Niche Focused Strategy
This Case Study discusses how the niche-focused strategy helped Netflix in capturing a global audience. It is concerning to Focused Operations Strategy.
Reed Hastings and Marc Randolph on August 29, 1997, formed Netflix, an entertainment company that started its operations in Scotts Valley, California. The core competency of the company is its service offering in streaming media, video on demand online, and DVD by mail. After almost 16 years of operations, the company expanded its footprint to film and television production and online distribution. The company is currently headquartered in Los Gatos, California.
Table of Content
Netflix’s operations started with DVD sales and rental, but Hastings disbanded DVD sales after a year of operations so that they could focus on the model that involved DVD rental by mail. Netflix expanded its service line with streaming media in 2007, at the same time the DVD and Blu-ray rental services were retained. In the year 2010, the company went international and streaming was made available to customers based in Canada.
In 2013, Netflix entered the space of content production with its first series “House of Cards”. Ever since the company has continuously expanded with the production of both film and television series. The company offers “Netflix Original” content through its online library of films and television. In 2016, the company released an estimated 126 original series or films which is far greater than that of any other network or cable channel.
In 2017, Netflix had 109.25 million streaming subscribers worldwide. The company’s leaping growth and its ability to penetrate the well-established market specializing in video rental followed by content production is an accomplishment worth noticing.
Netflix and other internet-distributed video services transformed the practice of the television industry radically. It is intriguing to understand Netflix’s operations strategy and its ability to evolve and build its subscriber base despite strong competition in the video rental industry.
Niche Service Line
Netflix became the front-runner in the personalized film DVD services by mail in the late 1990s. The rental industry gradually died down due to the ease of service by mail. At the same time, the television industry was experiencing a massive change. Local cable channels began the broadcast of television series like “The Sopranos” and “The Shield” which were based on complex storylines that aimed viewership by niche audiences.
Since the revenue for these channels came from both subscribers and advertisers, despite limited viewership they could survive the television industry. In the early 2000s, technological advancement took place in compression technology. Together with high-speed internet services reaching more and more homes, it became possible to stream large video files over the Internet.
These developments set the ground for Netflix to further its business lines in 2007 from DVDs by mail to a national video streaming service. Television series now became an integral part of the company’s business model. Television accounted for roughly 70% of the service’s streaming by the summer of 2016.
Different Model, Different Strategy
A broadcast wave remained the center stage technology for television distribution for many years due to its ability to send a wireless signal over huge swaths of the country. However, a disadvantage of broadcasting technology is that it can send only one message at a time to everyone in its range. On the other hand, video streaming services such as Netflix have a unique ability to deliver programming as per the demand via the Internet.
So the viewers have the option to select what and when to watch instead of watching “what’s being aired.” A traditional channel’s main task is to create a schedule of programs whereas the key task of a portal is to cultivate a library of programs. The portal in this case tries to come up with different business strategies that, in turn, lead to different programs.
The main difference in the revenue source between a broadcast network or cable channels and portals like Netflix, Amazon Video, and SeeSo is that the broadcast network channels earn their revenues by selling audiences to advertisers.
On the other hand, the portals are subscriber-funded, i.e. the viewer pays a periodic fee for gaining an access to the library of content. A challenge to survive for subscriber-funded services is that they must be able to offer enough programming options so that viewers find value for money in the subscription. For advertiser-funded television, the success factor was a large viewer base for every program however for the portals; the challenge is to provide enough value that subscribers continue to pay.
Many portals counteract this challenge by offering a specific type of programming to the viewers. For example, WWE Network offers its subscribers a higher amount of wrestling matches and access to wrestling-related content than viewers can get from other portals. Along similar lines, Noggin, a preschoolers program portal, makes ad-free programming available for young viewers.
Netflix Niche Strategy to Harness the Potential of Internet
Despite the facts mentioned above, Netflix neither offers content specific to a limited audience with unique interests nor does it aspire for a mass audience. So the query remains as to how Netflix still manages to attract its 93 million subscriber base. One of the contributing factors to the success of Netflix is its “conglomerated niche” strategy as a part in which Netflix develops programs catering to a handful of a variety of areas of audience interests.
Some of these areas include action series like “Daredevil”, complicated serial dramas like “House of Cards”, horror series like “Hemlock Grove” and some exclusive films that cast some popular actors like Adam Sandler. Internet distribution makes it possible to apply a strategy like this as it lets a portal like Netflix cater to the needs of different audiences simultaneously and separately.
Another factor that adds to the ability of Netflix to implement this strategy is that Internet distribution helps to collate and analyze extensive data on subscribers’ behavior and view patterns that can be used to derive business intelligence for developing its library (in alignment with the user needs).
Netflix has maintained secrecy about the kind of data being collected, but its ability to collate data on viewing patterns across the globe has enabled the service to identify micro-genres and then patterns of the viewer interest.
Quest for Geographical Expansion
Netflix caters to the cultural and geographic viewership needs of the global audience and not just distributing shows produced for the US audience. “Marseille,” a French political drama; or “Hibana,” a Japanese drama are examples of such series being aired to the intended audience.
With the growing number of subscribers from other countries, Netflix’s library of original content has increased manifolds. Netflix’s foothold in the global market has been so far the strongest and its experiment as a global, subscriber-funded television portal is likely to be a major milestone in television history.