Highlights in Business, Economics and Management WEPM 2023

Volume 22 (2023)

Analysis of Netflix’s Strategic Issues, Challenges and

Opportunities
Xuanxuan Li *
Yew Wah international education school of Yantai, Yantai, China
* Corresponding author: [email protected]
Abstract. Netflix has revolutionized the over-the-top media landscape since it is an evolution from a
DVD rental service to a global streaming behemoth. With a valuation exceeding $200 billion and an
enormous subscriber base, the company has fundamentally altered the way we consume and
produce content. Nevertheless, in an ever-changing digital entertainment ecosystem, Netflix
confronts a myriad of strategic issues that challenge it is market dominance. Firstly, Netflix faces
fierce competition from an expanding list of streaming services like Amazon Prime, Disney+, HBO
Max, and Apple TV+. Each competitor brings it is unique content library and technological
advancements, chipping away at Netflix’s early-adopter advantage. Secondly, the ballooning costs
of original content production further strain it is financials. As consumers demand high-quality,
diverse content, Netflix must invest heavily in both licensing existing properties and developing new
ones. Regulatory challenges present another hurdle, significantly as Netflix expands globally.
Different countries have varying censorship laws, data protection regulations, and even tax laws
affecting digital services. Navigating this complex regulatory landscape is crucial for sustained
growth. Furthermore, global expansion introduces the challenge of catering to diverse audience
preferences, requiring a more localized approach to content curation and customer engagement. In
light of these challenges, this essay aims to offer a comprehensive strategic roadmap for Netflix,
addressing aspects such as content diversification, regulatory adaptability, technological innovation,
user experience improvements, ethical data utilization, and sustainability.
Keywords: Netflix, strategy issues, regulatory adaptability.

1. Introduction of Netflix
In an era where digital technologies rule the roost, the entertainment industry is undergoing seismic
shifts. At the vanguard of this digital upheaval is Netflix, a company that has evolved from a modest
DVD rental service in 1997 to a streaming behemoth with a valuation exceeding $200 billion and a
global subscriber base of over 200 million as of 2021 [1]. In doing so, Netflix has not just disrupted
how this essay consumes content but has also been a game-changer in how content is produced,
spearheading the concept of original programming in the Over-The-Top (OTT) media landscape.
However, reaching the pinnacle is one thing; staying there is another challenge altogether. The
digital entertainment sector is in a state of flux, with new entrants like Disney+ and Apple TV+
throwing down the gauntlet, and existing competitors like Amazon Prime Video doubling down on
their content and technology investments. Moreover, Netflix faces several obstacles in it is quest to
maintain market dominance.
One significant hurdle is the escalating cost of content production. Creating high-quality original
content that caters to a global audience is an expensive endeavor. Shows like “Stranger Things” and
“The Crown” require hefty budgets, and the bidding war for third-party content further inflates costs.
The regulatory landscape is also becoming more complex. Netflix has to navigate through intricate
licensing agreements, copyright laws, and country-specific content regulations. As the company
expands globally, it must also contend with regional censorship and cultural sensitivities, creating a
delicate balancing act between creative freedom and legal compliance.
Moreover, catering to a global audience brings it is own set of challenges. Diverse cultural norms
and preferences necessitate a multi-pronged content strategy. Netflix has made strides in offering
localized content, but the increasing demand for diversity and representation means the company
cannot afford to be complacent.

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To address these challenges, this essay will employ a case-study approach to scrutinize Netflix’s
current market position, dissect it is competitive landscape, and delve into the myriad internal and
external challenges it faces. Through these lenses, the essay aims to provide actionable
recommendations that could serve as a blueprint for Netflix’s future strategies.
In summary, Netflix’s journey from a DVD rental service to a global streaming powerhouse is
nothing short of remarkable. However, to maintain it is a leadership position, the company needs to
strategically address the rising production costs, complex regulatory hurdles, and the ever-demanding,
diverse global audience. As Tae Kim points out in a Bloomberg article, “The challenges are growing,
but so are the opportunities for Netflix in an expanding streaming world” [2].

2. Case Study: Netflix’s Strategic Challenges in a Competitive Landscape

Netflix has been a trailblazer in the OTT streaming services sector. With a valuation that has
surpassed $200 billion and a subscriber base exceeding 200 million globally, the company has
distinguished itself as the industry leader [3]. Initially famous for it is an extensive library of films
and TV shows, Netflix has strategically pivoted towards original content, investing billions each year.
The free advertisement, subscription-based model provides a unique value proposition that
distinguishes it from traditional cable TV and some streaming rivals [4].
2.1. Competitive Landscape and Financial Strain
The OTT industry has witnessed a paradigm shift in competition. Tech giants like Amazon have
debuted Amazon Prime Video, and established entertainment companies like Disney have introduced
platforms like Disney+ [5]. Legacy media companies are also transitioning to the digital realm; HBO
Max from Warner Media and Peacock from NBCUniversal are notable examples. These newcomers,
equipped with deep financial reserves and expansive content libraries, are not only competing for
market share but also inflating the costs of content production and acquisition. Netflix’s financial
health is under considerable pressure due to escalating content expenses. The company allocated over
$17 billion for content in 2020 [6]. As competitors reclaim their content for their platforms, Netflix
has substantially increased it is an investment in original productions. The primary challenge here is
maintaining financial stability while providing a competitive array of content.
2.2. Global Expansion and Regulatory Challenges
One of Netflix’s critical strategies is global expansion, with services available in over 190
countries. However, localization poses a formidable challenge. Markets like India and China present
lucrative opportunities but come with distinct sets of challenges. India’s market is extremely price-
sensitive, while China’s stringent censorship laws pose hurdles [7]. Furthermore, local competitors
like Hotstar in India and iQiyi in China offer content that strongly resonates with local audiences [8].
Regulatory compliance adds another layer of complexity to Netflix’s global operations. For
instance, in the European Union, legislation now requires that at least 30% of content on streaming
platforms be of European origin [9]. This regulatory mandate compels Netflix to invest in local
content, often at a premium cost compared to other markets. Compliance is not merely a legal
requirement but has become a strategic issue that significantly impacts content investment decisions.
2.3. Customer Retention
As the OTT market becomes increasingly saturated, retaining customer loyalty poses a formidable
challenge. With more platforms available than ever, subscribers have a plethora of choices, making
customer retention even more challenging. Netflix has continually innovated to keep it is subscribers
engaged. This extends beyond content to include user experience dimensions like interface design
and recommendation algorithms. Innovative approaches in these areas are crucial for sustaining long-
term customer relationships [10].

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Netflix is undoubtedly at a strategic crossroads. While it has revolutionized access to a wide array
of content, it faces an intricate web of challenges that jeopardize it is industry leadership. These
include intense competition from well-financed rivals, escalating costs of content production,
complex regulatory landscapes, and the nuanced challenges of catering to a diverse, global audience
[11]. By thoroughly examining these issues, this essay aims to offer a comprehensive understanding
of the strategic challenges confronting Netflix. The insights provided are intended to be valuable for
stakeholders and industry decision-makers, guiding future strategic choices.

3. Analysis of Netflix’s Strategic issues

3.1. The Content Conundrum: A High-Stakes Game
Content is the cornerstone of Netflix’s business model, serving as both it is the greatest asset and
it is a most significant liability. The venture into original programming has been pivotal for Netflix’s
brand differentiation. Award-winning shows like “Stranger Things” and “The Crown” have not only
earned critical acclaim but have also become vital drivers for subscription growth [12]. However, this
focus on original content comes with a complex financial equation. In 2020 alone, Netflix’s
expenditure on original content surpassed a staggering $17 billion [13]. Unlike licensed shows and
movies, original programming comes with both higher production costs and a higher risk of failure.
The uncertainty surrounding the success of new shows and movies creates a precarious financial
situation for the company. A single flop can result in substantial financial losses, whereas a
blockbuster hit can significantly boost subscriber numbers and revenues.
3.2. Competition in a Crowded Market: The Battle for Talent and Content
The OTT streaming landscape is rapidly evolving, characterized by fierce competition from
various quarters. Netflix faces challenges from traditional media companies like Disney, which have
successfully transitioned into the digital space with platforms like Disney+ [14]. Additionally, tech
giants such as Amazon are leveraging their vast ecosystems to support services like Amazon Prime
Video. This competitive environment has led to an intense battle for content and talent. Previously,
content creators saw Netflix as the go-to platform for widespread exposure. Now, they have multiple
options, each offering different advantages and financial incentives. This diversification in the market
has escalated the cost of acquiring top-tier talent and high-quality content, adding another layer of
financial strain on Netflix.
3.3. Subscriber Growth vs. Subscriber Retention: A Balancing Act
For many years, the key performance indicator for Netflix was subscriber growth. The logic was
straightforward: As long as more subscribers join Netflix, its financial performance will increase [1].
However, as the market has matured and become increasingly saturated, subscriber retention has
emerged as a critical metric. High churn rates can quickly erode the platform’s customer base,
negating any gains from new subscriptions. In response to this new challenge, Netflix has doubled
down on improving user engagement and satisfaction. Features like personalized content
recommendations and innovative interactive storytelling experiences, such as “Bandersnatch,” have
been introduced to enhance user stickiness and reduce churn [14].
3.4. Pricing Models: The Quest for Sustainability
Netflix’s initial success can be attributed to it is straightforward subscription-based model, which
offered customers unlimited content at a fixed monthly price. However, as the OTT landscape evolves,
particularly in emerging markets, the pricing strategy is under scrutiny. In these markets, where the
average revenue per user (ARPU) is traditionally lower, there is a pressing need to reevaluate pricing
models [11]. Considerations like tiered subscriptions, which offer varying levels of access based on
price, or even partially ad-supported models, are on the table. Such alternatives can cater to price-

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sensitive audiences while creating additional revenue streams. The challenge lies in implementing
these models without alienating the existing customer base, which values a free advertisement
experience.
3.5. Global Expansion: Cultural and Regulatory Minefields and Other Factors
Netflix’s global ambition is evident in it is presence across 190 countries. This widespread reach,
while impressive, brings forth diverse challenges. Each country or region has unique cultural
sensibilities. To resonate with local audiences, content needs to be more than just translated; it should
be culturally relevant, sometimes demanding region-specific original content [15]. Additionally, the
regulatory environment varies widely. China, with it is tight content regulations, presents a unique
challenge, necessitating collaborations with local entities. In contrast, the European Union, with it is
an emphasis on promoting regional content, requires platforms like Netflix to ensure that a significant
portion of their content library is European. These regulations do not just ensure content relevance;
they also impact cost structures and investment strategies.
Content remains the primary driver for platforms like Netflix, but technology is the backbone that
supports the content delivery mechanism. Pioneering in data analytics and machine learning, Netflix
has personalized the user experience, enhanced content discoverability and ensuring optimal
streaming quality [16]. As technology evolves, with innovations like AR, VR, and even blockchain
potentially transforming the entertainment industry, there is an ongoing race. Netflix, to maintain it
is market leader position, must not only keep pace but often lead these technological advancements.
Amid these challenges, a more fundamental question looms large: How sustainable is Netflix’s
current trajectory? The company’s growth has been phenomenal, but several factors - rising
production costs, surging competition, and potential market saturation - threaten it is continued
dominance. It is essential to introspect if the current business model, heavily reliant on continuous
subscriber growth and original content production, is tenable in the long run. Diversification, either
through alternative revenue streams or venturing into related business areas, might be worth exploring.
Today, Netflix finds itself navigating a labyrinth of challenges, each more intricate than the last.
From the immediate concerns of content strategy, pricing, and competition to the more existential
questions of technological relevance and long-term sustainability, the road ahead is complex. Crafting
a future strategy demands a holistic view, treating each challenge not as a standalone issue but as a
piece of a multifaceted puzzle. Piecing this puzzle together will determine Netflix’s continued success
in the ever-evolving world of digital entertainment.

4. Suggestions for Netflix

Netflix’s reliance on blockbuster originals, while successful, is a high-stakes gamble [17]. The
company should consider diversifying it is a content portfolio to include not only high-budget series
and films but also mid-range and low-budget productions. This diversified approach can act as a risk-
mitigation strategy, ensuring that not all resources are allocated to potentially risky ventures.
Additionally, Netflix needs to escalate it is focus on content localization as it continues to penetrate
global markets. Localization goes beyond mere translations; it involves creating culturally relevant
content. This strategy serves dual purposes: it aligns with consumer preferences and helps Netflix
meet local content quotas imposed by various countries [15].
While Netflix has garnered a reputation for quality original content, the competitive landscape is
rapidly evolving. The platform must explore additional avenues for differentiation to maintain it is
market leadership. One such avenue could be live broadcasting, particularly sports events or breaking
news. This feature could attract a demographic that typically turns to traditional television for such
content [16]. Another option is to form bundling partnerships with other entertainment service
providers, like music streaming platforms or e-book services, to offer a comprehensive entertainment
package. This could elevate Netflix’s value proposition and serve as a competitive edge.

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Netflix’s current revenue model, heavily weighted towards subscription fees, exposes the company
to market volatility and increasing competition [17]. To mitigate these risks, Netflix should consider
diversifying it is revenue streams. One potential approach is introducing a tier with limited advertising,
aimed at a more price-sensitive segment of the market. This would expand Netflix’s customer base
without necessarily affecting the free advertisement experience that current subscribers value.
Another underutilized revenue stream could be merchandising. Capitalizing on the popularity of it is
original series, and films could provide an additional financial cushion.
Netflix’s global expansion strategy must be nuanced to cater to the distinct needs and challenges
posed by different markets. In highly regulated markets like China, forming strategic alliances with
local entities could be the most viable approach [15]. On the other hand, in markets that are highly
price-sensitive, like several countries in Africa and India, introducing a lower-cost, ad-supported tier
could prove effective. This strategy not only caters to local economic conditions but also provides a
competitive edge over other international platforms.
Regulatory compliance is not just a requirement for Netflix; it is an ongoing strategic challenge
that can significantly impact global operations. The company must engage proactively with
policymakers, industry groups, and local authorities to anticipate future regulatory changes [16].
Establishing dedicated teams for regulatory affairs and compliance can offer Netflix invaluable
foresight. This proactive approach can not only mitigate risks but also potentially influence the
legislative process in a way that is more favorable to Netflix’s business model.
Technological innovation is an investment in the future. Netflix cannot afford to be a bystander in
the ever-evolving technological landscape. Beyond improving streaming quality and server
capabilities, Netflix should establish a dedicated R&D division focusing on emerging technologies
like virtual reality, augmented reality, and blockchain [17]. These technologies can potentially disrupt
the entertainment industry radically, and early investments can set the stage for Netflix to lead this
transformation.
Content may drive subscriptions, but the user experience ensures retention. To this end, Netflix
needs to innovate continually. Advanced machine learning algorithms can refine content
recommendations, while additional features like user-generated playlists and social sharing
capabilities can enhance user engagement [16]. Furthermore, the introduction of interactive features,
such as in-app chat or direct social media sharing, could create a more engaged and loyal user base.
Netflix’s treasure trove of user data offers unparalleled insights for business decisions, content
recommendations, and targeted marketing. However, with data privacy laws like GDPR coming into
play, the company needs to exercise caution [15]. Implementing transparent data policies and robust
encryption methods are essential steps for ethically utilizing this invaluable resource.
Sustainability is not just a buzzword; it is a long-term investment. Netflix should consider more
sustainable practices in it is operations, such as transitioning to renewable energy for data centers or
adopting ethical labor practices in content production [17]. These practices can enhance Netflix’s
corporate image while also offering long-term cost-saving benefits.
Netflix’s primary revenue comes from subscriptions, making it vulnerable to market dynamics and
competition. To build a more resilient financial structure, Netflix should explore alternative revenue
streams. A freemium model, branded merchandise, and even limited advertising are options worth
exploring. Diversifying revenue can provide a financial cushion, allowing Netflix more freedom to
invest in content and technology.
Navigating the OTT landscape requires Netflix to confront an intricate array of challenges, each
with it is complexities. The platform must evolve it is content strategy, explore new avenues for
competitive positioning, diversify it is financial model, and develop tailored global expansion plans.
These are not isolated challenges but interconnected facets of a complex business ecosystem. The
recommendations provided here aim to offer a multifaceted approach to navigating this landscape,
positioning Netflix for sustained growth and market leadership.

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5. Conclusion
The entertainment industry has undergone a seismic shift over the last decade, driven mainly by
the rise of OTT platforms, with Netflix at the forefront. As a pioneer in the field, Netflix has reshaped
how content is consumed and distributed, setting new standards for the industry. However, the very
factors that contributed to it are meteoric rise of innovative content, global reach, and technological
prowess—are now the arenas where it faces it is most formidable challenges.
In this essay, it has delved deep into Netflix’s strategic landscape, exploring the myriad challenges
that the company faces. From the soaring costs of content production to the complexities of global
expansion and the ever-changing regulatory landscape, Netflix is at a crossroads where critical
decisions must be made. It is evident that the company’s challenges are not isolated issues but parts
of a complex, interlinked ecosystem that requires a multi-dimensional, flexible strategy.
This essay has also offered a range of suggestions aimed at addressing these challenges. These
recommendations are not prescriptive but indicative of the directions that Netflix could explore.
Diversification in content strategy, financial models, and global approaches are essential.
Technological innovation and user experience cannot be neglected and must keep pace with evolving
consumer expectations. Regulatory compliance and ethical considerations, especially in terms of data
utilization and sustainability, are increasingly important in today’s world.
In closing, Netflix's journey ahead is fraught with challenges but also ripe with opportunities. How
well the company navigates this intricate landscape will determine not just it is own future but also
shape the future of the global entertainment industry. Adapting to these challenges requires not just
tactical shifts but potentially a rethinking of it is core business model and strategies.

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