In today’s world, digital business models (‘DBMs’) surround consumers. Reflecting on my typical routine, DBM’s bring me undoubted value – in particular I rely on social media for communication, apps for food delivery and e-commerce for fashionable and affordable clothing. Netflix employ a clear DBM to provide an ‘internet entertainment service’ to 139 million members across the globe (Netflix, no date A). The infographic below, summarises some of Netflix’s key milestones. As the membership figures and milestones suggest, Netflix have experienced significant financial success, with a reported income of $1.21 billion in 2018 (Statista, 2018). But to what extent has Netflix’s DBM afforded them such an impressive financial performance?
Netflix’s DBM entails capitalising digital technologies, to offer a virtual entertainment platform with convenience and accessibility for the consumer (Netflix, no date A). According to Wilson (2016), Netflix have fundamentally changed how certain forms of entertainment are consumed. Thus, Netflix’s DBM appears transformative in nature, defined as ‘digital technologies [enabling] entirely new ways of conducting business that replace the established models’ (Canvas, 2019). As a self-professed Netflix binger, I can vouch for Netflix’s convenience and accessibility. My monthly membership plan costs less than the price of a cinema ticket, offers me unlimited access to a wealth of entertainment and is accessible on a range of my digital devices. Having afforded Netflix with such an obvious appeal, its DBM has clearly contributed to its financial success.
However, the performance of a DBM hinges on the activity of new market entrants (Vendrell-Herrero, Parry, Bustinza& Gomes, 2018). Netflix’s surging popularity has attracted the attention of organisations with the resources and competencies to replicate its offering. An example competitor, Prime Video, employs a similar DBM – offering members unlimited access to its digital entertainment library, across a range of devices (Amazon, no date). Such competition questions the transformative nature and sustainability of Netflix’s DBM. According to recent numbers, Netflix is no longer achieving its subscription targets (Sweeny, 2018), thus reinforcing sustainability concerns. This places a natural emphasis on continual innovation and/or the maintenance of points of differentiation. My preference of Netflix (over Prime Video) stems from its user-friendly site and positioning within the realm of pop culture. Although Netflix’s DBM fundamentally afforded these points of differentiation, it may not protect them from imitation in its competitive surroundings.
https://www.flickr.com/photos/freestocks/42921011804/in/photolist-28oMpsU-2aSThZd-25g8Dxg-22vcBMd-8WDx2e-23U93gR-29UxKyA-8XVjkZ-23U939r-25csPh3-23U93bv-25csPqj-PZ7Kft-2cWTy9M-9ckhQ5-FCmHR2-22vcBS3-25csPjh-WibiD9-8MdFzb-2b85e3R-23U93er-93JEjY-9tj4gE-22vcBKE-22vcBN5-25csPn3-23U93hT-WZFSzb-WibiDj-zwwDeR-8Xb29F-5P5yab-26US5cd-MHHL2K-2cfocv6-LLk5mK-MgJj8E-LLk5PP-MHHJqD-MHHJC2-LLk5HX-LLk5be-MHHJMk-MgJjbW-LLk5fx-LLk51z-LLk4SZ-MHHJwa-MEGLby
Netflix is well known for its monthly subscription service. Currently, Netflix offer three plans which cost £5.99 (basic), £7.99 (standard) or £9.99 (premium) per month (Netflix, no date B). The video below details Netflix’s typical offering, with varying quality and simultaneous screen ability.
On the one hand, this subscription model encourages a routinised source of income for Netflix, naturally contributing to its financial success. Although cancelling a subscription is relatively easy, users may consider this an inconvenience, or quite simply forget. On the other hand, this subscription model allows non-members to access member’s accounts (via account sharing behaviour). This potentially presents a considerable loss of income for Netflix, which is difficult to police. From an alternate stance, subscription models facilitate ‘long-term, profitable relationships with customers’ (Baxter, 2016, p.3). In the case of Netflix, nurturing customer relationships with greater depth and meaning, may enhance financial success (via loyalty, plan upgrade and brand advocation) and present considerable barriers to entry.
Netflix’s DBM has also allowed its original content creation to flourish. Rumble (2018) highlights the success of Netflix original content such as House of Cards, Stranger Things and Orange is the New Black. The popularity of these series is certainty true within my own social group, many of the conversations with my friends start with ‘what episode of Stranger Things have you got to?’. Thus, Netflix’s content creation competencies present further barriers to entry. However, despite the continual (and seemingly successful) release of Netflix’s original content, reports have emerged that Netflix is facing subscription difficulties (Sweeny, 2018). This suggests that Netflix’s original content increases usage, but not users. Given that existing Netflix users can only increase their subscription value by £4 per month (i.e. from basic to premium) (Netflix, no date B), Netflix’s financial progression may largely depend on increasing numbers of users. Therefore, Netflix original content may be limited in relation to its financial success.
Netflix’s DBM appears to have underpinned its vast financial success. However, financial performance is not the sole measure of success. Netflix may also consider success in less tangible terms (e.g. brand value or consumer perceptions). Moreover, Netflix’s popularity has stimulated fierce competition. This paired with declining subscription figures and economic uncertainty, may present considerable challenges for Netflix in the foreseeable future.
Reference List:
Amazon. (no date). Prime Video. Accessed 22 February, 2019 from: https://www.amazon.co.uk/gp/video/offers/ref=dvm_uk_sl_ambr%7Cc_294479711896_m_ENLoRqDT-dc_s_
Baxter, R. K. (2016). Subscription Business Models Are Great for Some Businesses and Terrible for Others. Harvard Business Review Digital Articles, 2–5. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=118663603&site=ehost-live
Canvas. (2019). Emerging Digital Business Models. Accessed 1 March, 2019 from: https://exeteruni.instructure.com/courses/42/pages/emerging-digital-business-models?module_item_id=312
Netflix. (no date, A). About Netflix. Accessed 22 February, 2019 from: https://media.netflix.com/en/about-netflix
Netflix. (no date, B). Choose a plan that’s right for you. Accessed 26 February, 2019 from: https://www.netflix.com/signup/planform
Netflix. (2014, 4 November). How to choose a Netflix Streaming Plan | Netflix [Video File]. Retrieved from: https://www.youtube.com/watch?v=4vtSa3m7PJs
Rumble, T-D. (2018, 18 July). 7 shows that helped Netflix so popular. [BBC News Online]. Retrieved from: https://www.bbc.co.uk/news/entertainment-arts-44870538
Statista. (2018). Netflix’s net income from 2000 to 2018 (in million U.S. dollars). Accessed 22 February, 2019 from: https://www.statista.com/statistics/272561/netflix-net-income/
Sweeny, M. (2018, 21 July). Netflix has revolutionised television. But is its crown starting to slip? [The Guardian Online]. Retrieved from: https://www.theguardian.com/media/2018/jul/21/netflix-crown-beginning-to-slip-subscriber-numbers
Vendrell-Herrero. F., Parry, G., Bustinza, O. F., & Gomes, E. (2018). Digital business models: Taxonomy and future research avenues. Strategic Change,27(2), 87–90. doi: 10.1002/jsc.2183
Wilson, B. (2016, 21 November). How Netflix changed the way we watch. [The Telegraph Online]. Retrieved from: https://www.telegraph.co.uk/on-demand/2016/11/21/how-netflix-changed-the-way-we-watch/
Marketing Thoughts 
A fairly interesting piece, as Netflix, like you said, has certainly changed the entertainment industry. Whilst you did not touch upon it within your piece, services like Netflix originally started as a postal service, such as Love Film. This clearly advanced with the internet and its popularity, and it is certainly something to think about, as Netflix, by no means created the idea of a film subscription service. Nevertheless, this was a interesting piece, especially when you touched upon Netflix’s in-house intellectual properties. Like their competitors, including Amazon Prime, Netflix hosts a wealth of their own content. I was actually talking about this to my house mate the other day, and we were discussing how Netflix has been really successful with their documentaries and series, although they are fairly inconsistent with the quality of their films. In this case, Amazon films and series tend to be regarded as better quality, yet Netflix is still the more popular platform. This then begs the question, why is this? In my opinion I think that this is because of the social perception of Netflix and its place in popular culture, which again is something you address. But perhaps this is me going off on one as usual… Overall, very interesting article assessing the business model of Netflix.
LikeLiked by 1 person
Hi Emily, I really enjoyed your piece on Netflix! You mentioned that Netflix is a large part of today’s conversations amongst friends, and can also be a great ice breaker for that matter, do you think that this power created not only by Netflix’s own shows but also those classics such as Friends and How I Met Your Mother are one of the main reasons for its success? The fact that people are able to connect through Netflix, I believe is a huge reason for their survival, once this connection has been formed it must be emotionally very difficult to cancel the subscription, people find themselves belonging to a community through Netflix which is very powerful, do you agree with this?
LikeLike
Hi Catherine. Thank you for your comment. I couldn’t agree more! In my opinion, those Netflix classics tend to invoke a sense of nostalgia, which in turn, enhances a consumer’s emotional connection with the brand. This nostalgia seems even more powerful when shared amongst others (i.e. in communities).
LikeLike
Hi Emily, really enjoyed reading your post! I too can’t image my life without digital business models like Netflix, Deliveroo and Spotify. I can’t even image having to go all the way to Blockbusters to pick out a film I wanted to watch. I have both Amazon Prime and Netflix, and agree how I mainly use Netflix for most of my content. To me having an Amazon Prime video account is just a side effect of having Amazon Prime, however, if Amazon boosted their content and improved their UI would that change your mind? You mentioned that Netflix is no longer reaching its subscription targets, which is definitely an issue, one of my biggest concerns about Netflix is its debt – which is up 71% from last year (https://variety.com/2018/digital/news/netflix-2-billion-debt-content-spending-1202988075/). To me the reason their debt is so high is because unlike digital business models like Deliveroo, eBay, Uber etc. that work on a commission basis, Netflix operates via buying content, which can be extremely expensive. Do you think they would be better off operating on a commission basis, or do you think they are going down the right path buying content? Normally, I would say commission would be the more effective way forward, but I think with the likes of Disney, HBO etc. looking to build their own subscription services, I’m not sure if they would be able to broker attractive deals, which is probably why Marvel (Disney owned) has cancelled the likes of Daredevil, Punisher etc. from the platform. I wouldn’t be surprised in the future to see Netflix only showing Netflix exclusive content, and each major studio having their own streaming service, with customers owning multiple steaming accounts. Love to hear your thoughts on this fascinating topic.
-Ina
LikeLike
Hi Emily,
I really enjoyed your article on Netflix, the company has an interesting history and its way of coming about and reinventing themselves through DBM was a very smart move. I feel though the company which once spearheaded the streaming industry is being caught up with. While diversifying as you may know, Netflix is today also a production company creating its own content to feature on their platform. Do you feel their decrease in performance can be linked to:
1) they are competing in an industry where they do not hold a strong share and therefor their content creation does not have as strong an ROI as it should
2) They have to renew the content featured on their platform at the expense of taking down some iconic shows – friends got almost taken down before they realised it still remained on of their main streaming series which could have upset a lot of their subscribers.
3) They lose market shares to platforms such as ITV hub and BBC iPlayer who have the right to feature not only TV shows and movies but also sporting events which are big contributors to TV audiences.
I do agree that the company still remains the Top of mind brand when it comes to streaming which will help them tremendously in the future. Really appreciated your article, was insightful and offered a different perspective on the company.
LikeLike