is against the company's objective of providing the best possible experience. Yet, it could constitute an alternative revenue-generating possibility as advertisers are eager to join such a popular platform. This model has worked for competitors such as Hulu. Most of its revenues (almost 75 percent) come from its $5.99 per month plan (which includes ads) and not from the $11.99 ad-free plan. So far, Hulu has added double the number of Netflix subscribers in the United States. Still, this strategy needs to be carefully analyzed as it is predicted that if the introduction of ads results in 5 percent additional subscription cancellations, the company will be losing money.

Netflix has not yet reached the point of turning to ad revenues to survive. It has 148 million paid memberships and $16.6 billion in annual revenue and is the current world leader in online streaming. But how long can it stay there? Netflix has come a long way, constantly changing its business model to cater to its audiences' changing needs. It has always been one step ahead of the competition. As long as Netflix stays consistent with its innovative customer-centric strategy, it can remain a leader in the entertainment industry.

Question: Reflect on how different aspects of consumer behaviour shaping up Netflix's strategy.