THE INTRODUCTION
Over The Top (OTT) service providers
ABOUT THE SECTOR:
The internet streaming platform, or we say as over-the-top (OTT) media sector, in which
Netflix operates, has completely changed the way that consumers get their entertainment.
This sector uses the internet instead of conventional cable or satellite TV services to provide
video content. Movies, TV series, documentaries, and other types of video material may be
streamed on-demand via OTT services.
The key drivers propelling market growth are the notable expansion of the media and
entertainment sector and the growing need for superior streaming content on smart devices.
OTT media services are more accessible, portable, more connected and convenient when
compared to cable and satellite services.es. Another key factor that is influencing the market
is the advance technology being offered by OTT service providers such as Gesture input and
Voice command control..
NETFLIX
When Netflix was established in 1997. Then its website was launched in 1998 as
“NetFlix.com.” it had less than 1000 films available for online movie rentals. Netflix quickly
shifted to a subscriber-based business model and unveiled a tailored movie selection
algorithm in 2000. With more than 4.2 million members by 2005, Netflix began developing
an algorithm for video recommendations. Finally, Netflix started producing original material
and offering streaming services in 2007. With more than 50 million users by 2016, Netflix is
still a major player in the global video-on-demand market.
As streaming became its primary revenue generator, Netflix shifted its focus to producing
original content in 2013. By 2023 Netflix boasted more than 3,600 original titles. Netflix's
commitment to creating original content under the "Netflix Originals" name is a significant
difference for its products. It invests a lot of money in the development of films, TV series,
documentaries, and reality shows that are aired only on this service. This has been different
from other competitors because original content retains the existing subscribers while
attracting more subscribers for Netflix. Other international hits include Stranger Things, The
Crown, Money Heist, and The Witcher among the popular Netflix Originals.
By 2022 Netflix has said that it will start to address the issue of password sharing, with more
than 100 million households using the same account. The crackdown was credited with
boosting subscriber rates, with Netflix reporting that it had added 8.8 million subscribers
worldwide in the third quarter of 2023. The company also said it would raise prices on its
streaming services, confident that users would be willing to pay more to access the
company’s broad collection of original shows and movies.
Major competitors of NETFLIX and their market shares.
Netflix deals with stiff competition with several companies across the world that seeks for the
market share in the rapidly expanding digital streaming service market. The major
competitors are as follows:
Global competitors
AMAZON PRIME
Amazon Prime Video has a lot of features that are either similar to Netflix. Users can stream
content on various devices, including their smartphones, tablets, computers, or TV, via
Amazon’s own Fire TV (which offers an easy-to-use interface and voice control through
Alexa), or other compatible devices.
Prime Video has operations in more than 200 nations and makes significant investments in
both original content and locally relevant content. In several areas, namely the United States
and India, Netflix is the industry leader as of 2024, with Amazon Prime Video retaining a
sizable market share.
Amazon Prime Video’s pricing structure is a bit different from that of Netflix. While Netflix
is a standalone service, Amazon Prime Video is a package deal that comes as one of the perks
of an Amazon Prime Subscription.
DISNEY+
Disney+ is another streaming service that is seen to be a good substitute for Netflix.
Pronounced "Disney Plus," Disney+ is a subscription video-on-demand and over-the-top
streaming service that is owned and managed by one of The Walt Disney Company's three
main business divisions.
Despite being a relatively new streaming service, Disney+ is already regarded as one of the
best in the business and a formidable rival to Netflix. One of Disney+'s special features is
Premier Access, which enables subscribers to see newly released motion pictures at home for
an extra cost which is similar to Prime video .
HBO Max
Similar to Netflix, HBO Max is an American over-the-top and subscription video-on-demand
service that provides users with access to a large library of TV series, films, and original
content. HBO Max is owned by WarnerMedia Direct, LLC, a parent-subsidiary company of
Warner Bros Discovery, Inc., a massive American multinational mass media and
entertainment conglomerate.
There are several things that make HBO Max a strong contender to Netflix. Another key
feature is the vast catalogue of content such as movies, TV shows, and even Netflix original
series. To access this vast pool of content, users can create numerous viewer accounts
whereby each account they create has its own set of view history and account preference.
This allows families and friends to enjoy HBO Max’s services while maintaining their own
watchlists and preference
APPLE +
The renowned American multinational technology business Apple Inc. is the owner and
operator of the subscription streaming service Apple TV+. Many devices, including non-
Apple gadgets like smart TVs, streaming media players, and game consoles, as well as Apple
devices like iPhone, iPad, Mac, and Apple TV, can access the streaming service via Apple's
website and Apple TV app.
Additionally, a variety of highly regarded original TV series and films—many of which have
garnered awards such as Ted Lasso, For All Mankind—are available on Apple TV+.
Furthermore, Apple TV+ provides a free trial period in contrast to Netflix, which enables
users to choose if they wish to subscribe to the service in full.
OTT MARKET SHARE
NETFLIX 33%
DISNEY + 44%
PRIME VIDEO 32%
APPLE+ 17%
HBO MAX 21%
MARKET SURVEY:
Buyer’s Survey
https://docs.google.com/forms/d/
1i8Qu8ZnH3yHVKvN_Ytb2p9U1CDXlprWV_Xn_uJ61W9g/viewanalytics
https://docs.google.com/forms/d/
1i8Qu8ZnH3yHVKvN_Ytb2p9U1CDXlprWV_Xn_uJ61W9g/viewanalytics
Demand, Supply and Elasticity Analysis
The global over the top devices and services market size was valued at USD 190.5 billion in
2022 and is expected to grow at a compound annual growth rate (CAGR) of 24.3% from
2023 to 2030. The demand for OTT devices is expected to reach 482.45 million units by
2030. The worldwide streaming industry was estimated to be worth over $372 billion in
2021, and forecasts indicate that it would rise significantly over the next several years due to
the expansion of overseas markets and ongoing consumer movements away from traditional
TV.
The key determinants of demand for Netflix are based on several factors, as indicated
by the survey responses:
Subscription Cost: While selecting an OTT platform, 33.3% respondents give priority to
reasonably priced subscription charges. This explains how crucial it is for Netflix to have
several price categories. Most poll participants are prepared to spend ₹150-500 per month for
over-the-top (OTT) services ie Netflix. This range implies that Netflix's approach of
providing basic and premium plans is in line with what customers are ready to pay, but it still
must exercise caution when it comes to raising prices.
Content Varity and Quality: Demand is mostly driven by the variety and quality of
material, particularly original content available on Netflix by 55.6%. The significance of
unique original material, like Netflix Originals (Stranger Things, Money Heist, Breaking
bad), was underscored by the respondents. Netflix keeps pouring money into original content
of the highest calibre in order to sustain and increase demand, particularly in regions where
there is competition.
Frequency of Content Consumption: Netflix has to keep consumers engaged with frequent
content updates and tailored suggestions because the majority of users that are around 71%
watch over-the-top (OTT) material for less than five hours a week. Higher-tier memberships
may be justified by the attraction of Netflix's premium content to frequent watchers (5–10
hours or more).
Genres of Interest: Based on user preferences for drama, romance, action, and adventure,
Netflix should keep expanding its selection of content in these well-liked categories. The
company's methods for producing and acquiring content should be influenced by the demand
for genres. People are more inclined towards watching action and adventure content around
60%.
Implications for Business Decisions: Netflix must keep refining its membership packages to
better suit customers' willingness to pay. Additionally, it should keep emphasizing on its
unique original material and wide range of genres to increase interaction and subscriptions
across the globe.
Determinants of Supply for Netflix and the Company's Business Decisions
The determinants of supply for Netflix's services are primarily influenced by:
Content Production and Licensing: Netflix's potential to create original television shows
and films or to get the rights to license content from other producers greatly influences the
amount of content it can offer to the audience. One major issue influencing the availability of
new material is the cost of developing content of a high calibre (such exclusive original
series). According to the report, Netflix must also maintain a balance between country wise
and worldwide programming, since this may affect viewer preference.
Technology Infrastructure: Netflix's content delivery networks, cloud services, and data
centers are all part of its technological infrastructure, which is what powers its streaming
services. Sustaining service provision to an expanding worldwide subscriber base requires
increased streaming quality and high-speed internet availability.
Price Adjustments and Ads: According to the short poll, participants are willing to choose
less expensive subscription packages that include advertising. This gives Netflix the chance
to provide ad-supported packages, which might lower costs and increase the service's
accessibility for those on a budget. And also they can add rental movies as well prime videos.
Business Decision Implications: Netflix must keep funding the creation of new content
while maintaining its operational effectiveness. To gain market share among customers who
are price conscious, it may potentially investigate using ad-supported models.
Quantity demanded (million)
14
12 11.48
10
10 9.26 8.88 8.5
8
0
1000 1200 1400 1600 1800 2000 2200 2400
Substitutes and complements of Netflix and Cross Elasticity of Demand
Substitutes: According to survey data, OTT platforms such as Amazon Prime Video,
Disney+, HBO Max, and Apple TV+ are the main alternatives to Netflix. With variations in
content libraries and price, these platforms serve the same market niche and provide
comparable services including some other ott platforms as well. Because consumers
frequently move between services based on the availability of their favorite content,
promotions, or pricing, these platforms have a high cross-elasticity of demand. Users could
go to HBO Max during Game of Thrones seasons, or to Disney+ during significant Star Wars
or Marvel films.
Complements: Smart TVs, tablets, and smartphones are examples of devices that work well
with Netflix because they make the service more accessible and improve the viewing
experience. Bundled packages, such as Netflix together with certain internet providers or
smart TVs, can serve as complements and increase Netflix's customer appeal. In a similar
fashion as iPhone buyers get Apple+ subscription.
Cross Elasticity and Strategy: Given its high cross elasticity, which allows minor
adjustments to price or content availability on other platforms to have an influence on its own
demand, Netflix needs to keep an eye on the pricing and content releases of its competitors.
By locking customers in, bundles that include with mobile phones and Wi-Fi recharge
(amazon prime does) with Netflix subscriptions help lessen this impact.
Price Elasticity of Demand for Netflix and Pricing Decisions: Netflix's services have a less
price elasticity. The price sensitivity of the respondents was shown, especially by those who
were prepared to downgrade or move to ad-supported plans in order to save expenses. High-
calibre original material is still valued by consumers, though, which lessens their sensitivity
to premium tier prices.
Calculation of Price Elasticity
Netflix Annual Subscription – 1500
New price -1800 (20% increase)
Global subscription – 10 million
Assuming there is a decrease by 10% in subscription – 9 million.
Interpretation
PED = -0.37 indicates a 0.37% drop in quantity requested for every 1% rise in price. Given
that PED's absolute value is less than 1, this indicates that Netflix demand is inelastic.
According to inelastic demand, a rise in Netflix's subscription fee would result in a
proportionately lower decline in the number of users, allowing the company to maintain its
revenue growth even in the face of customer lose.
Income Elasticity of Demand for Netflix and Business Decisions:
The term "income elasticity" describes how changes in consumer income affects the demand.
The short survey indicates that Netflix's income elasticity is moderate. A significant
proportion of customers feel more at ease spending between ₹100 and ₹300 or ₹300 and
₹500 on subscriptions, even if some are ready to pay more than ₹500 per month. These
consumers may be particularly sensitive to fluctuations in their discretionary money.
Variations in Income: As incomes rise, there may be a surge in the demand for premium
content and subscriptions. But when the economy is struggling or people have less money to
spend, they could choose to use less expensive services, reduce the size of their Netflix
subscription, or use a less expensive ad-supported version or may switch to other ott
platform.
Calculation for Income Elasticity
Old income- 50000
New income-55000
Old subscription- 10 million
New subscription- 11 million
Interpretations:
In , Netflix's demand is unitarily elastic with regard to income, as indicated by YED = 1.
This implies that there is a corresponding 1% rise in Netflix members for every 1% increase
in consumer income. According to this, Netflix is regarded as a typical good, and demand for
it rises in line with rising consumer affluence.
Netflix's Production and Cost Analysis
The production and operating costs of Netflix are critical to its business strategy in the
intense streaming market. The corporation has produced original content and secured license
arrangements to maintain its top position, which has resulted in a large increase in content
investment.
1. Content Production and Acquisition Costs:
Producing content is Netflix's primary investment. Netflix invested around $17 billion
in content creation in 2022, most of which went in production of original movies and
television series like The Crown and Stranger Things. With this heavy investment, the
company desires to maintain and increase its subscriber base by providing a consistent
flow of fresh, original material.
2. Cost per Subscriber:
One important measure is the content cost per subscriber of the organization. By the
end of 2022, there were about 232.5 million Netflix users worldwide. This equates to
an annual content cost of almost $73 per subscriber. Because of fixed subscription
model, Netflix needs to keep a close eye on member growth and content spending in
order to maintain profitability.
3. Technological and Operational Costs:
Netflix has significant infrastructure expenditures for technology. Collaborations with
cloud service providers such as Amazon Web Services (AWS), content delivery
networks (CDNs), and data storage are essential to the delivery of streaming movies
and web series. These expenses are thought to account for 15–25% of Netflix's overall
operating costs.
4. Revenue and Profitability:
In 2022, Netflix's global revenue amounts to $31.6 billion, mostly from membership
fees at various levels. With an operating income of $5.6 billion, Netflix is profitable
even with its high content expenditures. To maintain profitability, the corporation
must keep growing its subscriber base to balance rising content expenditures.
ECONOMIES OF SCOPE:
Netflix offers a wide variety of material, which allows them to gain economies of scope. By
creating a wide range of original series, films, documentaries, and foreign programs, Netflix
can reach a larger audience and generate more income. Its expenditure in international
content enables it to enter different country marketplaces without raising prices
correspondingly. For example, Netflix was able to expand its worldwide audience without
building totally new infrastructures by producing non-English content like Spain- Money
Heist or Korean -Squid Game.
RETURNS TO SCALE:
Netflix achieved 238 million members worldwide in 2023 with a rising number of
subscribers, Netflix shows increasing returns to scale. The cost per new subscriber drops
with its current content production technologies and infrastructure. The average cost per user
decreases because of the fixed expenditures being divided across a greater number of users.
Netflix gains from being able to effectively scale as company grows by utilizing its
worldwide presence and content availability, demonstrating its capacity to expand and
disperse expenses over more customers.
Market Structure for Netflix (Streaming Industry)
In the streaming business, Netflix competes in an oligopolistic way. An oligopoly occurs
when a few major companies control a big portion of the market, and the decisions made by
one business have an immediate impact on the other companies. Competitors that target
comparable consumers while providing unique content include Prime Video, HBO Max,
Disney+ and Apple TV+. These companies have a significant amount of market strength with
few other small players like peacock, Hulu etc.
Pricing Decisions:
Pricing in an oligopolistic market is frequently dependent on the competitors. When Netflix
determines its membership prices, it must consider the pricing tactics of rivals such as
Disney+ and Amazon Prime. While Netflix is allowed to establish its own rates, large price
increases might drive away customers in favour of less expensive options available in the
market. Hence, to appeal to various client demographics, Netflix has implemented tiered
pricing, which includes ad-supported option.
Advertising Decisions:
To attract budget-conscious consumers and people with increased income sources, Netflix
launched an ad-supported membership tier in 2022 in US not in India. Making decisions
about advertising was crucial for Netflix because it needs to maintain its competitiveness
versus services like Amazon Prime Video, which also offers ad-free and ad-supported
models, while balancing the needs of its customers to success financially.
Quantity Decisions:
Demand and competition have an impact on Netflix's production and acquisition of content.
To set itself apart from the competition, Netflix makes significant investments in developing
original series and films due to the strong demand for unique and original content across
globe. Retaining subscriber growth and lowering attrition rates also strategically depends on
the volume of material produced.
Profitability:
Price, product differentiation, and strong barriers to entry all affect profitability in an
oligopolistic market. Despite competition, Netflix has a competitive edge because to its vast
original content collection and worldwide reach. Its profitability is impacted by competition-
driven pricing pressure and growing content creation expenses in not just US but all over
world.
Netflix's profitability is primarily driven by its capacity to grow internationally, create
content internally, and modify its pricing strategy (e.g., adding an ad-supported tier) despite
competing constraints. Because of the oligopolistic character of the market, Netflix can
maintain its dominating position, but sustained profitability in the face of intense competition
demands ongoing innovation.
Business Prospects for Netflix
Content Variety and Quality:
The ability of Netflix to create great original content like Stranger Things and Money Heist
has been key in keeping and attracting the viewer ship. Its approach to spending on original
and proprietary content gives it an advantage over other companies.
Global Expansion: By 2024, Netflix was able to expand more in the global market with
more than 238 million subscribers in total. It also has non-English content like Korean and
Spanish, proving that it can adapt to people’s preferences depending on their
geographic location.
Pricing and Subscription Models: The new pricing strategy that the company has adopted is
the tiered pricing model including the ad-supported model is likely to appeal the price
sensitive consumers and offer flexibility to target different market segments.
Technological Infrastructure: Netflix is also using cloud services, content delivery
networks and its recommendation engine to deliver excellent service and meet the increasing
consumer data traffic from high-definition streaming on different platforms.
Competition: Even though there are other competitors such as Amazon Prime Video,
Disney+, HBO Max, and Apple TV+, Netflix is still dominant. But, with increased
competition, it is paramount that Netflix continues to do so through content and experience to
retain market share.
Conclusion and Suggestions
Netflix as a leading OTT service provider works in an oligopolistic business environment
where the provider has competition from few well-established competitors like Disney +,
Amazon prime video. Its success is based on the production of new programs and video
content, the use of hi-tech and overseas expansion particularly in the developing world.
Nevertheless, the general increase in the content costs, competitive forces and pressure from
regional systems of regulation to keep up the growth and manage to be profitable.
Expand Localized Content: Netflix need to invest more in local content so they can target
the mass audience of that region for example they should increase Tamil, Malayalam or
Punjabi language content in India.
Optimize Content Costs: Minimise cost through proper cost control on production by
ensuring that the Return on Investment on original contents is maximised through data
analysis.
Focus on Ad-Supported Models: Expand the ad-supported tier as a way of reaching the
price-sensitive consumers while at the same time generating more ad revenue.
Partnerships and Bundling: Opportunities may include seeking partnership with Telecom
Providers or offering content bundles to offer more value for consumers.
Adapt Pricing Strategies: An important recommendation for the OTT Industry is that
companies should keep as many flexible pricing schemes as possible to respond
adequately to both, high-end and low-end markets.
REFERENCES:
https://www.britannica.com/money/Netflix-Inc
https://www.simplilearn.com/tutorials/marketing-case-studies-tutorial/netflix-marketing-
strategy
https://businessmodelanalyst.com/netflix-competitors-alternatives/
https://www.grandviewresearch.com/industry-analysis/over-the-top-ott-devices-services-
market/toc
https://www.forbes.com/home-improvement/internet/streaming-stats/
