TO CRITICALLY ANALYSE THE DIFFUSION OF NETFLIX AND INVESTIGATE WHY NETFLIX LOST 4% CUSTOMERS BUT 20% OF THEIR SHARE VALUE
Research Background
The key business strategy of Netflix is online rental services in the industry of software. The market of Netflix was influenced by the giant entertainment service holder which had no customer loyalty and marketing strategy, as a result of 100% success in sales (Böttgeret al. 2016, p.123). Gradually, with the increase of the cost price of Netflix, it has faced a loss of 20% in its share market and 4% of customers. This is a crucial side of the fall of financial development of USA. On the basis of this diffusion of Netflix and its loss of market value emphasizes in this research proposal.
Research Rationale
The main trouble the market of Netflix is facing is the down fall of its market value by 20% and it has lost about 800,000 of its customer. The executive of Netflix was about to launch a plan where streaming movie over the internet and old-fashioned DVDs in the mail would be present, whereas the owner ignored the offer. This leads to the revolution and many of the subscribers drop the service of Netflix. Moreover, due to the streaming trouble, many of the customers got frustrated and left their subscription on Netflix (Jenner, 2016, p.257).
With the loss of the customers from the service and the down fall of the market value, Netflix has faced a huge loss in the entertainment industry. Moreover, it has lost its loyal customers which results in the effect of the revenue. Apart from this, online streaming issues created chaos among such customer base thereby, letting them switch to better option (Carey, 2018).
The subscription fees are equal to its revenue. As a result of which a huge push back is attacked in the profit margin of its business. The stock price was declined by approximately 18% (Wingfield, 2011).
Figure 1: Netflix Content ratings
(Source: Netflix, 2018)
The research sheds light on the market value of the entertainment company of USA. The diffusion of its market with the downfall of its subscribers and the proper way back of it in the industry is to be in observation (Indiviglio, 2011)(Refer to Appendix 2).
Research Aim
The aim of the study is to analyze the influence of diffusion of Netflix among viewers across the world and understand the reason behind poor market share as well as customer retention rate.
Research Objectives
- To understand the theoretical underpinnings regarding diffusion of Netflix business for its betterment
- To analyses the influence of lower customer retention rate upon the long run of business
- To highlight the several issues that are being faced by Netflix while conducting its business thereby, affecting its performance drastically
- To recommend several strategies that can assist Netflix to reframe its service policies for ensuring profit in the end
Research Questions
- What are the theories that can help in gaining an insight regarding diffusion in business for sustainable terms?
- To what extent, does lower retention rate of customers have affected the business of Netflix?
- What are the issues affecting the business of Netflix?
- How can Netflix review its service policies for gaining notable profit in the long run of business?
Concept of Diffusion of the entertainment sector among people
According to Zenget al. (2014, p.58002), the entertainment companies are searching content distribution, creation and convoy the fundamental environment which create a business model of growth among the worldwide people. Movies are undoubtedly involving the bonding of cultural views and ideals. This leads to the expansion of the entertainment companies in terms of globalization.
On the other hand, Nieet al. (2015, p.44) contradicted that not only movies have the impact of diffusing cultural consciousness but also music has the similar influence on the entertainment sector. Different cultures have their own taste in music but the appreciation has led other cultures to take part in events of music festivals to bring the cultural differences in a whole.
However, Shen(2015, p.21) has commented on this that the advancement of communication and transportation which includes the emerging of internet are the elements which contribute the globalization to generate universal cultural activities and economic interdependence. For example, the author has mentioned that China has developed their market value to be the world’s second largest in movies with their revenue of box office by 36% of total of $2 billion. This news has underscored the importance of China as a key market for the movie makers in worldwide.
On this contrary, Wheelenet al. (2017, p.213) mentioned that due to the popularity of music and movies in worldwide, few people viewed their choices over the genres of music as well as on the movies. Moreover, music influences the creation of the culture globally.
On the other hand, Rasit (2015, 42) contradicted on this that
Bass Diffusion Model
As per, the Bass Diffusion Model emphasizes the life cycle of an innovation, launching, growth and maturity of the entertainment sector. The main purpose of this model is to forecast the development of the new upcoming entertainment launching growth which in result of the view or subscription decisions of a given set of market potential.
Bertottiet al. (2016, p.55) have contradicted that these purchases, gaining new subscribers, viewers, or audiences are assumed to be affected by two sources of data: one is internal which includes social interactions and other is external which mainly includes mass media. The authors have informed that these sources are competing sources of data and information. Moreover, it has also been mentioned that innovators are influenced by the external sources and imitators are influenced by the internal sources of information.
On the other hand, Toşaet al. (2015, p.550) have added that one of the great advantages which is interrelated with Bass Model is the tangible possibility to describe the initializing section of diffusion. This is the reason of the existence of the innovators. Moreover, it is assumed that a consistency of adopters and innovators is present for purchasing or viewing at the starting of the diffusion of the entertainment company. Eventually, other adopters get influenced by the external data which are present at the time of the branding of the movie or music. Massiani and Gohs(2015, p.17) have considered some bias in the parameter estimation which includes the tendency of underestimating the potentiality of the market.
Business Performance Management Model
According to Amores-Salvadóet al. (2015, p.288), the three performances of the theoretical levels are: management, design and target of the entertainment industry. It includes the process and task of a company. The authors highlighted the process target as the external users which involves the services and sales. Moreover, this can be transmitted from the entertainment company’s target and other requirements of the subscribers or the viewers.
On this contrary, Barrick et al. (2015, 111) added that process target is related to the internal viewers even, which involves budgeting and planning of a movie or music. It is required to achieve the target which is set to process. Moreover, it needs to be an approximately structured or rational or relevant with the way of meeting the set goals and its purposes.
On the other hand, the authors, Kim et al. (2015, p.35) have contradicted that according to the concept of Business Performance Management Model, the management of process is the third most vital perspective. Moreover, the author includes target management which includes the creation of functional sub targets, resource management. Apart from this, support to the management of equipment, performance management is also necessary for the outputs of processes. This helps in process interface thereby, creating management of boundary in between the process levels especially while the transmission of the points in between the functionality in the management of process (Realet al. 2014, p.186).
Figure 2: Business Management Performance Evaluation
(Source: Inspired by Ferron and Darnall, 2016, p.221)
Consequences of loss incurred in entertainment industry
Real et al. (2014, p.186) said that on the failure of the market value of an entertainment company sheds an economic impact on that industry. Eventually, the company faces a huge downfall from its profit margin. Entertainment industry includes film production, video game production and TV media. The funding and economic contribution of the film industry mainly gets affected for the loss of viewers and downfall of market value. It is important to stay on top of the industry but it would be unrealistic for a company to its competitors who are offering much innovative to the audiences on a rate basis.
On the contrary, Zeng et al. (2014, p.60000) criticized that entertainment and film production in a country contributes to the audiences help the exposure of the company productions to a global market. For example, if the film industry of Florida is considered, it has been shown that in order to relate the amount of tax credits gained with tax revenues created it is important to identify the profit amount. In respect to its customer degradation, it has earned a minor amount of profit which is a bad drawback for the company itself.
| Impact | Total | Credited Tax | Current Value of credited Tax | Return of Investment |
| Local Tax Revenue | $1,553 | $296 | $292 | 5 |
| State Tax Revenue | $2,793 | $296 | $292 | 9 |
Table 1: Return of Investment of Florida Entertainment Industry
(Source: Idea extracted from Zeng et al. 2014, p.60000)
| Impact | Current Value | Production Impact |
| Expenditure of Production | $2000 millions | $1,512 |
| Income of Labor | $2000 millions | $761 |
Table 2: Florida’s Economic Impact of Production
(Source: Idea extracted from Jenner, 2016, p.257)
Performance of Business in current era
According to Böttger et al. (2016, p.123), from the early era of the 20th century, right down at current, the film and entertainment industry has been the world’s major commercial production for the entire public. The gross domestic box office acceptance for the film or any motion pictures in the worldwide had reached to $7.70 billion and it increases by 30% in every year. Over the last 2 years, the top feature film producing countries have endured relatively consistent.
On the contrary, Bertotti et al. (2016) has mentioned that co-production of feature films internationally involves companies from two or few countries. These includes finance and produce films which can be considered a gateway to diversity of the expression of culture as it enables the human resources exchanging.
| Country | Number of film production | Number of Co-production | Presence of Co-production |
| France | 216 | 170 | 43% |
| UK | 241 | 74 | 40% |
| Italy | 167 | 29 | 18% |
Table 3: Top Co-producing countries of films
(Source: Extracted from Böttger et al. (2016, p.123)
In contrast with the out spreading dissemination at the international level, Ferron and Darnall (2016, p.221) commented that the distribution films beyond the sideline of the countries that create them in a major issue in regions like Europe. Moreover, at present film statistics divide the production of film into three large divisions. These are documentary, fiction and animation. Gradually, a wide range of options do the audience or viewers get in the choice of genre in watching movies. Documentary mainly attracts to those viewers who are likely towards the artistic films, animation attracts to the kid section and fiction attracts to the science or research lovers. This categorization helps the entire entertainment industry to increase its profit margin to extent.
Conceptual Framework
Figure 3: Conceptual Framework
(Source: Created by Researcher)
Literature Gap
The entire literature review has been focused on the terms of the financial growth in entertainment industry. Moreover, the key points of the authors shed light on the market value and profit margin of an organization. It has been shown the business valuation and its profit margin inheriting but the journals are lagging in the proper implementation of the theories on the loss of customer dignity.
Research Philosophy
Research philosophy deals with the nature, development and source of the knowledge. According to Kim et al. (2015, p.34), a research philosophy is the trust about the terms in which the data and information about a phenomenon should be gathered, used and investigated. Though the concept of learning creation may arise to be profound, researcher needs to gather primary and secondary data and analyse these to answer the questions.
In respect to the scope of the study of any business industry in particular, there are four philosophies of researching which are used to complete a proper research. These are Pragmatism, Realism, Positivism, Post Positivism, and Interpretive. In this research course, post positivism will be selected as the data collection method (Barrick et al. 2015, p.111).
The main reason of selecting the post-positivism method as it will identify the way a researcher thinks and works and even the way the reader will think in their everyday life which is not different in a distinct manner.
As per the research topic, Netflix, being a renowned company in the entertainment world has dropped down of its customer as result of which it has degradation on its market value. In order to relevant this, improvement and evaluation of positivity is mandatory.
Figure 4: Research Philosophy
(Source: Barrick et al. 2015, p.111)
Research Approach
The research approach is divided into inductive, deductive and abdicative approaches (Amores-Salvadó, 2015, p.288). In order to obtain a fruitful research work, deductive research approach will be appointed. The research is mainly on the investigation of the downfall of Netflix’s market value and its lost customers. On this basis of this, inclusion of some theories is required to implement on its business policy. Along with the investigation, the recommendation of the outcomes of its major troubles is to be mentioned for which deductive approach which lies in the positivity including the effect of Netflix downfall by following the hypothesis, observation and confirmation ways.
Figure 5: Research Approach
(Source: Inspired by Amores-Salvadó, 2015, p.288)
Research Design
According to Mercille (2014, p.110), research design refers to the selection of particular data analysis and data collection. The research design is categorized into conclusive or descriptive and exploratory. In this research proposal, it is found that research designs as a plan about the answers regarding the research questions. In order to find the data and information regarding an organization, research methods and research strategies will have important functions.
The selection of descriptive method is because it mainly aims to give conclusive and final answers in respect to the research questions. In order to the research design, the researcher may even change the path of the study to a certain extent (Ellis, 2015, p.3). Moreover, it will verify the specific aids and insights in the market research of Netflix in details with the course of action and even it permits the business findings in general and gives objectives to the value of the research.
In fact, the research design describes the specific elements and causes in the research area for Netflix stock market. On the investigation of the market value, the inclusion of theories related to growth of business in the entertainment industry of the entire world.
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