In the context of Ch. 4 (Netflix In Two Acts.....) discuss the following questio
ID: 386968 • Letter: I
Question
In the context of Ch. 4 (Netflix In Two Acts.....) discuss the following questions:
Q1) What advantages does Netflix have over premium cable television channels? What advantages do these channels have over Netflix? Do you think this is a winner-take-all market, or is there room enough for multiple players?
Why didn’t Netflix vertically integrate and offer its own set-top box for content distribution?
Q2) Why can’t Netflix secure a long tail of streaming content that is the same size as its content catalog in the DVD-by-mail business? What is Netflix doing to make its streaming catalog more appealing than rival offerings?
Q3) How does Netflix build its data asset? In what ways does it leverage this data asset? Why is the data asset stronger under streaming than it was for the DVD-by-mail business?
Q 4) Investigate the current state of net neutrality. What is the current status of ISPs right to offer a fast lane or impose bandwidth caps? Who would you side with, Netflix or the large ISPs? Why?
Explanation / Answer
1.
Advantages for Netflix:
The Increase in use of internet leading to a larger consumer base.
Higher penetration in developing countries where the young population is dominant, also the cheaper internet rates and easily available smartphones is increasing the market for web streaming company, Netflix.
Availability of content all the time with no worry of missing the timings for any specific show.
Advantages for Premium Cable Operators:
Loyal consumer base.
Dominant in areas where internet penetration is weak.
Cheap rentals per month.
Access to a wider range of options such as television shows, news, movies, songs etc.
There will always be a room for multiplayer competition in this market since Netflix provides services only for a select kind of streaming. Netflix does not provide news, sports etc which is followed throughout the world and hence premium cable providers will always have room to pitch in their services to consumers which they may not/do not get from Netflix.
Netflix did not compete directly by providing its own set-top box since it was thriving on a very niche market catering to only movies and television shows and also given the cost implications of providing set-top box are higher as compared to web-based streaming of movies hence verticle integration at the initial stage does not look a better option.
2.
Netflix is producing the series of movies and Netflix shows which are categorized as "Netflix Originals". This content is exclusively produced by Netflix and is available with no other competitor making Netflix the only way to access that particular content. This allowed Netflix to take a step further than its competitors.
3.
Netflix uses a cloud platform making it easy to store the data of each of its customer and it keeps track of the streaming history of its customers. This produces an immense amount of data which Netflix uses to analyze the streaming patterns of its customers and suggest them related media, this concept generally called as recommender algorithm. In-depth data analysis allows Netflix to determine patterns for each of the customers and help them by giving them a more personalized experience of streaming on Netflix. This could not be possible with the DVD by mail model since it will be extremely difficult to manage the records offline and analyze patterns, this will also take a lot of time and hence the recommendation will not be as effective as it is in web-based streaming.
4.
Net neutrality is here to stay given the immense impact it will bring to the online marketplace. with no net neutrality, there will be a threat to the online marketplace which can bring in almost billions of dollars and ease and convenience to the lives of the majority of the world population. ISP are providing the bandwidth caps and fast lane connections so as to differentiate between the consumers to create the market segments and then serve each segment according to its need so that all the consumers get the kind of service they wish for. I believe it should be allowed to the ISP to price differentially but responsibly so that they do not commit high prices and drive out the consumers.