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MNG3702 Assignment 02 Semester 02 2023 (Due 15 September)
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MNG3702Assignment 2
Strategy Implementation and
Control
Semester 2
2023
Due Date: 15 September 2023
MNG3702
Assessment 2
Read the Netflix case study to answer the questions that follow. All the questions are based on the
Netflix case study. Please ensure that you read the questions carefully before you commence
answering. In addition, please take the mark allocation of each question into consideration when
answering this assessment.
Netflix
Netflix was founded by Reed Hastings and Marc Randolph in 1997, after Hastings became angry
about paying Blockbuster Video (a global chain of video stores where customers could go and
rent videos in store) a fine of US$40 for a late return of the movie Apollo 13. At the time, video
rental stores dominated the home entertainment market. The company started renting out
DVDs by mail and provided home delivery and returns via prepaid postage envelopes, no late
fees and letting customers keep the DVDs as long as they wanted. At the time, only 2 per cent
of the American households owned a DVD player. Hastings and Randolph knew if the market
reached 20 per cent of households, they would have a viable business. They had the foresight
to take the leap and their vision was right – eventually 95 per cent of all households had a DVD
player.1
,Only a year after its founding, Netflix changed its pay-for-use model into a subscription model,
which offered a subscription service through the internet. Subscribers chose movie and
television titles from the Netflix website. From the launch of their subscription model in 1999,
Netflix gained 239 000 subscribers in its first year.2 In April 2021, Netflix had 208 million
subscribers3; 4. How did the company achieve this success and outperformed rivals such as
Blockbuster (which began offering subscribers unlimited DVD movie rentals by mail in 2004 and
went bankrupt 13 years after Netflix was founded), Amazon and Walmart (which both started
their own mail-delivery video rentals and quit the business within a few years)? The brief
history of the company below, highlights the important roles played by and skills illustrated by
its founders and management.
In 2006, Netflix launched the US$1 million Netflix Prize content to see if anyone could improve
their recommendation systems by 10 per cent, an algorithm for predicting an individual’s
movies preferences based on previous rental data. Three years later the prize was awarded to a
team made up of seven mathematicians, computer scientists and engineers from the United
States, Canada, Austria, and Israel. In 2007, Netflix began offering subscribers the option to
stream some of its movies and television shows directly to their homes through the internet.
For most subscription plans, the streaming service was unlimited.5 Netflix subsequently
partnered with manufacturers of various consumer electronics products, including video game
consoles and Blu-ray Disc players, in order to enable its videos to be streamed over an internet
connection to those devices. In 2010, Netflix introduced a streaming-only plan that offered
unlimited streaming service but no DVDs. The company then aggressively expanded overseas,
spending heavily to ensure it becomes the dominant internet TV service in every country that it
enters. Netflix expanded beyond the United States by offering the streaming-only plan in
Canada in 2010, in Latin America and the Caribbean in 2011, and in the United Kingdom,
Ireland, and Scandinavia in 2012. By 2016, its streaming service was available in more than 190
countries and territories. Its streaming services became the biggest revenue generator.
Beginning in 2013 with the episodic drama series House of Cards, the company offered video
content produced specifically for its streaming service. Such content became a major focus of
Netflix, and by the end of 2018 it offered approximately 1,000 original titles.6 Netflix’s focus on
creating original content is expensive and came with risks. For example, Netflix spent $100
million to develop the first two seasons of House of cards, and that only got the company
exclusive streaming rights. Episodes could be purchased on Amazon Instant Video, on DVD and
Blu-Ray. Another Netflix exclusive, Marco Polo, was even more expensive, costing Netflix $90
million for just the first 10-episode season. Unlike licensing third-party content, original content
requires Netflix to produce much of the required cash up front, which has caused cash flow
issues for the company. Netflix's free cash flow has been negative since 2012. Another Netflix
exclusive, Marco Polo, was even more expensive, costing Netflix $90 million for just the first 10-
episode season. Unlike licensing third-party content, original content requires Netflix to
produce much of the required cash up front, which has caused cash flow issues for the
company. Netflix's free cash flow has been negative since 2012.
,Netflix doesn't earn enough profit from its U.S. operations to fully fund both its original content
ambitions and its rapid international expansion. The company has turned to debt as a result,
and it expects to continue to raise long-term debt as needed to fund its growth.
In 2016, the company began its worldwide expansion, and the streaming service has rewritten
the playbook for global entertainment – from TV to film and video games. Hollywood used to
export most global hit series and movies. Due to Netflix's investments in international TV and
film, programming like South Korea's "Squid Game," Spain's "Money Heist," and France's
"Lupin" are finding massive audiences around the world. And its English-language original
series, such as Shonda Rhimes' "Bridgerton," Ryan Murphy's "Dahmer" and Tim Burton's
"Wednesday," have continued to break Netflix's internal streaming viewership records. 7
Netflix’s corporate mission is “To entertain the world.” This mission statement is based on the
nature of the company in providing on-demand movie streaming services. This corporate
mission emphasizes operations in the entertainment industry, as the business thrives in
addressing consumers’ expectations and preferences about the media they access. There are
two focus points in Netflix’s corporate mission statement: entertainment and entertainment on
a world-wide scale. Strategic management of the company supports the goal of continuing
leadership on a global scale in entertainment, indicating that the company has already
achieved its previous corporate vision statement of global industry leadership. The business
aims to maintain its leadership and operational effectiveness, while growing its membership to
satisfy the corporate mission objectives.
Despite 214 million global paid subscribers in September 2022, the streamer found itself in the
midst of a reality check, epitomized by its first quarterly subscriber loss in a decade, hundreds in
layoffs in 2022, a halved stock price and the sense among employees that Netflix's famed
corporate culture has soured somewhat. This forced the company to look more closely at new
avenues for revenue and subscriber gains, such as an ad-supported version of the platform —
which it had long dismissed — and a pending crackdown on password sharing. The latter is
hurting company growth as it loses subscribers for the first time in a decade. In addition, the
company is facing more competition than ever from an influx of rivals that are learning to play
its game. Nearly every major media company, from Disney to Apple to Warner Bros. Discovery,
now runs a streaming service. Their platforms are stockpiled with tentpole movies and TV
shows that used to only be found in theaters or on linear TV, and their libraries now rival
Netflix's, particularly as they claw back programming that had been previously licensed to
Netflix. 8
The competition is pushing the streaming giant to keep evolving. Netflix has expanded into
podcasting and started peddling merchandise for series like "Squid Game" and "The Witcher."
The streamer launched a new ad tier in the U.S. in November 2022 for $6.99 a month, a steep
discount to its ad-free standard tier that costs $15.49 a month. Some TV writers were
disappointed by the move into ads, with creators worrying that Netflix will take fewer risks on
programming in order to please advertisers. 9
,The company is also bringing video games into its mobile streaming app. In July 2021, Netflix
hired Facebook's former head of Reality Labs, Mike Verdu, as its vice president of game
development, responsible for the development and offering of video games and managing the
change process. In addition, it has been hiring for other video-game-related positions. The
streamer plans to approach gaming like it did movies and TV shows. It's starting slowly by
commissioning and licensing mobile games. It plans to experiment with other kinds of video-
game storytelling, as it did with its original series and with the input of existing staff. 10 Netflix's
impact on the global TV industry and entertainment is still undeniable.
Sources:
1 Oomen, M. Netflix: How a DVD rental company changed the way we spend our free time.
Available online https://www.businessmodelsinc.com/exponential-business-model/netflix/
[Accessed 12 May 2021]
2 Oomen, M. Netflix: How a DVD rental company changed the way we spend our free time.
Available online https://www.businessmodelsinc.com/exponential-business-model/netflix/
[Accessed 12 May 2021]
3 Katz, B. 2021. Netflix growth is slowing, but its customers are the most loyal of all. Available
online https://observer.com/2021/04/netflix-subscriber-growth-slowing-but-customers-are-
loyal/ [Accessed 10 May 2021]
4 Kastrenakes, J. 2021. Netflix subscriber growth is stalling as it runs low on hits. Available
online https://www.theverge.com/2021/4/20/22394425/netflix-subscriber-growth-stalls-2021
[Accessed 10 May 2021]
5 Hosch, W.L. Netflix American Company. Available online
https://www.britannica.com/topic/Netflix-Inc [Accessed 12 May 2021]
6 Hosch, W.L. Netflix American Company. Available online
https://www.britannica.com/topic/Netflix-Inc [Accessed 12 May 2021]
7 How Netflix has changed the global entertainment industry. Available online
https://www.businessinsider.com/how-netflix-is-changing-the-entertainment-industry-2021-8
[Accessed 6 May 2023]
8 How Netflix has changed the global entertainment industry. Available online
https://www.businessinsider.com/how-netflix-is-changing-the-entertainment-industry-2021-8
[Accessed 6 May 2023]
9 How Netflix has changed the global entertainment industry. Available online
https://www.businessinsider.com/how-netflix-is-changing-the-entertainment-industry-2021-8
[Accessed 6 May 2023]
, 10 How Netflix has changed the global entertainment industry. Available online
https://www.businessinsider.com/how-netflix-is-changing-the-entertainment-industry-2021-8
[Accessed 6 May 2023]
Questions
Question 1
The Netflix case presents us with several examples of strategy formulation and implementation.
1.1 The first principle of strategy implementation is to translate the strategy of a business to
operational terms. One tool that can be used for this purpose is a strategic map. Draw a
strategic map for Netflix for 1998 when the company changed its pay-for-use model into a
subscription model which offered a subscription service through the internet. In your
answer, you need to make use of the elements of the Balanced Scorecard (BSC). (8 marks,
of which 1 mark will be awarded for each element of the BSC and 1 mark for a relevant
application of the elements of the Balanced Scorecard to the case in a strategic map)
Answer:
A strategic map is a visual representation of a company's strategy using the elements of the
Balanced Scorecard (BSC). The BSC includes four perspectives: financial, customer, internal
processes, and learning and growth. Here's an example of a strategic map for Netflix in 1998:
Here's what would be on the strategic map for Netflix for 1998:
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