17 New entrants to the industry also came in the form of multinational information technology companies that expanded their business interests into the Internet video-streaming sector. An example of such a company was e-commerce giant Amazon, which took advantage of its enormous global customer base, strong brand, and powerful computing infrastructure to launch its Amazon Video service. Launched in 2006, Amazon Video was available in a number of countries, including the United States, the United Kingdom, and Japan, and had an estimated 44 million users, second only to Netflix in market share in the streaming industry. Unlike its competitors, Amazon Video offered users the option to rent or buy movies and television shows without purchasing a subscription. The service was also accessible on a wide range of viewing platforms and streaming devices, from the standard web browser to game consoles such as Xbox and PlayStation.18 Authorized for use only in the course Marketing 3300 at Douglas College taught by Arif Mulji from Apr 06, 2016 to Sep 06, 2016. Use outside these parameters is a copyright violation. NEW STRATEGIC INITIATIVES To overcome competition, and to provide unique content to customers, Hastings decided to pursue exclusive licensing agreements and partnerships to develop original content. Netflix also began pursuing an aggressive international expansion strategy, which further helped it achieve its goals. Developing Exclusive Content In 2013, the political drama House of Cards, starring Kevin Spacey and Kate Mara, was released on Netflix, making it the first content available exclusively on the streaming service. Netflix had begun the process of securing exclusive rights to content in March of 2011, and the success of House of Cards quickly spurned further exclusive partnership deals with content providers, which laid the foundation for Netflix to develop its own content in-house.19 Netflix had exclusive distribution rights to television projects from established Hollywood producers such as Lana and Andy Wachowski (Sense8) and Judd Apatow (Love) and had also secured partnerships with Hollywood studios such as The Walt Disney Company and its associated subsidiaries to gain exclusive streaming rights.20 Netflix had ambitious goals for the future of its exclusive content; Hastings stated that the company wanted its original content to be “as broad as human experience.â€21 The company’s decision to secure exclusive rights to content was fruitful. As of 2015, the most-watched series on Netflix was Orange Is the New Black — one of its exclusive content dramas. The show had been streaming exclusively on Netflix since 2013 and had generated a loyal following and critical acclaim since its debut.22 Netflix also ventured into securing the licensing of feature films, which diversified its exclusive content beyond television shows. In 2015, Netflix purchased exclusive global distribution rights to the film Beasts of No Nation, which was released to its subscribers on October 16, 2015, the same day that it was distributed to movie theatres.23 The film was met with critical acclaim and won numerous awards upon its release.
Despite the critical and commercial success of the film, Netflix’s venture into the film industry was met with backlash by established stalwarts in the industry. The film’s simultaneous release through online streaming was viewed by American movie theatres as a violation of the industry’s 90-day release exclusivity. That rule restricted films from being made available online within 90 days of being released to conventional movie theatres. Netflix’s actions resulted in a boycott of the film from major movie theatre chains.24 Netflix planned to continue securing exclusive licensing deals from content providers in the future but was also looking towards further reducing its dependence on content providers by solely producing its own content. The decision to produce its own shows came amidst increasing resistance from content providers such as 21st Century Fox Inc., who were becoming reluctant to license their content to thirdparty streaming services. By creating its own television shows, Netflix would increase financial commitment and risk. Nonetheless, as of late 2015, the company had leased studio space in Hollywood to begin filming episodes of television shows. In 2016, the company expected to provide 600 hours of original program “ming, compared with 450 hours in 2015.25 Authorized for use only in the course Marketing 3300 at Douglas College taught by Arif Mulji from Apr 06, 2016 to Sep 06, 2016. Use outside these parameters is a copyright violation. International Expansion Since 2010, Netflix had adopted an aggressive expansion strategy into the global market to offset slow domestic growth in its U.S. market. It also stated its target to expand into 200 countries and establish itself as a global force by 2016. This desire for international expansion had been fuelled by slow growth in a saturated domestic market and by positive results from past entrances into global markets such as Canada. Before it adopted this international expansion strategy, Netflix reported subscriber growth rates of around 2.4 million people per year. The subscriber growth rate jumped to an average of 7 million subscribers per year following its entrance into the streaming markets of Canada, Europe, and Latin America. 26 Netflix reported a record growth of 2.74 million subscribers in its international segment in the third quarter of 2015 and projected subscriber growth in this business segment to increase substantially in the future.27 Netflix tried to establish a successful business model for minimizing the risks associated with entering a new market. The company accounted for the cultural differences among regional audiences by entering the markets with limited-time offers, which minimized the financial involvement and potential risks of rolling out the full service in an untested market. It utilized the data gained from these initial subscribers — mostly the types of programming they streamed — to more effectively create region-specific business models that took into account subscriber behaviour in the given market.28 Netflix had also recently implemented elements of its new domestic strategic direction — the exclusive licensing of content and developing its own content for streaming — into its international expansion strategy.
For example, in preparation for its launch into the Japanese market in the fall of 2015, Netflix partnered with Japanese talent agency Yoshimoto Kogyo to produce exclusive local programs. The deal between Netflix and Kogyo involved Netflix providing funding for the development of a number of programs by the talent agency in exchange for exclusive streaming rights to the programs for a set amount of time.29 In January 2016, Netflix made clear its intentions to further its international growth when it announced that its service would be made available in 130 new countries, which expanded its reach to over 190 countries worldwide. The decision meant that Netflix became available in nearly every country in the world, except those that had sanctions imposed upon them by the U.S. government. Notably absent from the list of 130 countries was China, a significant streaming market.30 CHALLENGES Netflix’s implementation of its expansion strategy was not without issues. The company was subject to both U.S. and host country regulations, and it needed to adapt its content offerings to serve the local customers’ needs. In spite of its high brand recognition in the United States, Netflix faced severe competition from local pay television operators and VOD service providers in many countries. Due to these factors, Netflix was expecting to have to make a substantial investment to implement its ambitious international expansion plan. Regulatory Restrictions As an American company, Netflix was still subject to regulatory restrictions imposed by the U.S. government. The impact of these restrictions was apparent in its January 2016 expansion announcement, with countries like Syria absent from its line-up. Authorized for use only in the course Marketing 3300 at Douglas College taught by Arif Mulji from Apr 06, 2016 to Sep 06, 2016. Use outside these parameters is a copyright violation. More concerning for the future of its expansion strategy, however, were the regulatory restrictions imposed by the governments of the countries that Netflix chose for expansion. For example, Indonesia’s censorship agency claimed that much of Netflix’s content was unsuitable for local audiences. Vietnamese regulators were also cautious on similar grounds, and Malaysia was likely to require that Netflix follow its censorship policy, largely due to religious reasons.31 China, in spite of its highly attractive market with its enormous, broadband-capable population, was very difficult to operate in because of regulatory challenges. More specifically, entering the Chinese market had proven challenging for Netflix due to strict regulations imposed on the country’s media and entertainment industries. However, Netflix was still exploring possible ways to launch its services in China.
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