Netflix Analysis

Netflix, Inc. is an internet television network. The company derives revenues from monthly subscription dues. Its members can watch as much as they want, anytime, anywhere, on nearly any internet connected screen. Members can play pause and resume watching, all without commercials or commitment (Netflix, 2014).
Netflix does not have an actual mission statement, however, according to Reed Hastings, founder and CEO, their mission and vision is “to grow our streaming subscription business domestically and globally, continuously improving the customer experience, with a focus on expanding our streaming content, enhancing our user interface and extending our streaming service to even more internet-connected devices, while staying within the parameters of our consolidated net income and operating segment contribution profit targets” (Hastings, 2014). Nine company published values provide further clarification about the principles which guide its employees in their daily decisions and activities. Those company values as published are: judgment; productivity; creativity; intelligence; honesty; communication; selflessness; reliability; and passion. Hastings has expressed a clear vision for the future of Netflix, which is to become the best global entertainment distribution service, licensing entertainment content around the world and creating markets that are accessible to filmmakers, thereby helping content creators around the world to find a global audience. The company focus is to grow its streaming subscription business domestically and internationally (Hastings, 2014).
Netflix has more than 50 million streaming members in the United States, Canada, Latin America, The United Kingdom, Ireland, and the Nordics. This makes Netflix, Inc. the world’s leading internet subscription service for enjoying movies and TV programs (Netflix, 2014). Located in Los Gatos, California, in the United States of America, Netflix is a global corporation, comprised of three operating segments: Domestic streaming, International streaming, and Domestic DVD. The Domestic and International streaming segments derive revenue from monthly membership fees for services consisting solely of streaming content. The domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD by mail (Netflix, 2014).
Noteworthy in the company’s timeline, are the following events: (1997) Reed Hastings and fellow software executive Marc Randolph co-found Netflix to offer online movie rentals; (1999) Netflix launches the subscription service, offering unlimited rentals for one low monthly subscription; (2000) Netflix launches the personalized movie recommendation system that uses Netflix members’ ratings to accurately predict choices for all Netflix members; (2002) Netflix ends the year with 857,000 members, up 88 percent from 2001. Netflix makes its initial public offering (IPO) of 5,500,000 shares at $15.00 per share on NASDAQ under the ticker “NFLX.” Total Netflix members at the time: 600,000 - May 22, 2002;(2003) Netflix ends the year with 1,487,000 members, up 74 percent from 2002; (2004) Netflix ends the year with 2,610,000 total members, up 76 percent from 2003; (2005) Netflix ends the year with 4.2 million members, up 60 percent from 2004; (2006) Netflix launches the Netflix Prize, promising $1 million to the first person or team who can achieve certain accuracy goals in recommending movies based on personal preferences. The company releases 100 million anonymous movie ratings ranging from one to five stars, the largest such data set ever released. Netflix ends the year with 6.3 million members, up 51 percent over 2005; (2007) Netflix introduces streaming, which allows members to instantly watch television shows and movies on their personal computers. Netflix ends the year with 7.5 million members, up 18 percent over 2006; (2008) Netflix partners with consumer electronics companies to stream on the Xbox 360, Blu-ray disc players, TV set-top boxes and the Apple Macintosh computer. Netflix ends year with 9.4 million members, up 26 percent over 2007; (2009) Netflix partners with consumer electronics companies to stream on the PS3, Internet connected TVs and other Internet connected devices. Netflix awards the $1 million Netflix Prize to the "BellKor's Pragmatic Chaos" team of seven researchers from four countries; over three years the contest has attracted more than 40,000 teams from 186 countries. Netflix ends the year with 12.3 million members, up 31 percent over 2008; (2010) Netflix is available on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, and other Internet connected devices. Netflix launches in Canada. Netflix ends year with 20 million members, up 63 percent from 2009; (2011) Netflix launches throughout Latin America and the Caribbean; (2012) Netflix surpasses 30 million members globally. Netflix wins first Primetime Emmy Engineering Award. Netflix launches in the United Kingdom, Ireland and the Nordics; (2013) Netflix original series House of Cards launches. Netflix launches in the Netherlands. House of Cards wins three Primetime Emmy Awards. Netflix now has over 50 million members globally (Netflix, Company timeline, 2014).
Netflix utilizes a functional organizational structure in which tasks and activities are grouped by business function. Besides being simple and inexpensive, this structure promotes specialization of labor and encourages efficient use of managerial and technical talent, minimizes the need for an elaborate control system and allows rapid decision making.
The organizational culture at Netflix is a mix of adhocracy and market culture (As shown in table 11-1, Netflix Culture). Its adhocracy attributes include their willingness to take risks while also valuing flexibility. They attempt to create innovative products and encourage employees of Netflix to take risks with new ways of thinking. With this they blend a market culture in the sense that they have a strong desire to deliver results, customers, productivity, and profits. Netflix executives want their employees to work hard, react fast, and deliver quality work on time while still giving them the freedom and flexibility that they believe creates a productive working environment (Coady, 2013).

Another management innovation at Netflix, is the “start, stop, continue”, review process.
Once a year on email. Anyone can give anyone feedback, in three categories- start doing this, stop doing this, and continue doing this. Netflix also uses this review technique for in person reviews, with groups of eight people in a room. Using the “start, stop, continue” review process ensures that people receive affirmation for the things they are doing right, an often forgotten component of feedback (McCord, 2013).
According to Facebook CEO Sheryl Sandberg, the 126 page document co-authored by Pattie McCord, consultant and former Chief talent officer at Netflix, which is standard policy at Netflix, may well be the most important document ever to come out of Silicon Valley.
Netflix has a “high performance” culture. This culture has stirred controversy, with Netflix saying it only wanted “high performance” employees, and that “adequate performance”, gets a generous severance package. The idea behind the “high performance” culture, according to McCord, is that, a company should be like a pro sports team, where everyone has to earn their spot and keep earning it. That means making difficult decisions and even pushing out great people if they no longer serve the needs of the company. McCord recalls discharging a former employee, and says “sometimes it’s really hard to say goodbye to people who helped you become successful” (McCord, 2013). This is part of Netflix’s formula (As shown in Figures 12-1, 13-1, and 14-1, Netflix Culture).
Another human resource practice that Netflix uses, is flexible time management. By allowing employees to work at a time of their choosing, and comfortably, with no dress-code, Netflix continues to attract talented candidates for employment. They also have a “take all the time you need” vacation policy where no accrual of vacation time is necessary.
These policies are very effective in their context. By allowing a stress free environment to work in, with no set hours, or dress code, and also implementing a 360 Degree Assessment, Netflix can always retain the best current talent, while luring in the best available talent (Coady, 2013).
Netflix has set its organizational strategy on international expansion, making tremendous headway in this direction. Three years ago, the company lost 1 million subscribers when it tried to increase prices and split its company into two divisions DVD rentals and streaming services. Netflix apologized, abandoned the plan, and has steadily turned its business around based on the thesis that internet television is replacing traditional television, apps are replacing channels, remote controls are disappearing and screens are proliferating. Netflix has been pouring resources into acquiring exclusive programming and original series. In seeking to explode on the international front, Netflix has introduced its service to a number of new markets, including, Austria, Belgium, France, Germany, Luxembourg, and Switzerland (Steel, 2014). The expansion would increase its international addressable market to more than 180 million broadband households. It is challenging. The company needs to buy content rights in new regions, and market the service to a new set of customers. With that mindset, Netflix decided to get into the studios’ business of creating great content — referred to as backward integration. In February 2013, Ted Sarandos, Netflix’s chief content officer, told GQ, “the goal is to become HBO faster than HBO can become us” (Cohan, 2013).
That strategy appears to be paying off. Netflix’s first quarter results were much better than expected. Its stock soared 24% in after-hours trading to $215.40 — on April 22, it announced that it had gained two million new U.S. customers in the first three months of 2013 — reaching 29.2 million — which was 200,000 more than the average of seven estimates compiled by Bloomberg (Cohan, 2013).
Another factor in Netflix’s online subscriber growth is pricing. It recently announced a new subscription option that could allow Netflix to profit from password-sharing for its streaming video service. The new option — four simultaneous streams for $11.99 — will supplement its existing $7.99 a month service that limits subscribers to two simultaneous streams (Cohan, 2013). This is a result of Netflix’s culture of pursuing its vision. It’s strategy of backward integration suggests that Netflix may be able to assemble the capabilities needed to continue to deliver superior value to consumers despite fundamental improvements in technology that undermine the business in which it previously prevailed.
Netflix organizational culture of hard work and getting the best people for the job, will help catapult them to their lofty goals. They are working directly with producers to get their content, making them less vulnerable to aggregation of the big content providers. 95 percent of people on the planet live outside the United States, and for global internet business, 80 percent of the usage is outside the US (Steel, 2014). For Netflix to grow, it must project a goal to capture the potential market outside the U.S.
They are as well making a broader push to include more cause related documentaries with messages that will resonate globally, in its growing original programming lineup. Netflix is pouring three billion dollars into content this year and is steadily expanding its roster of original programming to lure subscribers.
Their organizational structure, frees them from restraints that other platforms have. They do not utilize film festivals to find or screen content. This is appealing to filmmakers who see that Netflix can promote their stories to its base of more than 50 million global members all at once, after all, how many people really get to go to Sundance? Traditional distribution models require that filmmakers strike deals market by market and place huge emphasis on exclusive festivals and opening weekends. Instant global distribution is important to filmmakers, in addition, the titles will be available on the service in perpetuity, allowing audiences to grow over time (Steel, Netlix Bolsters Offerings in Documentary Genre, 2014)
Netflix has been well positioned to succeed. It is in a very, very fast growing market. Streaming entertainment, a market that offers enormous growth for all participants.
Their leadership and culture has shown a penchant for having the right strategy to remain a market leader. In dealing with market shifts, it chose to rapidly cannibalize its own DVD business by aggressively promoting streaming, even at lower margins. They chose growth over defensiveness. This strategy was adhered to by having the right culture with the right people with the guts to have the risk for reward mentality. Their strategy was to milk the DVD business, and pull profits and cash out of it to build the faster growing but lower margin, streaming business. This actually grew revenue and profits, while making the market transition from one platform (DVD) to another (streaming). Netflix is now adding 2 million subscribers per quarter and losing 400,000 DVD subscribers (Hartung, 2013).
Netflix converted most of those customers before they bought the service from a competitor, by pushing them to make a fast decision about the conversion to streaming.
This was the best strategy, given how fast tablets and smart phones were growing and driving up demand for streaming entertainment. Capturing the growth market was far more valuable than trying to defend the division destined for obsolescence. Netflix envisioned what the market would look like in 3 years, and rather than try and protect an obsolete market destined to change, they cannibalized their own base.
Netflix has first mover advantage in the streaming internet industry. They are the biggest with the most cash flow allowing them to invest in additional growth. It also has the largest subscriber base to attract content providers earlier and offer them the most money.
Netflix positioned itself to be a winner. They implemented the tactics to make their strategy, of aggressive cannibalization of its base, and widespread marketing, work to increase its new streaming division (Hartung, 2013).
The issue needing addressing in regards to the organizational culture, would be the dismissal of key or any personnel that consistently deliver, and then something changes in company strategy or planning and they have to regroup. The culture is so fast moving that they take no time for career development. They are not seeking career individuals, they appear to want independent contractors that deliver, and once they don’t, they are replaced. It is important for a company to invest in the loyalty of an individual and not just the results of their efforts.
Short of this counterproductive measure, Netflix is getting everything right, seemingly, by design.

References
(n.d.).
Coady, J. (2013, march 6). Netflix Case Study. Retrieved from Prezi: http://prezi.com/y3azq6vmni5b/netflix-case-study/
Cohan, P. (2013, April 23). How Netflix Reinvented Itself. Retrieved from Forbes: http://www.forbes.com/sites/petercohan/2013/04/23/how-netflix-reinvented-itself/
Hartung, A. (2013, January 29). Netflix, The Turnaround Story of 2012. Retrieved from
Forbes.com:
http://www.forbes.com/sites/adamhartung/2013/01/29/netflix-the-turnaround-story-of-
2012/
Hastings, R. (2014). Basic Info. Retrieved from Netflix.com: http://netflixcompanyprofile.weebly.com/ McCord, P. (2013, May 7). Advice on Corporate Culture from Netflix's former Chief Talent
Officer. (D. Lyons, Interviewer)
Netflix. (2014). Company Information. The New York Times.
Netflix. (2014). Company timeline. Retrieved from Neflix.com: https://pr.netflix.com/WebClient/loginPageSalesNetWorksAction.do?contentGroupId=10
477&contentGroup=Company+Timeline
Steel, E. (2014, July 21). Netflix, Growing, Envisions Expansion Abroad. Retrieved from The
New York Times: http://www.nytimes.com/2014/07/22/business/media/netflix-says-it- topped-50-million-subscribers.html?_r=0 Steel, E. (2014, July 28). Netlix Bolsters Offerings in Documentary Genre. Retrieved from The
New York Times: http://www.nytimes.com/2014/07/28/business/media/netflix-bolsters- offerings-in-documentary-genre.html?_r=0 Clan | AdhocracyHigh performance employees.Dismissal of adequate employees.Flexible time management.No dress code.Work anytime. | Hierarchy | MarketCannibalize DVD sales/promote streaming.3 billion investment in original programming and new content.Cause related documentaries.Instant global distribution.Strong desire to deliver results. |
Tables.

Netflix organizational culture

Table 11-1.
Characteristics of Adhocracy and Market cultures.
Note. Adapted from Jessica Coady, Netflix Case Study. Copyright 2013 by Prezi.
Reprinted with permission.

Figures.

Figure 12-1.
Practices of adhocracy culture.
Note. Retrieved from slideshare,net. Copyright 2009 by Netflix Inc. Reprinted with permission.

Figures

Figure 13-1.
Organizational culture consistent with strategy.
Note. Retrieved from slideshare,net. Copyright 2009 by Netflix Inc. Reprinted with permission.

Figures

Figure 14-1.
Successful organizational culture and strategy.
Note. Retrieved from slideshare,net. Copyright 2009 by Netflix Inc. Reprinted with permission.