The evaluation of threats to an organization in a SWOT analysis identifies external business environment factors that may prohibit growth or undermine the current success and operations of the organization. For Netflix, the two threats that would be the greatest concern over the coming years would be the rise of competitor services, and decreased offerings from media distributors.
When Netflix first began its streaming services, it was the only company offering this type of service on a broad scale, with recognizable entertainment properties that could easily be streamed. This is essentially what supported Netflix’s phenomenal growth, as it essentially introduced to the public a new way to consume movies and television. Because of Netflix’s success with the streaming model, however, there are now numerous competitors each creating their own streaming service, such as Hulu and Amazon. The subscription model is slowly overtaking the traditional cable or satellite television model, and Netflix is no longer unique in the streaming industry. There is now a proliferation of streaming services, all vying for the consumer’s subscription dollars, and these represent the most significant threat to Netflix’s current dominance in the streaming market. As more of these services emerge, and as current competitors start offering more robust offerings, Netflix will be challenged in maintaining its high consumer base.
Currently, Netflix has become synonymous with streaming online video content, so it still maintains market dominance (Madrigal, 2014); however, this may not continue for much longer, as more streaming services will eat away at Netflix’s market share. While many consumers may have multiple subscriptions, so that each subscription is not exclusive, there are many others who can afford only one service. Unless Netflix is able to distinguish itself and provide better services, it will slowly begin to lose ground to other streaming competitors. While Netflix’s catalogue is large, it does not always feature the latest movies and shows that bring in the largest audiences. Netflix also tends to focus on a wide spectrum of genres, ranging from children’s cartoons to documentaries, while also including as many current films as possible. Competitors who specialize in one type of genre might take away from Netflix’s current consumer base, as there may be many consumers who are only attracted to one specific genre. The challenge, however, is that there are a limited number of ways Netflix might work to actually distinguish itself from competitors, because the current model is basic: offer shows and movies that consumers want to watch, and provide them at a subscription fee the consumer is willing to pay. Unless Netflix is willing to drastically lower its subscription prices, it would be difficult to strike a clear competitive advantage over rival services. At the same time, if it lowers its subscription prices, this may be counterintuitive because it would similarly result in a drop in profits. Therefore, Netflix will have increasingly difficulty distinguishing its business model from competitors. The Netflix business model is the same model that Netflix’s competitors use, so it is difficult to clearly show how Netflix has an advantage in this area.
The number of media content offerings therefore represents the second threat facing Netflix in the coming years. Currently, Netflix makes deals with various distributors that allow it to show popular films and shows, while also producing its own content (McDonald, 2016). However, many popular films such as the new Star Wars film are made accessible through Netflix by a deal made with Disney. However, if Disney decides to start its own streaming service, which is likely due to the number of popular shows and films produced by Disney, it may no longer make these titles available for Netflix. Because the number of competitors is increasing, there may be more film and television studios who continue to withhold their intellectual properties from Netflix in order to highlight them in their own competitor service. To circumvent this, or at least mitigate the potential threat in this area, Netflix has started creating its own shows, which do not require making a deal with an external party. For the most part, this has been largely successful, with Netflix produced shows such as Stranger Things becoming cultural phenomenons in their own right. However, these Netflix produced shows still only represent a fraction of the totality of Netflix’s offerings, as the company still relies on making deals with external publishers for a large amount of what it has to offer the consumer. Thus, if various publishers Netflix currently works with begin to withhold their own intellectual properties for rival streaming services, Netflix may soon be limited in what it has to offer the consumer. If rivals begin offering more popular shows, this will force many current Netflix subscribers unable to afford two subscriptions to choose between streaming services.
In order to mitigate these two primary threats, Netflix will need to find ways to enhance its current portfolio of media titles, which is the best way it can distinguish itself from the competition. The current trend of Netflix in creating its own shows, which reach across multiple genres, is already a good start; however, these shows can be expensive to produce because they involve expenses far beyond simple licensing agreements being made with other distributors. Netflix also enjoys widespread brand recognition, as it was the first popular streaming service to utilize the subscription model, so that is working in its favor; however, as more competitors begin to emerge, the advantage Netflix has in this area will only lessen over time.
- Madrigal, A. C. (2014). How Netflix Reverse Engineered Hollywood. The Atlantic, 2, 2014.
- McDonald, K. (2016). The Netflix Effect: Technology and Entertainment in the 21st Century. Bloomsbury Publishing USA.