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The Diffusion of Netflix

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This presentation briefly analyses the characteristics and timeline of the diffusion of Netflix by assessing Rogers' five diffusion characteristics. for different steps in their company history. It analyses the surrounding of this innovation via PESTEL-analysis and gives brief hints on how to intensify the diffusion of Netflix further globally.

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The Diffusion of Netflix

  1. 1. Felix Zappe23.03.2017Kurs: Thema | Fakultät | Institution Disclaimer IOT 5037 Innovation Adoption and Diffusion in Organisations 10th January 2017 The Diffusion of Netflix By: Felix Zappe and Merve Senay
  2. 2. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta DisclaimerAgenda The Netflix Diffusion Timeline2 Characteristics of the Innovation “Netflix”1 2 Characteristics Influencing Diffusion of Netflix3 PESTEL Analysis - Factors Influencing the Adoption4 Recommendations for the Diffusion of Netflix5
  3. 3. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer 3 1. Characteristics of the Innovation Online subscription-based streaming service within high-tech sector Evolution into leading online television network Targets movie-lovers all over the world (40 million customers) Netflix as Service Innovation: • Intangible • Heterogeneous • (Semi-)perishable • Simultaneous consumption (watching) and production (streaming) Netflix as Disruptive Innovation (Christensen, 1995): • Create new market with new values • Disrupt existing market with existing values • Displace established market leaders
  4. 4. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer High Procurement Costs Independent MoviesRecommendation System 2. The Netflix Diffusion Timeline • Evolution of online movie rental • Fees in line with competitors & slow delivery time • Shift to a prepaid subscription model • Further adjustment of pricing system • Unbalanced customer demand • Surveys & ratings to balance out demand for new & old movies • Filter for hiding unavailable movies • Decreased customer dissatisfaction • Decreased need for more copies of new movies • Hiring of Ted Sarandos • Negotiation of “revenue-sharing agreements” with major studios • Overcoming barrier of slow delivery time • Offering overnight and same day delivery • Acquisition of distribution rights to independent movies • Introducing them to market • Online Streaming 1997 2000 2007 New Distribution Centres Bypassing “Out-of- Stock” Issue Feedback from Early Adopters Video-On-Demand 40 $ late fee payment UNLIMITED 1.0 4
  5. 5. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer 2007 2013 2017 Rising Customer Base • Integration with platforms such as XBox360, PS3, Nintendo Wii Own Production Internationalisation • Expansion outside the US • Market entry into 60 different countries New Consumer Behaviour • Netflix Merchandise • Open Source Project • Netflix Hack Day NETFLIX WORLDWIDE Goal: Becoming the only “TV-Network” worldwide! 5 • Independence • Success: many Emmy- Nominations and Awards 2. The Netflix Diffusion Timeline
  6. 6. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer 6 3. Characteristics Influencing Diffusion of Netflix Online rental Online streaming Own series Relative Advantage No stores Convenience No rental Higher convenience More control Highest convenience Compatibility Relatively high (Relatively) high High Complexity Medium Low Low Observability High (but delayed) High High Trialability Immediate trial after delivery One month trial Cancel at any time One month trial Cancel at any time 1.0 2.0 (Rogers, 1995) 3.0
  7. 7. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer 7 4. PESTEL Analysis Factors Influencing the Adoption Legal & Political • Copyright laws • Tax differentials • National regulations • Net neutrality • Privacy laws Economic • Purchasing power of customers • Foreign exchange volatility Social • Changing demography • Changing customer behaviour • Diverse consumer segments • Online piracy Technological • Keep track of technological developments • Developing respective apps Environmental • Online production and consumption • Shift from real to virtual product Legal & Political • Copyright laws • Tax differentials • National regulations • Net neutrality • Privacy laws Social • Changing demography • Changing customer behaviour • Diverse consumer segments • Online piracy
  8. 8. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer 8 5. Recommendations for Diffusion of Netflix Expanded partnership network  Lower entry barrier Diversification of own produced content  Exploiting the whole range of TV spectrum Creating incentives for increasing Netflix’s popularity  Organising Netflix parties (hype creation) Being aware of political and legal issues in respective countries  Influencing legal regulations and laws in favour of own behalf Examining the capabilities of becoming a network provider  E.g. focusing on rural areas, double or triple play offers Collaboration with cable TV providers  Scheduled vs. flexible show times
  9. 9. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta DisclaimerIt is not easy to combine student obligations with the Netflix obsession Thank you for your attention!
  10. 10. 23.03.2017 IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix Edward de Bono Institute | University of Malta Disclaimer 10 References Tidd, J., Bessant, J. R., & Pavitt, K. (2005). Managing innovation: Integrating technological, market and organizational change (3rd ed.). Chichester, United Kingdom: Wiley, John & Sons. Shih, W., Kaufman, S. & Spinola, D. 2009. Netflix. Harvard Business School. Pereira, P. M., 2015. Netflix – the new face of the TV industry. Noren, E. (2013, January 21). Digital Business Models: Analysis of the Netflix Business Model. Retrieved December 26, 2016 from http://www.digitalbusinessmodelguru.com/2013/01/a nalysis-of-netflix-business-model.html. Sadq, Z. M., 2013. Analysising Netflix‘s Strategy. International Journal of Science and Research.4(3). Christensen, C. (2012, July 10). Disruptive innovation. Retrieved January 2, 2017, from http://www.claytonchristensen.com/key-concepts/ McAlone, N. (2015, November 18). The father of “disruption” theory explains why Netflix is the perfect example — and Uber isn’t. Retrieved January 2, 2017, from Business Insider, http://www.businessinsider.com/the-father-of- disruption-theory-explains-why-netflix-is-the-perfect- example-and-uber-isnt-2015-11 Randhawa, K., & Scerri, M. (2015). Service innovation: A review of the literature. In The Handbook of Service Innovation (pp. 27-51). Springer London. Rogers, E. M. (1995). Diffusion of innovations (4th ed.). New York, NY: The Free Press.

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