Netflix is an Entertainment Corporation
How it works
Netflix is an entertainment corporation that streams movies and shows through a number of devices, among of which are Televisions, X-Box’s, and PC’s. It was founded in 1997 by Reed Hastings and Marc Randolph. The current CEO of Netflix is Reed Hastings. Netflix began as a company that placed its focus on DVD rentals and sales. The company began to be more notable during the mid 2000s when its business model shifted in 2007 to include streaming media. Netflix began in the United States, but over the years it has expanded to over 190 countries. As of the current moment, Netflix is the 6th largest corporation based off revenue. It has a net worth of more than $100 Billion.
Towards the second half of 2017, Disney stated that they would be merging with 21st Century Fox. The merger is considered to be one of the largest entertainment merger. Disney and Fox have original content that they are noted for. The two corporations provided Netflix the ability to stream their content for a number of years; however, because of the recent merger, the corporations stated that they would retract their contents from Netflix. Among the noted content to be removed from Netflix include the Marvel Series, a number of Netflix Kids series.The reason behind the removal of content is because Disney desires to expand to have their own streaming source that would be for Disney and Fox content. Additionally, Disney expressed their desire to have the streaming source.
How it works
Because of the merger between Disney and Fox, many believe that there will be a change in the manner in which the consumer will access content. Additionally, many have expressed concern that the influence of Netflix will die down. Netflix itself has stated that there is little to worry about that and they will maintain their dominance.
Throughout this Internal Assessment, mainly secondary sources were used. The information was obtained from reliable media outlets. The outlets ranged from business-centered, news, and entertainment. The purpose of each article was to understand how the merger will affect Netflix. To properly critic the likely effects that the merger will have, I will be using a SWOT Analysis, Market Share, and Channels of Distribution.
Michelle Castro reported that the costs for a Netflix subscription will rise because of funding needed to produce more original content as Disney and Fox will be retracting their content from Netflix. Netflix’s market share is liable to decrease as the conglomerate will produce their own platform. As a by-product of the merger talks, Netflix announced that it would increase its spending to up to $8 Billion for its original content. Netflix views the possibility of retracted content as good because the excessive content result in “a whole lot of clutter”.
Merrill Barr of Forbes reports that The Disney and Fox deal is worth at least $50 Billion. He also discloses the fact that Disney will procure their own streaming platform, OTT. By producing their own platform, Disney will retract content from Netflix. Notable Disney content includes Marvel and The Simpsons,. Additionally, Disney would have a significant hold in the market as they would have a 60% stake in Hulu after the merger.
The merger allows Disney to combine their content with Fox’s studio which is forecasted to have a long term effect on the entertainment industry; however, it is reported that Netflix doesn’t see the merger as a threat, the company sees the merger as harmful as Hulu, which isn’t much. Netflix stated that they understood that other companies would tighten the usage of their content and as a result they planned accordingly, by making long-term contracts and producing original content.
Angela Watercutter notes that the Disney and Fox merger is one of the largest mergers, with regards to the history of media. Watercutter went on to state that Disney’s plans for its streaming service to be “cheaper than Netflix”. The platform would hold the majority of the Fox and Disney content, especially the memorable content such as X-Man and Star Wars. By retracting their content from other streaming platforms, the market will be “fragmented”. As a result, who ever grabbed the market will be formidable as consumers stay on their chosen platform for a long period of time.
This SWOT Analysis of Netflix Inc., its is not incomprehensive that Netflix is currently not worried about the merger between 21st Century Fox and Disney as they maintain dominance even with consideration of the possible risks that the corporation faces. With regards to the “threats” of the company, Netflix has planned according by increasing the funding to produce original content. Because it currently has utter dominance with regards to streaming platforms, it will take a number of years before Netflix will worry about the platform that Disney plans to release.
Additionally, because of the convenience that Netflix has and positive brand image, Netflix’s share in the market will likely remain with them because of the strong consumer loyalty that corporation management to build. It is necessary to note that Disney’s platform may have features that are more desirable to consumers which would result in the corporation gaining a majority in the market share; however, that is not a particularly feasible idea at the moment as Disney has not procured a plan for their platform to the general public.
The first Pie Graph lists the OTT findings from 2017 for streaming platforms. The graph notes that Netflix has 40% of the market, this share is more than the combined share of Hulu, YouTube, and Amazon. Netflix Inc. has exponentially increased its market share over the last 2 decades until the current moment of which Netflix Inc. has the greatest share by large. As a result, it is no wonder why Netflix does not feel shaken by the merger between Disney and 21st Century Fox.
The second Pie Graph is a record of the market share of the six major film studios (Walt Disney, Warner Bros, Universal Pictures, Paramount Picture, 21st Century Fox, and Sony/Columbia Pictures). The graph portray the significant share of the market that Fox and Disney hold. The combined share that Disney will have after the merger is roughly 28.13% of the market. That share is still greater than the combined share of its next two competitors, Sony/Columbia Pictures and Warner Bros. Since Fox and Disney are major content holders, they have a chunk of the market.
It is vital to understand how Disney and Netflix both have dominance of the market in their specific ares. Analysts note that when Disney transfers to the streaming market it will affect the media industry for years to come, based on whether it succeeds or not, as it will set precedence for other film studios to transfer to streaming their own content.
Channels of Distribution
The Channel of Distribution portrays how Disney content goes from the corporation to the General Public. Since the corporation does not currently have its own streaming platform, it has to have a medium of which allows it access to the public. Mediums Disney has used include Hulu, Netflix, and Amazon. Disney was to disrupt this chain as the formation of its own streaming platform will allow it unrestricted access to its consumers.
For Disney, the acquisition of 21st century is a positive instance as it would allow the corporation dominance as it will have a greater market share. Furthermore, the impact of competitors is lowered. This would allow the corporation to focus on expanding its market. In the long run, there are a number of possible negatives of the merger for Disney. Some of the negative effects include the possibility of a lowered trust in the corporation as history has shown that when corporations become megalomaniac, the general public tends to have less favorable views on the company and brand.
Following the merger, Disney has to appropriately deal with possible damage to their corporate image. While all of this is happening, Netflix is viewing the merger is inconsequential to themselves and is actually “welcoming competition. Reasons behind Netflix’s stance include the fact that the corporation has the most investors, largest market share, and a loyal consumer base.
As a result, the corporation has little regard for the merger. Although there are a number of downsides that Netflix faces, such as: loss of content, increased cost of subscription, increased competition, and a “fragmented” market, the dominance depicted by the corporation always these issues to remain as a concern for the future as opposed to the present.