What lesson can we get from the essay; NETFLIX IGNITES GROWTH THROUGH INTERNATIONAL EXPANSION, BUT SUCH GROWTH ALSO FIRES UP THE COMPETITION Netflix has been pursuing a typical international strategy by developing strong capabilities in technological innovation domestically and then using that base technology to expand abroad. Its technology is focused on understanding customer viewing patterns and providing content that matches that pattern as well as having a broad selection of content produced by network television and movie studios in addition to its own original content, which has become a strong force in the market (see examples in Chapter 1 and Chapter 4). However, Netflix has reached a near saturation point in the domestic U.S. market. As an obvious extension, it has begun to extend its services abroad in countries that are close culturally and geographically to its U.S. customer base, such as Canada, Nordic, and Latin American countries. Although it is trying to foster more growth by partnering with firms such as Marriott for access to its hotel entertainment systems, Netflix's primary growth is coming from its international expansion efforts which allow it to share its cost across a broader range of countries and a larger subscriber base. In the fourth quarter of 2014, Netflix added 1.9 million U.S. streaming subscribers, but this was down from 2.4 million in the period a year earlier. However, overall in 2014 it added 4.3 million streaming customers, exceeding its 4 million forecast, primarily driven because foreign markets grew faster than expected. Netflix already has some services in approximately 50 countries. In the first quarter of 2015, it expanded into Australia and New Zealand. It is also exploring the opportunity of obtaining a government license to offer its streaming services in China. Netflix's international growth strategy has some confounding complexities. First, Netflix must seek global licenses with its contract video and movie content providers However, the content providers want to distribute their content in international markets as well, and thus Netflix will have to pay more for the content to get a global license, in addition to the costs of initial start-up and licensing in new foreign countries. This drives up the costs of pursuing its global strategy, at least in the short term. Second, as it pursues its global streaming strategy, there are both increased domestic competition for subscriber growth as well as new entrants into foreign markets as they see the opportunity that Netflix is trying to realize. For example, Alibaba, whose home country is China, recently indicated that it would start up its own video streaming service and even contracted to produce original content, copying Netflix's strategy (see the opening case in Chapter 1). Interestingly, there is some speculation that Alibaba, given its huge size and recent cash from an initial public offering (IPO), would seek to purchase Netflix as a way of fostering its entry push into the U.S. In addition, Netflix has many other domestic streaming competitors, including Amazon and Hulu.
What lesson can we get from the essay;
NETFLIX IGNITES GROWTH THROUGH INTERNATIONAL EXPANSION, BUT SUCH GROWTH ALSO FIRES UP THE COMPETITION
Netflix has been pursuing a typical international strategy by developing strong capabilities in technological innovation domestically and then using that base technology to expand abroad. Its technology is focused on understanding customer viewing patterns and providing content that matches that pattern as well as having a broad selection of content produced by network television and movie studios in addition to its own original content, which has become a strong force in the market (see examples in Chapter 1 and Chapter 4).
However, Netflix has reached a near saturation point in the domestic U.S. market. As an obvious extension, it has begun to extend its services abroad in countries that are close culturally and geographically to its U.S. customer base, such as Canada, Nordic, and Latin American countries. Although it is trying to foster more growth by partnering with firms such as Marriott for access to its hotel entertainment systems, Netflix's primary growth is coming from its international expansion efforts which allow it to share its cost across a broader range of countries and a larger subscriber base.
In the fourth quarter of 2014, Netflix added 1.9 million U.S. streaming subscribers, but this was down from 2.4 million in the period a year earlier. However, overall in 2014 it added 4.3 million streaming customers, exceeding its 4 million forecast, primarily driven because foreign markets grew faster than expected. Netflix already has some services in approximately 50 countries. In the first quarter of 2015, it expanded into Australia and New Zealand. It is also exploring the opportunity of obtaining a government license to offer its streaming services in China.
Netflix's international growth strategy has some confounding complexities. First, Netflix must seek global licenses with its contract video and movie content providers However, the content providers want to distribute their content in international markets as well, and thus Netflix will have to pay more for the content to get a global license, in addition to the costs of initial start-up and licensing in new foreign countries. This drives up the costs of pursuing its global strategy, at least in the short term.
Second, as it pursues its global streaming strategy, there are both increased domestic competition for subscriber growth as well as new entrants into foreign markets as they see the opportunity that Netflix is trying to realize. For example, Alibaba, whose home country is China, recently indicated that it would start up its own video streaming service and even contracted to produce original content, copying Netflix's strategy (see the opening case in Chapter 1). Interestingly, there is some speculation that Alibaba, given its huge size and recent cash from an initial public offering (IPO), would seek to purchase Netflix as a way of fostering its entry push into the U.S. In addition, Netflix has many other domestic streaming competitors, including Amazon and Hulu.
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