Strategic Plan
Strategic Plan
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Netflix: Strategic Plan

Prepared by
Carlos Contreras
Jasprit Dyal
Jessica Hoeschen
Francisco Solano-Downs
Yen-Chen Wang

Prepared for

Dr. Gary Wishnjewsky
Date submitted
August 22, 2013

Seminar in Strategic Business Management
Department of Management
California State University, East Bay at Hayward, CA
Management - 4650

Industry Analysis
Relevant Industry Trends
Netflix falls under the broad umbrella of the movies and home entertainment industry. The company has been part of the wave that is taking this industry into the future in terms of how consumers are interacting with home video entertainment in particular. In general, we can observe that consumers are increasingly demanding more instant and personalized experiences when watching video entertainment as well as more mobile availability. There seems to be a “when I want it, how I want it” type of movement among consumers with declining interest in DVD’s and scheduled television programming and increasing use of online streaming or rental alternatives. Netflix is catering to these trends with its streaming service and seems to be well positioned, at least for now, to be successful in the future if it can manage to avoid more strategic “missteps” along the way.
It is important to note how the public perceives and values films as an entertainment source here in the United States, something that directly affects Netflix’s business. Standard & Poor’s industry research for 2013 noted that “movies remain a cornerstone of the U.S. entertainment industry.” In 2012, about 1.36 billion movie tickets were sold in North America, adding up to about $10.8 billion in box office revenues. Consumers also spent about $18 billion on various home video formats in 2012, including purchases and rentals, which represent a 0.23% increase from $17.9 billion in 2011. These numbers serve to show that movies still capture people’s imaginations as well as their pockets.
Standard & Poor also notes that the aggregate United States home entertainment spending reached a peak back in 2004 at $21.8 billion, and started to see moderate decline in the years following, perhaps due to declining DVD sales. The year 2010 saw $18.8 billion in aggregate spending, and 2011 saw a 4.5% decline with $17.96 billion. The decline, however, “eased” in 2012 as aggregate spending increased 0.23% from 2011 back up to $18 billion (as already noted in the previous paragraph). The turnaround seemed to be a result of recent spending increases particularly with Blu-ray discs, “electronic sell-through” (online services), and video on-demand services. Blu-ray disc sales increased 20% in 2011 and 10% in 2012, and in the first quarter of 2013, there was 28.5% growth in Blu-ray sales compared to the same period in 2012. Spending on home entertainment through “digital outlets” saw growth of 77% in 2011 and 28.5% in 2012. In the first quarter of 2013, spending on digital outlets again grew 26%, which was mainly driven by a 29% increase in subscription-based services (like Netflix) and a 16% increase in video-on-demand outlets. The main takeaway from these numbers is that aggregate home entertainment spending is gradually on its way back up, even as DVD’s are fading into the background of obsolescence.
Driving Forces * Technology: this is a strong universal driving force, something that can have a profound impact on almost any industry out there. It is especially impactful for the entertainment industry because of how it can influence the interaction between consumers and their entertainment. We have gone from relying on rigid television programming and packaged media (DVD’s) to having countless handheld gadgets, PC’s, smartphones, Wi-Fi capabilities, and increasingly faster internet connectivity. All of these wonderful things have allowed us to be more mobile and more demanding as far as our video entertainment. Netflix’s own movie recommendation algorithms and user interfaces have added a new level of personalization and value to the subscriber experience, something that without a doubt contributes to customer loyalty and satisfaction. Future gadgets, applications, software, and operating systems will likely continue dictating the pace of change and the ways we interact with our entertainment. * Timing of Film Releases: this can be considered a more industry-specific factor. Movie studios hold considerable potential for influencing the rental landscape simply because they control their content. They can generally decide in what intervals and to whom they will release their movies. Past practices have consisted of releasing films to DVD (or, Blu-ray) retailers and renters 17 weeks after theatrical release, to pay-per-view and video on-demand channels three months after, to premium television channels (like Showtime) one year after, and finally to basic cable channels about two years after theatrical release. Studios now seem to be searching for different strategies and release windows to retailers, renters, and other channels to maximize profits. Some have already tried to shorten release times or to make films available to video on-demand on the same day of theatrical release. This experimentation with different release strategies by studios will dictate availability to after-theater distributors, and it remains to be seen how Netflix will be affected in the long-run. * Consumer Preferences: this may seem like another generic driving factor, but it is indeed important to the entertainment industry as well. Consumers will dictate what becomes popular and what fades into obsolescence or obscurity as far as technology and services. The gradual decline in DVD sales and Blockbuster’s bankruptcy are examples. Consumer usage trends will gradually reveal new preferences, point to new needs, and develop new markets for services. It is up to businesses to keep their pulse on what the public wants if they want to be successful in the technology- driven future.

Success Factors
Industry success factors are defined as “those competitive factors that most affect industry members’ ability to survive and prosper in the marketplace—the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that spell the difference between being a strong competitor and a weak competitor…” In other words, these are factors that are crucial for long-term success. * Signature Entertainment: as in most other industries, consumers are bombarded with an overwhelming amount of choices. Between what is on television, online, and in theatres, we need to catch the consumer’s eye or interest with unique or exclusive programming that no one else has. As already discussed in our company introduction, Netflix has made the wise choice to go this route by producing its very own lineup of original, high-quality shows. The company has invested in producing excellent shows, like “House of Cards” and “Orange is the New Black,” and getting excellent actors, like Kevin Spacey, to help in the important task of differentiation. The fact that Netflix gathered a number of Grammy nominations with its shows indicates at least moderate success and another tool of differentiation.
HBO and Showtime have been at the top of the television premium channel arena for a while, most likely not because of the studio films they carry (though still an important component of their appeal), but because of their top-of-the-line original programming. Both -channels continuously battle-it-out by dipping their network hands into producing documentaries, sports events (particularly boxing), original films, comedy specials, and of course show series. As far as signature series, HBO’s “True Blood”, “Game of Thrones”, and “Boardwalk Empire” (just to name a few) battle-it-out with Showtime’s “Dexter,” “Nurse Jackie”, and “The Borgias.” As far as sports investigative reporting, HBO’s “Real Sports with Bryant Gumbel” competes with Showtime’s “60 Minutes Sports.” As far as comedy, both networks have produced standup specials for notable comedians such as Chris Rock, Louis C.K., George Carlin, Tommy Chong, and Bill Maher (again, just to name a few). And of course, the most intriguing competition is in the boxing event arena. HBO intensely competes with Showtime by constantly negotiating with fighters and their promoters to fight exclusively on HBO events, and the same tactic is used by Showtime. The most noteworthy deal came recently when the biggest boxing star and highest paid athlete in the world, Floyd Mayweather Jr., who signed a six-fight, deal with Showtime effectively leaving behind his former home, HBO. This exclusivity deal will no doubt have a lasting impact on subscriptions for Showtime, and it is just one out of many tactics to remain competitive in the entertainment world. * Diversification of Creative Efforts: this factor is closely linked to the idea of signature entertainment. As the discussion about HBO and Showtime reveals, both networks have a wide and rich spectrum of entertainment offerings. Standard & Poor’s Industry Research captures the importance of such diversity and breadth in entertainment: “for companies that produce movies and TV shows, successful ventures must cover the cost of many failures. Thus, we would be wary of a company that was betting the farm on one or two unproven films, TV shows, or other entertainment products. Consumer response is difficult to predict, so it is preferable to spread risks across a slate of creative efforts.” In other words, an entertainment company such as Netflix would be well-advised to diversify its original content portfolio to essentially minimize their risk. * Content Distribution Rights: The bread and butter for an entertainment provider such as Netflix are still an extensive library of Hollywood movies. Without a quality library to offer subscribers, it is very likely that entertainment providers will lag behind and lose to competition, boasting more variety. Keeping an extensive Hollywood movie library is therefore crucial to attracting and maintaining new subscribers. Movie studios are ultimately the source of new movies that could be added to a library, and obtaining distribution rights from them becomes a key factor for success. Netflix, for example, has worked hard to develop their library through a variety of ways ranging from licensing agreements to revenue sharing agreements with movie studios (Thompson). This has helped ensure Netflix’s status as an industry leader in content.

Industry Attractiveness: Why or Why Not?
All things considered, it is fair to say that the movie and home entertainment industry is attractive if a firm is to engage in distribution through digital or online services. First, movies are still very much a significant part of everyday American entertainment, as the data provided by Standard & Poor’s Industry Research showed us. People are still fascinated by great movies that provide a temporary escape from routine not just in movie theaters, but also at home in the living room. Second, brick-and-mortar stores and packaged media (music CD’s, DVD’s) are starting to gradually become things of the past. In 2011, sales of packaged media dropped 13.9%, followed by another drop in 2012 of 5.5%. As for brick-and-mortar video stores, there was a 30.7% plunge in operating outlets in 2011, followed by more decline in 2012 and in the first quarter of 2013 with 24% and 12% drops, respectively. Finally, as already discussed earlier, “electronic sell-through” outlets (streaming, online rentals, and video on- demand services) are taking over capturing consumer spending. Usage of these outlets is trending upward which points to a bright future outlook for companies like Netflix.

Netflix: Strategy1
After the industry analysis and conclusion of how the entertainment industry is attractive for Netflix and how it brings possibilities to grow and diversify into different fields within it, our first strategy is for Netflix to go into the video gaming industry. We have divided this strategy into two phases.
The first phase would be the video game rental. After the results of the 2012 annual report, Netflix has seen how the DVD rental business has shifted to the streaming business. We see the expansion to the gaming industry as an opportunity to bring more revenue and also to take advantage of the current infrastructure of the DVD rental business that is not being used at its full capacity due to the decline in the DVD rental delivery. The video game rental business would be operated in the same way the DVD rental business is: a customer can rent a video game and have it for as long as they want and then return it in order to get a new one. Netflix would have to buy games from companies like Sony Computer Entertainment, Nintendo, Activision and others.
The second phase of the strategy to offer online video gaming; to do so, we propose the acquisition of OnLive, a company offering a cloud gaming platform and a cloud desktop system. Both offerings are synchronized, rendered, and stored on remote servers and delivered via the Internet. OnLive has had some problems in the past and was called “too advanced for its time.” It was acquired by Lauder Partners in 2012; since then, OnLive has launched its own game console, applications for different platforms like IOS and Android, made some partnerships with television manufacturers like LG, and improved its service reliability. We believe this is the right moment to make an offer for the company. OnLive was once valued at $1.8 billion and after a big crisis and poor management it was sold for $4.8 million to Lauder Partners. A similar company named Gaikai with approximately 50 million users was sold by $380 million. OnLive has over $1.5 million of active users that would bring extra revenue to Netflix.

Justification
A series of new reports from DFC Intelligence forecasts that the global market for video games is expected to grow from $67 billion in 2012 to $82 billion in 2017. This forecast includes revenue from dedicated console hardware and software (both physical and online), dedicated portable hardware and software, PC games, and games for mobile devices such as mobile phones, tablets, music players and other devices that can play games as a secondary feature.
According to the 2012 Games Market Dynamic, in addition to the $1.37 billion spent in the United States by consumers on new physical video and PC game software during the first quarter (January – March) of 2013 (Q1’13), the total consumer spending on other physical forms of content (used and rental) reached $559 million, and content in the digital format (full-game and add-on content downloads, subscriptions, mobile games and social network games) generated $1.59 billion.
The video gaming industry market is growing, and we believe Netflix should take advantage of its expertise on the DVD rental distribution and apply it to distribute rental video games. Netflix already has a strong infrastructure to distribute DVD rentals along the country but the number of DVDS shipped went down 41% in 2012; if Netflix starts renting video games, can take advantage of that un-used capacity, and will not have to invest additional capital on infrastructure.
A news report has found that the number of gamers playing games online has continued to increase over the past year. According to NPD Group, 72% of United States gamers play online, up from 67% in 2012. Not only are more gamers connecting to the Internet, but they are also spending more time playing games in general. The average amount of time spent each week on gaming has gone up 9%, and for online play, it has increased 6%.
The trends in technology, especially in the video game industry show how gaming is evolving from static games played in front of the television, by someone alone, or with some friends, to the same games played against multiple players located anywhere in the world and with different devices. This is similar to the evolution of television where Netflix has been one of the pioneers in the change of how people watch television. Our proposal of buying OnLive would be using a similar concept to Netflix’s technology: on-demand gaming, also known as cloud gaming, which allows direct streaming of the game from the server to the gamer’s computer. Instead of processing commands on the player’s computer, on-demand gaming transmits clicks and text inputs for processing on the server. The server then sends back the game’s response to the gamer’s screen. Game content is not stored on the user’s machine and game code execution occurs primarily at the server so a less powerful computer can be used than the game would normally require. Cloud gaming also allows for anywhere, anytime access for the gamer, there are no downloads, and eliminates the need for a fancy machine. It also allows gamers to use any platform they wish, regardless of operating system. For publishers, the same benefits of traditional cloud computing apply: reduced infrastructure costs and scalability.

Marketing
After concluding the attractiveness of the entertaining industry for Netflix, the next step for them is to diversify their services by including video games in their operations. In this case, this addition is divided into two phases, the first phase being is the video game rental through DVD and the second phase is offering online video game streaming. The target market, in this case, is people who enjoy playing video games. Netflix would be providing different types of video games available on a game console, PC, Smartphone’s, tablet computers and any other hand held devices. According to the Entertainment Software Association, 68% of just U.S. households play games on their console, 63% on their PC, 43% on their Smartphone’s, 37% on handheld devices, and 30% on their wireless device.1 Exhibit 1.1 shows the different types of genres sold during 2012.1 The top games Netflix would most likely provide for its subscribers by category are shooting games, sports games, and social games.
As regard to pricing strategy, Netflix would not add additional fees to the video game rentals because the concept is the same as rented out DVD’s or streaming online. On the other hand, there would be a change in distribution method. Looking at exhibit 1.2, Netflix has a multiple amount of options for subscribers. If subscribers choose the 3-at-a-time + unlimited instant watching for just $16.99, they have different options as to how many DVD’s they want to rent or how many video games they want to rent out of the 3-at-a-time deal. For online streaming, it will be similar to how Netflix streams its movies and television shows. With Netflix making buying OnLive, Netflix would be able to stream whatever games they want that were originally provided by OnLive, plus their subscription base will increase, since the OnLive subscribers will now be Netflix subscribers.
Since Netflix would be providing access to video games similar to how they provide access to movies and television via mail or online streaming, the next question is how do we let our subscribers know that video games will be available to them. The most sensible option would be to put up an advertisement before any movie or television show subscribers watch online. By doing this, subscribers would spread the word about video games coming out on Netflix and the new will eventually be spread all over the world. Another option is to also advertise via the internet or television for people who do not have Netflix to let them know when video games will by available on Netflix. In the end, what we really want to work on in the future is to continue to increase the subscription base yearly, however, in order to do that Netflix will need to expand to attract customers who want more than just television and movies.

Human Resources
Human Resources Management at Netflix in regards to the new strategic implementation of merging video games into the all-out online DVD and streaming collection will consist of expanding its library with gaming. A video game merger will be great to include because “closing 250 stores for GameStop enables us to deal with the very small percentage of stores that we have that are unprofitable, but also to close marginally profitable stores and actually make more money by moving customers to other nearby stores,” says GameStop Chief Financial Officer (CFO), Rob Lloyd
Instead of trying to find your local store, Netflix will provide the games for you! Physical copies of games will be offered at the prices of DVD mail orders. The DVD’s will soon fade-out and then the company can stop investing so much and finally, implement to complete streaming. There can be working partners involved, such as major and famous video game companies such as: Activision, Blizzard, Capcom, Riot Games, and Sony. However, video games are available via streaming content. Riot Games offers their only game that you are able to download online and play. League of Legends (or, LoL), is a multiplayer online battle arena video game developed and published by Riot Games for Microsoft Windows and Mac OS X The game enables any video game player to download and play online with others from all over the world. With Netflix’s online streaming content for video games, and their potential collaboration and merger with Riot Games, both companies will profit significantly. Netflix will offer streaming video game content to its users while Riot Games will be even more acknowledged and known for its mass multiplayer game through Netflix users. As well, Netflix users will automatically be able to play online through the site without having long periods of downloading, buffering, and filling-out additional information for the game.
“Most Human Resources people derive their influence through knowledge of rules and regulations. Power comes from influence, from the roles played in helping the business succeed; responsibilities are also shared.” Patricia J. McCord and Allison Hopkins are Netflix professionals who serve on the top management team. “If they say they solve problems by making a policy, they are not for us. If they say, ‘I talk to people and look for ways to solve it that will help the business,’ we are interested.” Netflix will do just that, they will talk with people to implement this strategic plan of a merging force between movies and video games. With the Red Box equivalent of Gamefly, where video games are ordered and delivered to your home, Netflix will provide an easy, online access of such games.
Judgment, curiosity, passion, communication, innovation, honesty, impact, courage, and selflessness are core values that Netflix employees have, and with that, they can have unbelievable profits by talking to people and screening the best. “Netflix salaries are based on market conditions but not on company performance—a practice shareholder could find vexing if the company experiences a downturn. For now, the rationale-comparing top talent to major-league pitchers who receive star-level pay whether the team wins or loses-prevails. To be promoted, a person has to be a superstar in his or her current role and often be willing to take a reduction in pay to take on the new assignment. Executives want people to move up for the challenge, with the expectation that they will earn more once they have proved themselves.” Even if the merger does not work out, executives will face a new challenge. Moreover, this merger makes much sense in a way where two companies are profiting, as well as their executives, too.
Netflix had originally planned to offer video games as part of a spinoff DVD-rental website called Qwikster. However, Netflix booted Qwikster to keep both DVD and streaming rentals together. Stiff competition from Gamefly, Blockbuster, and Redbox will be forecasted; but, with top management, talks will be in process of merging with various video game companies and talks will pertain to helping the business—with Netflix and gaming companies—both businesses as a whole.

Operations and Production
As Netflix already has a complete operation of mail-order DVD services, there is no need to develop new production locations for entering the rental video games to its new strategy. In addition, the company just closed its Bloomfield DVD distribution center on August 14, 2013 due to United States Postal Service transportation and service changes. Bloomfield is the only distribution center in Connecticut; after it closes, Netflix will have 42 hub locations. Nevertheless, a statement the company released mentioned that Netflix DVD members in the area will continue to enjoy the same uninterrupted one-day service as they have in the past. Therefore, the operation of rental video games will be the same as the DVD distribution. Using the existed production center with more services available will bring Netflix’s customers more convenience and ease to order by mail.
With the purchase of OnLive, Netflix would use its technology to supply the online gaming services to the existing customers and the new customers as well. OnLive has proved that with our technology, high-end visual computing experiences can be successfully delivered to almost any device. Through the company’s proprietary technology, console-quality games can now be played instantly on Macs, PCs, Android tablets, and TVs — either with our MicroConsole, or on some TVs and connected devices that include our software
Once Netflix has the rental video games service and buys OnLive Company, all the members could use the same account, password to log-in, and enjoy the various services from Netflix. Also, On August 1, 2013, Netflix officially announced the launch of user profiles, which will allow subscribers to make separate, individual profiles within a single account for up to five different people sometime this summer. The profiles are designed to help Netflix deliver better recommendations to each person using a shared account, and they will also let each user create his or her own Instant Queue when using Netflix. After adding the video games service, this will be an ideal plan for those teenagers who spend most of the time playing video games that appeal to them and gather friends to share a single account.
With modern technology evolving so fast, Netflix recently outlined their vision for the future which will see online streaming completely replacing traditional television. Based on this viewpoint, Netflix should make its service as diverse as they can. They could spend more funding to do research on customers’ interested video games. Moreover, it could also provide some special video games in 3D, if possible.

Finance
Our strategies try to follow some of the growth drivers of Netflix like investment like streaming content, continuous service improvement, and overall adoption and growth of internet TV. The purpose of expanding to the gaming industry is to attract more subscribers in order to generate more revenue to the company.
Phase One: the market of videogames renting is dominated by Gamefly and Gamerang; both companies have memberships between $14.99 and $38.99 depending on the plan; similar to Netflix but at a higher price. In the past years Gamefly have been struggling cutting 15% of its staff trying to become more efficient.. Netflix has a competitive advantage entering the videogame market; first its infrastructure is more robust than any of the future competitors; second, its bargain power over the game vendors is superior due to its financial stability and its experience dealing with content providers. Third the market is price sensitive and Netflix can offer a lower subscription plan than any of the companies currently operating.
Gamefly never discloses how many subscribers they have but after its partnership with Future US to launch its mobile app, the expected audience is around 10.8 million. We believe Netflix can have 10% of Gamefly customers in the first year and that would represent revenue approximately of $103 million for the first year.
Phase Two: The future of the videogame industry is moving towards online videogames. Netflix has been always a pioneer when it comes to create new ways to operate business; first, it changes the way to rent movies and then the way to watch television. Following its principles the second phase of Netflix’s strategy is to offer online video gaming and in order to do this, our proposal is to acquire OnLive; a company that offers online video gaming experience. The estimated value of the company is $200 million (explained on the appendix) and the estimated revenue for the first year is approximately $143 million. If we combine the two phases, the total revenues for the strategy are going to be approximately $247 million
Since 2011, Netflix way of raising capital has been issuing Convertible Senior Notes due December 1, 2018. In 2011 raised about $200 million and in 2013 is expected to raise $500 million. The first phase of the expansion can be treated in the same way the DVD business has been treated and the cost are not going to have a great impact on the cash flow of the company. The cost of acquiring OnLive was estimated in $200 million and the money can be raised using the same method of issuing notes convertible to stock.

Netflix: Strategy 2
As of now, Netflix has thousands of movies and television episodes available for its subscribers, both domestically and internationally, to watch instantly on their computers, television, tablet computers and smartphones. What Netflix should think about now is expanding their library. Looking into the next three years, there will be major sports events that are coming up. In 2014 the Men’s FIFA World Cup, in 2015 the Women’s FIFA World Cup and the Winter Olympics, and also in 2016, the Summer Olympics. For the upcoming World Cup, Netflix should sign a deal with FIFA so they can show all of the games on Netflix for people to watch whenever, wherever. Subscribers who want to have the additional sports section on their homepage during the World Cup tournament would have to pay an extra $2 in order to get the additional package. For Netflix, they will see an increase in subscription and their revenue, and for subscribers, they will be able to watch all matches whenever they want. If Netflix sees an increase in revenues due to this new recommendation, they can also sign a contract with the Olympics in order to show the Olympic Games on Netflix as well.

Justification
Netflix should expand their library by adding sports content. Adding the sports package to the Netflix subscription is a perfect opportunity for them since we have four major sports events coming up over the next three years. Since the World Cup is coming up next summer, Netflix should sign a contract with FIFA, which guarantees World Cup fans they will be able to watch the games of their choice whenever they want to. Looking at the 2014 schedule for the World Cup, a match will be shown every three hours starting at 1 p.m. During the weekends, it would be easier for fans to watch the games, since most do not work or have school during that time, however, on the weekdays is when it is harder because people cannot just take days off of work or school just to watch their team play. Instead, making it a hassle to check the time of a re-run match, people would be able to just simply log-in into their Netflix account and watch the whole game. Also, fans who want to watch the game live can rely on Netflix airing the game, instead of searching for websites that are showing the game live on their smartphones or tablet computers.
During the Summer Olympics in 2012 in London, many viewers complained about NBC in less than 24 hours into the Olympics. NBColympics.com were boosting about showing all 32 sports games live, however, they received complaints about not showing the live opening ceremony. On top of that, when NBC did show the Opening Ceremony, they decided to edit out a touching tribute to victims of terror attacks. Also, for many weeks the upcoming swim match between Phelps and Lochte had been one of the main stories leading up to the match. This match was scheduled to be aired live in the middle of the day on a Saturday; instead, NBC did not want to show any of the swim medal events. In its place, they showed games like volleyball. Again, viewers would not have to worry about this during the upcoming winter and summer Olympics because everything will already be uploaded into the sports category for them to watch.
Marketing
Looking at the recommendation made, the next question we ask ourselves is, how do we get there? In terms of marketing, Netflix will have to change their strategy in order to introduce the new addition, which is the sports package. One way of doing this is by putting up an advertisement on the Netflix homepage that the World Cup tournament will be shown on Netflix starting June 12, 2014. By doing this, the current 38 million subscribers from 40 different countries will already be sharing this information with family and friends which will spread like crazy around the world. Another way of spreading the word is by showing a thirty-second to one-minute advertisement before a movie or a television show in order to publicize and hype-up the sports package even more.
As for the target market, Netflix would be targeting all of those World Cup fans domestically and internationally. Currently, Netflix’s operations lie in the U.S., Canada, the U.K., Latin America, Ireland, Nordic countries of Denmark, Sweden, Finland and Norway, and also the Netherlands. In the United States, soccer continues to grow tremendously. According to Rich Luker, a social scientist who is the brains behind the ESPN sports poll, pronounced that soccer has become America’s second-most popular sport for people ages 12-24, surpassing the NBA, MLB, and college football. His studies have shown that about 85% of Americans identify themselves as sports fans. In Latin America and Europe, soccer is one of the most important sports since it is also the home of some of the stars of international soccer, such as Cristiano Ronaldo, Ronaldinho, Lionel Messi, Juan Sebastian Vernon, David Beckham, and Gabriel Batistuta. The total Netflix subscriber base for Latin America, Canada, and parts of Europe reached 6.1 million earlier this year. Adding the sports package will increase the subscriber base drastically with the upcoming FIFA World Cup.
Netflix would also have to change its pricing strategy. Since the sports package is being added to the library, Netflix would have to charge an extra $2.00 plus the $7.99 monthly fee, which totals out to $11.99 with the addition of the sports package. With a huge contract deal Netflix would be making with FIFA, they have no choice but increasing the price for people who want the additional sports packages because that is the only way they will be able to increase revenues. In conclusion to the market function, Netflix’s goal is to introduce the additional sports package to increase the number of people subscribed to it.

Human Resources
Major sporting events are upon us in the next three years: 2014, 2015, and 2016. Everything from Major League Baseball’s Home Run Derby and All-Star game each Summer, to both Men’s and Women’s World Cup games, and last but not least—the big one: the 2016 Olympic games. Expanding the library of various worldwide sports is something Netflix executives should think about. For example, a merger and collaboration with FIFA will be an excellent way to have games not shown on television to be on Netflix; or, games not televised at all on a soccer television package. The outcomes in all of this is that games will be shown and covered on Netflix at a premium, affordable price and revenues will increase for Netflix. Not to forget that Netflix will have a competitive advantage with sports packages on television that show games covered that are not shown on regular cable.
In October of 2012, Netflix reported an 88% drop in third-quarter net income and “lowered its expectations for subscriber additions, sending shares tumbling.” Netflix added 1.7 million subscribers overall from the second quarter to 31.8 million worldwide, including 1.16 million United States streaming video customers. But its original DVD-by-mail business continued to shed customers, posting a 634,000 subscription drop in the quarter. This is a great, innovative way to also implement to the streaming option and discontinue the DVD-by-mail business. Watching sports on Netflix, whether live or previously recorded, will be another genre of television classics shown on Netflix: sports! Sports fans everywhere will lose interest in the packages they can receive on television through Comcast, AT&T, and other various television companies. It will save the Netflix subscriber money in the long-run and as well, where they will spend an ample amount of money to watch sports on Netflix, as compared to spending so much money on a sports package that will only show during the season.
Netflix’s DVD-by-mail service is now three times as profitable as streaming because of higher costs for content deals in that newer business. Tablet computers, smartphones, and advanced television (in example, sports packages seen on Netflix), will help speed growth in its streaming subscriptions. The aggressive investments made today in international expansion has laid the foundation for building long-term profitable franchises in the market. Moreover, strategy is a good way to implement this process. The ability of Netflix executives to implement a move as this will be good for its streaming option and eventually will knock-off the DVD-by-mail option. Judgment, curiosity, passion, communication, innovation, honesty, impact, courage, and selflessness are the core values that Netflix executives are going to play in regards to making a contract with FIFA, or, Major League Baseball to have non-televised games shown to the public under instant streaming circumstances.

Operations and Production
For the future, Netflix expands their library in different areas for customers to have more choices watching their favorite shows and also gain more subscribers. The most important part they are going to improve is the sports area. People are enthused and crazed to watch live sports like basketball, baseball, UFC, soccer, figure skating, and so many others. Because the charm of sports is the combination of violence and skill, speed and beauty, and strength and spirit, it is given the human unlimited revelation and power. In the next three years, there are many wonderful sports events coming up, such as the Men’s World Cup, Women’s World Cup, and both Winter and Summer Olympics. In recent days, people prefer to watch live online with a computer or Smartphone instead of television. According to the results of an online survey conducted by IBM, television sets are losing ground to the internet. 19 percent of all respondents stated that they spent six hours or more per day on the internet versus 9 percent of respondents spending the same amount of time in front of the television. Therefore, if Netflix achieves this strategy, it would be a new page for their market. People can watch a live show in no time, even if they are working or doing chores. The Internet can store the shows that already show for people to catch-up on what they miss to watch anytime. For operations and production of Netflix, we will keep most procedures the same as the streaming online movies, but more research and development funding will be needed.
To expend its library by signing with FIFA, Netflix would need more funding to research on what percentage people watch the tournament; they can provide an online survey to investigate customers’ thoughts after the tournament. In addition, research and development keeps the existing industry competitive, creates technologies that enhance our productivity, opens new markets, and can generate entirely new industries.
Netflix signs a deal with FIFA so that they can show all of the games on its library for people to watch. At the beginning, Netflix can provide 20 minutes of free games of World Cup and Olympics tournaments for the original member, and people who buy the sports package are able to watch the entire tournament. This strategy will attract and stimulate the new members and old members who want to watch the live games during tournament time.

Finance
Similar to strategy one, the purpose of strategy 2 is to increase the number of subscribers. The difference is the additional price of $2 the subscribers will have to incur to be able to enjoy the live content. The FIFA world cup is the most widely viewed sporting event, the 2010 world cup was broadcasted to 204 countries; and an increase in interest for soccer in America, makes us believe the strategy adding live content can be successful.
Netflix already contemplates seasonality and its income, with grow on subscribers between October through March; with this strategy we will create an increment of subscriptions between May through August making the annual subscription more even.
In 2006 16 million watched the world cup final, 65% watched the match via television only, and 24% combined TV with other media platform and 11% watched the world cup only from a non-TV platform. US viewership has increased with each World Cup. In 2002, 70 million Americans tuned in to the tournament on ESPN/ABC. In 2006, about 78 million watched on ESPN/ABC, and an additional 40 million watched on Univision In 2010 24 million watched the game Spain-Netherlands becoming the most watched soccer match in US history.
ESPN has the rights for 2014, and the cost of the rights plus the advertising campaigns can top approximately $100 million. We expect to negotiate a rate per customer with ESPN of $1.00, and our expectation is to get 10% of the viewers in America. Similar negotiations are expected with Fox for the rights of the women’s soccer world cup and with NBC for the rights of the summer Olympics.
Since we are focusing on specific tournaments, the revenue estimated will be independent by event; in 2014 the estimated revenue is $3,900 million, in 2015 is $4,050 million and in 2016 is $4,485 million.

Conclusion
When creating the strategies for Netflix, we focused in achieving most of the characteristics of a good strategy like: attract and please customers, compete against rivals, position the company I the marketplace, respond to the changing economic market conditions, capitalize on attractive opportunities to grow the business and achieve the company’s performance targets. The two strategies created (expansion to videogames and live sport events) position the company broad differentiation strategy where the company tries to get to a broad cross section market by creating new options for customers that help the company to differentiate from its competitors, in some cases charging a premium price to cover extra cost of differentiating; striving for product superiority.
Our first strategy is divided in two phases. The first phase is to enter the market of renting videogames taking advantage of its strong infrastructure, its ability to bargain with vendors, and its well positioned name. The second phase is an acquisition of a company that provides the possibility to play videogames online. The business model of this company is similar to Netflix business model and the integration between the two companies would be relatively easy. The way to finance this strategy is the same way Netflix has used to finance its aggressive strategy of getting more content. We were relatively conservative when it came to make projections and still the strategy generated some additional revenue proving that the strategy can be successful.
Our second strategy involved more detail, we suggested Netflix offering live content, to begin with we choose the soccer world cup in Brazil. This strategy represents a change of how Netflix has been doing business because in order to be able to watch the online content, customers would have to pay an additional cost of $2. Other aspect that is revolutionary is the way how Netflix would negotiate the acquisition of live content; instead of paying a flat fee for getting the rights to stream the games online, we offer a fee per subscriber of the live content. This new type of negotiation would give the possibility to the vendors to get more money than charging a flat fee. We were very conservative making the projections of revenue per event and we still got an increment in the revenue that grows with the popularity of the event. The interesting part of this negotiation strategy is than can be tested with other vendors.

References