Reference no: EM132089250

There’s no doubt that people like to watch movies, but how they watch is changing. Although many people still prefer going to an actual movie theater, more and more are settling back in their easy chairs in front of home entertainment systems, especially now that technology has improved to the point where those systems are affordable and offer many of the same features as those found in movie theaters. Along with the changes in where people watch movies, how people get those movies has changed. For many, the weekend used to start with a trip to the video rental store to search the racks for something good to watch, an approach Blockbuster built its business on. Today’s consumers can choose a movie by going to their computer and visiting an online DVD subscription and delivery site where the movies come to the customers—a model invented by Netflix. Launched in 1999, Netflix’s subscriber base grew rapidly. It now has more than 50 million subscribers and thousands of movie titles and other content from which to choose. From the beginning, Netflix’s goal was to provide the most extensive and all-inclusive selection of DVDs, a simple and fast way to select movies, and fast, free delivery. Netflix founder and CEO Reed Hastings believed in the approach he pioneered and set some ambitious goals for his company: build the world’s best Internet movie service and grow earnings per share (EPS) and subscribers every year. In 2011, though, Hastings made a decision that had customers complaining loudly. Netflix’s troubles began when it announced it would charge separate prices for its DVDs-by-mail and streaming video plans. Then, it decided to rebrand its DVD service as Qwikster. Customers raged so much that Netflix reversed that decision and pulled the plug on the entire Qwikster plan. As Netflix regained its focus with customers, it was once again ready to focus on its competitors. Success ultimately attracts competition. Other businesses want a piece of the market. Trying to gain an edge in how customers get the movies they want, when and where they want them, has led to an all-out competitive war. Now, what Netflix did to Blockbuster, other competitors are doing to Netflix. Hastings said he has learned never to underestimate the competition. He says, “We erroneously concluded that Blockbuster probably wasn’t going to launch a competitive effort when they hadn’t by 2003. Then, in 2004, they did. We thought . . . well they won’t put much money behind it. Over the past four years, they’ve invested more than $500 million against us.” Not wanting to suffer the same fate as Blockbuster (it filed for bankruptcy protection in 2010 and was sold to Satellite TV service provider DISH Network in 2011), Netflix is bracing for other onslaughts. In fact, CEO Hastings, defending his misguided decisions in 2011, said, “We did so many difficult things this year that we got overconfident. Our big obsession for the year was streaming, the idea that ‘let’s not die with DVDs.’” The in-home entertainment industry is intensely competitive and continually changing. Many customers have multiple providers (e.g., HBO, renting a DVD from Red Box, buying a DVD, streaming a movie or television series or original programming from providers such as Hulu, Apple, and Amazon Prime) and may use any or all of those services in the same month. Video-on-demand and streaming are becoming extremely competitive. To counter such competitive challenges, Hastings is focusing the company’s competitive strengths on a select number of initiatives. The most important initiative is continuing to improve its programming, its personalization technology, and its marketing to attract new customers. He says, “Streaming is the future; we’re focused on it. DVD is going to do whatever it’s going to do. We don’t want to hurt it, but we’re not putting much time or energy into it.” Other strategic initiatives include embarking on a substantial European expansion, negotiating contracts with cable providers for direct connectivity, developing profitable partnerships with other content providers, controlling the cost and quality of streaming content, and even continuing to create original series. In fact, its first original series, called House of Cards starring Kevin Spacey, won a Primetime Emmy Award in 2013. The company also premiered its newest hit series, Orange Is the New Black. With other companies hoping to get established in the market, the competition is intense. Does Netflix have the script it needs to be a dominant player? CEO Hastings says, “If it’s true that you should be judged by the quality of your competitors, we must be doing pretty well.”

Assignment: Due to your expertise in strategic management, you have been hired by Reed Hastings to evaluate Netflix’s current strategy and make a recommendation as to which generic competitive strategy the company should adopt. Your analysis should yield at least two alternatives for Mr. Hastings to consider, but you must recommend one to him. The recommended strategy should be the one you believe will help the company better compete in the in-home entertainment industry.

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