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 (, 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).

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