Netflix PESTEL Analysis | Business Teacher
- In US markets, audiences shift away from traditional TV towards on-demand streaming services like Netflix. However, with an increase in internet usage, US telecom giants AT&T have gone to the Federal Communications Commission to insist on stricter usage regulations. If passed through congress, internet prices could rise which would threaten the business model of Netflix’s internet streaming service (Romm, 2017).
- Controversial EU rulings will look to class streaming services like Netflix into the same category as traditional television distributors. What this means is that Netflix will have to abide under the rule that 30% of content on the platform needs to be European. Furthermore, the company will be taxed the same 26% levy as traditional media, forcing Netflix to potentially pass the costs onto customers (Robinson and Murgia, 2017).
- As of 2016, Netflix currently has over 100 million subscribers accessing their service globally. One key factor is their competitive pricing against traditional television services. In a current global recession where many customers spending budgets are tight, services like Netflix are more attractive than costly traditional media subscriptions (Bradshaw and Bond, 2017).
- A key issue that affects Netflix’s expansion is the issue of exchange rates. The company aims its pricing around the US’s $10 fee, however, within certain markets this can be as much as $19 due to exchange rates and VAT. This moves Netflix into a luxury purchase for some customers and could potentially affect attracting a whole ‘price-conscious’ segment (Pelts, 2016).
- In UK markets, younger viewers are watching a third less traditional television and now turn to online streaming services for their entertainment (Bond, 2017).
- Social trends are showing that many customers are moving to watch video content on their smartphones rather than traditional larger screens. In 2015 US viewers watched 24 minutes on average on smartphones, in 2016 it grew to over 40 minutes. This trend shows a demand for content on the move to fit into customers busy lives (Mintel, 2016).
- ‘Cord-Cutting’ in the US is the act of customers switching from traditional cable media to online streaming services. In 2017, US Cable companies saw the steepest loss with 2.4% on record switching. The trend of customers seeing the pricey cable options as less appealing considering the variety of online viewing options demonstrates the influence of services like Netflix (Bradshaw and Bond, 2017).
- The 4K television market has seen a ten-year growth of 43% in the US, with the market estimated to be worth $71.9 billion (digitaltveurope.net, 2017). To capitalise, Netflix have put money into R&D to support 4K streaming efficiently (Mintel, 2016).
- The technological shift to 4K screen resolutions have created an issue for streaming services. The amount of data required to stream is a huge strain on customers broadband services. Within ‘Netflix Labs’, the company is aiming to create new patented technology which will allow for better compression of their 4K signal. If created, this innovation will give a huge competitive advantage to Netflix (Roettgers, 2017).
- Netflix’s R&D Labs have also developed new software codenamed ‘Hermes’ which automatically grades a translation of a Netflix show. This innovation will allow for faster and higher quality translation efforts for Netflix to serve its programming to its 190 countries (Roettgers, 2017).
- For streaming services like Netflix, the access to data servers puts huge pressure on the environment. In partnership with Greenpeace, tech companies are beginning to look at solutions to lessen their carbon footprint. At current usage rates, tech companies are being told by global governments to pay part of an environmental bill worth upwards of $11 trillion by 2025 (Lewis, 2016).
- Netflix accounts for more than one-third of the internet traffic in North America. With this, the company has been approached by numerous campaign groups to push towards using renewable energy for its data centres. Currently the company has been rated ‘D’ by an independent energy group for their lack of commitment to offset its carbon footprint. (Darrow, 2017).
- In 2016 Netflix suffered a costly PR misstep over a consumer lawsuit. At the start of the year the company announced it would be raising subscription prices, however it was not clear over how current users would be affected. As a result, Netflix was issued a class-action lawsuit from customers who were angry, furthermore the company received widespread media criticism for their confusing customer contracts (Spangler, 2016).
- Also in 2016, to meet growing demands from televisions and film studios over copyright access to content. Netflix introduced blocking workarounds for users who access content from other countries. Many users accessed other Netflix countries via technological workarounds. However, for Netflix to meet copyright law standards with content providers, the company had to put blockers in place. As a result, this will affect a small segment of users and its demand for the product due to the limited access some Netflix countries have (Greenberg, 2016).
- Bond, D. (2017) Traditional TV becomes turn-off for young viewers. Financial Times. [Online] Available at: https://www.ft.com/content/0aa8f2fc-6339-11e7-91a7-502f7ee26895 [Accessed on: 27/07/17].
- Bradshaw, T. (2017) Netflix boosted as viewers outside the US tune in. Financial Times. [Online] Available at: https://www.ft.com/content/e8c742f2-6b34-11e7-b9c7-15af748b60d0 [Accessed on: 27/07/17].
- Bradshaw, T., and Bond, S. (2017) Netflix looks to become world’s entertainer as it hits milestone. Financial Times. [Online] Available at: https://www.ft.com/content/06b55bb8-6d0c-11e7-bfeb-33fe0c5b7eaa [Accessed on: 27/07/17].
- Darrow, B. (2017) Greenpeace Just Dropped This Video to Push Netflix on Energy Use. Fortune Tech. [Online] Available at: http://fortune.com/2017/01/13/greenpeace-netflix/ [Accessed on: 27/07/17].
- Digitaltveurope.net. (2017) 4K TV market ‘to be worth US$380.9bn by 2025’. Digitaltveurope. [Online] Available at: http://www.digitaltveurope.net/715831/4k-tv-market-to-be-worth-us380-9bn-by-2025/ [Accessed on: 27/07/17].
- Greenburg, J. (2016) For Netflix, Discontent over blocked VPS’s is boiling. Wired. [Online] Available at: https://www.wired.com/2016/03/netflix-discontent-blocked-vpns-boiling/ [Accessed on: 27/07/17].
- Lewis, D. (2016) Will the internet of things sacrifice or save the environment? Guardian Business. [Online] Available at: https://www.theguardian.com/sustainable-business/2016/dec/12/will-the-internet-of-things-sacrifice-or-save-the-environment [Accessed on: 27/07/17].
- Kuchler, H., and Bond, S. (2017) Facebook takes on TV and YouTube with long-form video push. Financial Times. [Online] Available at: https://www.ft.com/content/2047563c-4bd6-11e7-a3f4-c742b9791d43 [Accessed on: 27/07/17].
- Mintel. (2016) Music and Video Streaming-UK-April 2016. Mintel Academic. [Online] Available at: http://academic.mintel.com/display/770307/ [Accessed on: 27/07/17].
- Mundy, S. (2016) Netflix to make first original series in India. Financial Times. [Online] Available at: https://www.ft.com/content/67bf29c6-2bda-11e6-bf8d-26294ad519fc [Accessed on: 27/07/17].
- Murgia, M., and Bond, D. (2017) Netflix seeks European crown in local content push. Financial Times. [Online] Available at: https://www.ft.com/content/c286c25e-04d5-11e7-aa5b-6bb07f5c8e12 [Accessed on: 27/07/17].
- Opam, K. (2017) HBO, Netflix, other Hollywood companies join forces to fight piracy. The Verge. [Online] Available at: https://www.theverge.com/2017/6/13/15791688/hbo-netflix-hollywood-ace-fight-piracy [Accessed on: 27/07/17].
- Pelts, S. (2016) Factors that could affect Netflix’s international expansion. Yahoo Finance. [Online] Available at: https://finance.yahoo.com/news/factors-could-affect-netflix-international-130712152.html [Accessed on: 27/07/17].
- Robinson, D., and Murgia, M. (2017) Controversial EU rules could make life trickier for tech groups. Financial Times. [Online] Available at: https://www.ft.com/content/e44b1d8a-409a-11e7-9d56-25f963e998b2 [Accessed on: 27/07/17].
- Romm, T. (2017) Facebook, Google and others are in a lose-lose position with an upcoming congressional net neutrality hearing. Recode. [Online] Available at: https://www.recode.net/2017/7/26/16029192/amazon-facebook-google-netflix-net-neutrality-hearing-congress-testify [Accessed on: 27/07/17].
- Roettgers, J. (2017) How Netflix Wants to Rule the World: A Behind-the-Scenes Look at a Global TV Network. Variety. [Online] Available at: http://variety.com/2017/digital/news/netflix-lab-day-behind-the-scenes-1202011105/ [Accessed on: 27/07/17].
- Russell, J. (2017) Netflix enters China via licensing deal with top video streaming service iQiyi. Tech Crunch. [Online] Available at: https://techcrunch.com/2017/04/25/netflix-china-iqiyi/ [Accessed on: 27/07/17].
- Spangler, T. (2016) Netflix User Sues Over Rate Hike, Claiming Breach of Contract. Variety. [Online] Available at: http://variety.com/2016/digital/news/netflix-user-lawsuit-class-action-rate-hike-1201807561/ [Accessed on: 27/07/17].