The Netflix Effect

The Netflix Effect

Thanks for the feedback guys, I realise I had omitted the backstory on Netflix and why it is considered a leading edge IT company and why I find their journey to be a global company exciting.

Netflix’s back story

When Netflix started, it was a great disruptor to Video & DVD rental shop industry. On the Netflix website, consumers would put together a list of the DVDs they wanted to watch. For a monthly subscription fee, Netflix would send you a certain number of DVDs to watch. There were no late fees, but you didn’t receive the next movie until you had returned one DVD. For the consumer, this means no more late fees or having to go to the Video & DVD rental shop to get the movie, then returning it. By removing these pain points for consumers, Netflix soon grew a large customer base in North America.

A combination of more consumer internet ready devices and faster home internet connectivity that has to the adoption of online streaming services and the market where Netflix is a key player. If going to the Video & DVD rental store was already a pain point, imagine not having to leave the couch to watch what you want, when you want!

What I find remarkable is that the name Netflix was an excellent description of the services provided with DVDs and after it morphed into an online streaming!

The Netflix Effect

Netflix’s success is sighted as one of the reasons Blockbuster is bankrupt and ended the age of the Video Store. The usage of Netflix has increased the profitability of other firms worldwide. Netflix does not have direct competitors in any one market, but within regions, there are other providers of online streaming services and as a result consumers do have a choice.

The love and hate relationship with Internet Service Provider (ISP)

As per the diagram below, Netflix was attributed to more than a third of the internet usage in the USA 2015.

While some ISPs have enjoyed the increased data usage of consumers, there have been some well-documented issues with the ISP’s across the world. Netflix has been vocal in the net neutrality debate. They believe that ISP should not be able to adjust the speeds of a connection based on the content or website. The message to ISPs, don’t give our mutual consumers reduced rate when they are connecting to the Netflix service it is uncompetitive. While Netflix was successful in getting a mandate for net neutrality enforced in the USA, with Comcast they had had to pay to ensure their customers get “net neutral” speeds.

Within New Zealand and other countries, Netflix has been working with local ISPs to cache popular content. By sharing the cost of storing the content locally, the ISP wins as it is still charged as downloaded data for the consumer (they can bill for it) but it reduced the load on the international bandwidth (and it reduces the international traffic cost for the ISP). Even with the local caching, not all New Zealand ISP are embracing Netflix. Spark have their online streaming services Lightbox, and have publicly but more on Netflix competitors later.

Apple istore & Google Play Store

It is rumoured that Apple and Google are likely to be getting 30% commission (which is their standard rate). It has not been officially confirmed or understood how the commission would be calculated, as Netflix can be watched on any device. Apple TV has certainly made it easier to view Netflix like the regular television. Just like Cristina we only signed up for Netflix after we purchased an Apple TV.

On a side note, now you can see who is going to make all of the money with the Pokémon Go phenomenon!!!

In my next post, I will explore

· The Netflix approach globalisation of its digital content and service

· Identifying Netflix’s competition worldwide and in the New Zealand markets

Thank you for taking the time to read my blog, do let me know if Netflix raises any questions for you or if you have any feedback on the issues I have identified.