Latin America. According to a report by the firm Kantar, Mexico is the second country with the most subscribers to Netflix after Brazil, since 70% of users of streaming platforms have a subscription to this platform. OBS Business School, made the report 'El pelotazo de Netflix. Keys to a worldwide success', which details the horizon of the audiovisual content platform, in which he assured that beyond its innovative profile, a great competition will come in the coming years.
One of the most relevant data cited by the study is that through the platform 140 million hours a day are viewed, which means 1,000 million hours a week and 52,000 million annually, data that demonstrate an exponential increase during the last years. In the United States alone, Netflix already accounts for 10% of the time Americans spend watching television, that is, in that country alone an average of 100 million hours of content is consumed daily.
Much of its success, is the commitment to its own content -for example- under the label 'Netflix Original Series', successful series such as House of Cards were launched, which was followed, in July of the same year, by the also iconic Orange is the New Black. This has given a turn to what concerns the formulas of production and consumption, with characteristics of quality and prestige typical of cable television, but from the field of Internet TV.
In fact, the decision of the video on demand operator comes in a context of a very competitive market of content providers, which was a disadvantage for the one that began as a content distributor. In this way, the report talks about the motivations of Netflix's commitment to its own production:
1. Obtaining new subscribers and retaining existing ones.
2. Reduction of dependence on third parties, since the success of own productions will produce an improvement in terms of volume, price and exclusivity.
3. Generation of income through the sale of own productions to other content providers, with the aim of ensuring the overall profitability of the business model.
4. Complete control over the exploitation of this type of content, closely related to its global expansion strategy and the ability to decide on the chronology of exploitation through the marketing in stages in each territory.
5. Instrument for the dissemination of brand reputation on a global scale.
In practice, the original production model has a whole series of beneficial effects, especially in the areas of the business, resulting in the increase in the value of the action, the generation of subscribers and the attraction of creative talent.
From a technical perspective, Netflix's own production model involves: creative freedom with no executive meddling; production without the requirement of prior development of a pilot episode; large and sufficient budget for each project that reaches full season; lack of concern for the specific audiences of each project due to Netflix's opaque policy that advocates general or global results.
A feature as basic as it differentiates from the Netflix original production is the use of Big Data. Thanks to the consumption patterns of the users of the platform, they are used to decide about the production of their original series, defining the type of content and the way to promote them.
The challenges ahead
Netflix's debt continues to grow, going from 6.5 billion to $10.4 billion in 2018. The analysis cites Espinel (2019), "it is the price to pay to continue leading the streaming market: spending huge amounts on marketing and content production. In 2018 alone, it allocated around 2,000 and 8,000 million dollars respectively to these two items." Although, the magnitude of the debt with respect to the percentage of total capital is still below 10%, which is quite far from the average of 30% to 40%, which is common in companies in the sector. So the challenge is to maintain a controllable and below-average liability.
Another issue that you should pay attention to is the competition that you will have during the next few years and that will really be a battle to conquer users. They will no longer be other competitors such as HBO, Amazon Prime, Hulu, Sky, Rakuten or YouTube, but two giants such as Apple and Disney begin to be a threat and claim their share in this market.
Precisely that arrival has modified the strategy itself for its vision for the future. Without competition, it runs the risk of being pigeonholed only in the series sector, which is why it must expand its catalog of films by resorting -mostly- to its own production. There are certain distinctive and innovative features that are gradually being reproduced by their competitors:
In the first place, the economic question since there are financial unknowns about its profitability, which have to do with the business model itself. In short, it is about whether the high costs to acquire content or to produce it can be sustainable with income subject to subscriptions that do not arrive for amortization and that causes the company to incur debt.
Secondly, "the complex relationships with internet service providers, owners of the networks and infrastructures through which the platform transports its content offer to its customers", as quoted on the Carrillo report (2018). In fact, Netflix like the rest of pay TV platforms need to ensure that their online broadcasts have certain levels of quality, absence of interruptions, high definition, for which they must: have an adequate distribution network of their own or establish distribution agreements with the main telecommunications operators. Needless to say, technically Netflix is dependent and that this should always be a handicap to take into account.
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