The over the top (OTT) streaming content has a lot of potential for growth and expansion, an assumption solidified by the rapid entry of Netflix competitors into the market. They include Hulu, HBO Now, Amazon Prime Video, Disney +, Peacock, and many others. The phenomenon known as “Netflixification” of media implies that consumers are actively encouraged to binge-watch and explore a massive array of content options. The purpose of this paper is to examine the macro- and micro-environmental factors affecting the operations of global OTT platforms through the SWOT and PESTEL analyses. Furthermore, based on the recent data, the essay aims to identify Netflix’s primary strategies for dominating the OTT market.
Platforms such as Hulu, Netflix, and HBO Now are multinational organizations, which are undoubtedly affected by external shifts in politics, economy, or society, in general. Therefore, in order to grasp the macro-environmental challenges every provider faces, it is crucial to conduct a PESTEL analysis, which can be applied to all of the aforementioned platforms. Firstly, it is evident that a business cannot function separately from the political climate. Political factors, which affect OTT platforms include FCC regulations, access limitations, censorship, and regional restrictions.
In regards to the FCC regulations, streaming services are rightfully concerned regarding the recent merger of AT&T and Direct TV as two of the most powerful cable TV networks in the United States (Chen et al., 2017). As for access limitations, even if Netflix or any other platform wants to operate in countries, which are in conflict with the U.S. government, it cannot do so. This is one of the reasons behind the absence of on-demand providers such as Hulu and Amazon Prime Video in North Korea, Crimea, Donetsk, Luhansk, and so on. In addition, even if the company is allowed to provide its services to a certain country, that nation can, in turn, impose censorship policies, such as the case with China. In order to continue its operations in China, Netflix often has to comply with the harsh demands of Chinese officials if they want a certain movie or a part of a specific episode in a TV series removed. Moreover, some regions, including the European Union, do not permit streaming services to operate within their borders if a major part of the content is not produced on their territory.
As most of the profitable platforms are not limited to the U.S. and run their businesses worldwide, it is evident that they have to deal with different exchange rates, pricing strategies, and economic complexities. For instance, if the currency of Ukraine is weak, Netflix keeping the subscription price the same for every country means that Ukrainians pay a much higher price than Americans, making the platforms stray into the luxury segment for this particular region. The COVID-19 pandemic has been a blessing in disguise for streaming services, increasing their profits substantially. What hurts Netflix, Hulu, HBO Now, and similar OTT providers is torrenting and increasing competition.
In regards to social factors, the primary focus of most OTT platforms should be on social justice and the fight for human rights. These topics have been at the center of public debate, which is why a socially responsible business has to demonstrate its participation in crafting a solution by actively showing support through donations or campaigns. As for technology, it is apparent that the industry continues to generate innovative products and software, which makes it possible to stream content in ultra-HD or set up automatic translation tools. Legal factors for OTT providers include possible class-action lawsuits for breaching customer contracts as well as copyright claims from film studios and TV networks. Lastly, as the streaming services accumulate hundreds of millions of subscribers worldwide, their operations undoubtedly affect the environment. To avoid public criticism, companies are encouraged to demonstrate their commitment to use and invest in renewable energy.
As each of the global OTT platforms is unique and has distinct strengths, weaknesses, opportunities, and threats, this paper is going to focus on Netflix due to it being the largest of them. Netflix’s strengths include its worldwide presence in more than 190 countries, strong commitment to innovation, exceptional brand recognition, and high rates of business growth (Fagerjord & Kueng, 2019). In addition, the providers have masterfully introduced the “open connect” content delivery framework, which allows Netflix to produce content locally and distribute it globally. As for weaknesses, the decrease in free cash flow and the increase in licensing costs are the main ones. Furthermore, it is important to note that networks that have previously been suppliers of content are now on the verge of becoming main competitors.
Netflix’s opportunities lie in the fact that the world as a whole is rapidly shifting towards the Internet and digital innovation. In addition, there is untapped potential in profiting from advertisements, niche film-making, as well as foreign markets where English is widely spoken. Finally, when it comes to threats, most of them stem from escalating operational, administrative, technological, and research and development (R&D) costs. Additionally, Netflix’s revenue is overly dependent on fluctuating exchange rates in foreign markets. The increase in subscription prices can lead to customers switching to other platforms, which has not been possible until strong competitors such as Disney+ and Amazon Prime Video entered the market.
The worst thing a company can do is to appear insensitive to consumer demands. Netflix serves as a great example of a business that has saved itself by adopting a customer-centric approach. Firstly, the provider uses a personalization strategy, which allows it to predict subscriber preferences by analyzing their viewing data and search history (Minzheong, 2021). This ensures that users understand the value of the streaming service as their recommendations are completely original. Originality and customer orientation are not the only strategies deployed by Netflix. The platform adapts to customer needs expertly by running closed loop A/B testing “to see how they react and respond to suggested changes” (Minzheong, 2021, p. 67). Netflix even adapts to the time of day it is by suggesting shorter programs to subscribers who log in at night (Chandrashekar et al., 2017). Lastly, in regards to competitive pricing, Netflix has had a history of trials and errors until it finally implemented a highly successful model of usage-based pricing. Netflix relies greatly on its existing subscribers and their loyalty to the platform, while attracting new users by realizing exclusive original titles and expanding its library. Minzheong (2021) notes that “pricing power is an output that Netflix can measure based on how much value it delivers to its customers relative to other OTTs” (p. 68). Thus, it is evident that in terms of pricing, Netflix tackles the decisions market-by-market and avoids any poorly planned, brush moves.
In conclusion, it is evident that the basis for OTT platforms is the fact that they do not require partnerships and affiliations with network operators and are capable of delivering content through the Internet. Thus, over the recent years, global media conglomerates have found themselves forced to compete with video on demand platforms such as Netflix and Hulu. Although the OTT market is growing, it is also true that new competitors continue to enter the marketplace, which makes it all the more important for existing providers to re-evaluate their positioning and strategies.
References
Chandrashekar, A., Amat, F., Basilico, J., & Jebara, T. (2017). Artwork personalization at Netflix. Medium. Web.
Chen, K.C., Funahashi, H., & Warmerdam, N. (2017). Evaluating conditions and terms of the AT&T and DirecTV Merger. Research in Finance, 33, 1-17.
Fagerjord, A., & Kueng, L. (2019). Mapping the core actors and flows in streaming video services: what Netflix can tell us about these new media networks. Journal of Media Business Studies, 1–16.
Minzheong, S. (2021). A comparative study on over-the-tops, Netflix & Amazon Prime Video: Based on the success factors of innovation. International Journal of Advanced Smart Convergence, 10(1), 62-74.