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Memo - Netflix

Executive Summary

Netflix’s announcement for our Video-on-Demand reaction is only days away. Based on the criteria given from the board of directors, the three options available to Netflix are licensing its proprietary technology (recommendation system) to cable companies, integrate streaming video-on-demand services into our core offering, and building a stand-alone video-on-demand firm.

My recommendation is to integrate streaming video-on-demand services into our core offering as the main target for this announcement. The reasons this option was chosen is based on the target market available for such services, the technology available to an end user providing a simple transition from online to television, and the financial implications of integration as opposed to licensing or building a stand-alone business.

In addition, a look into Blu Ray technology and the effect it will have on the home video and entertainment market is massive. While this may not have been a core market in which Netflix was pursuing, its implications on the industry and Netflix in the coming years are massive, and need to be addressed.

Through analysis on the external environments, including the future of home entertainment, end-user technology, and the future competitive industry, choosing to integrate VOD services into the core offering will yield the best results for Netflix, and allow us to continue our massive success while achieving our 20 million subscriber goal as the number one firm in the home entertainment industry.


1. Introduction

Netflix is at a crossroads where our business is now on the brink of strategic change. We cannot expect, even with the continued disorganization of traditional movie rental competitors like Blockbuster and Hollywood Video, as well as the increased usage of DVD technology in households for Netflix to continue to see astronomical gains in our subscriber growth. Subscriber growth of 33% in one year is terrific, however,...