This report is to analyse the globalisation of markets and marketing and the ‘discourses of globalisation' with reference to Netflix, Inc.
Netflix is an American media company headquartered in California and is one of the world's leading internet entertainment services with over 135 million paid memberships in over 190 countries. Netflix is a Subscription video on demand (SVOD) service offering unlimited online streaming of Movies and TV programmes for a monthly fee (Netflixinvestor.com). Netflix operates in a competitive and evolving environment globally, competing with other entertainment subscription services and other content providers such as terrestrial broadcasters. The viewing landscape differs by country e.g. in the UK Netflix's market positioning is represented as follows.
1.3 Netflix Globalisation approach
The company strategy is to ‘expand internationally as far as possible where staying profitable'. Following launch and early development in the US, Netflix entered international markets in Latin America, the UK and Nordic Countries. In 2016 it launched in over 130 new markets targeting ‘outward looking, affluent customers with international credit cards and smartphones.' Netflix has an in-house approach to marketing using huge quantities of data on viewing preferences etc. It has a marketing budget of over $1.5 billion most of which goes to programmatic marketing (buying and selling advertising digitally and real time). The company only uses media agencies to execute specific campaigns. (Chen, 2018)
The chart below demonstrates Netflix's global strategy with around 60% of subscribers outside the company's domestic market. This highlights how the company has exploited opportunities offered by globalisation and also that it must ensure its marketing strategy going forward continues to reflect this global client base.
2. Globalisation of Markets and Marketing
Globalisation can be described as an economic phenomenon involving increasing interaction or integration of national economic systems through growth in international trade, investment and capital flows. Fundamental to the process of globalisation and homogenising of markets, cultures and people is the recent development of new technologies particularly with regards to transportation and communication. Netflix has profited significantly from these developments; having started as a DVD mail service in 1997, it developed into a monthly subscription service and then in 2007 exploited technological advances and digitised to become an online streaming service.
2.1 Economic Globalisation
2.1.1 Economic globalisation refers to increasing interdependence of world economies through growth of cross-border trade of commodities and services (Gao, 2000). The global entertainment and media industry conformed to this trend, steadily increasing in value since development of the internet and the establishment of online content providers; in 2010 the industry was valued at 1.8 trillion USD with a compound annual growth rate (CAGR) of 6.6%. (PwC, 2006). From 2010 the industry continued to increase in value with latest PwC projections suggesting that the market value will reach 2.2 trillion USD in 2021with a CAGR of 4.4%. (PwC, 2018) Evidently the market continues to grow in value and will continue to do so ‘as a result of the continuing expansion and mutual integration of market frontiers' (Gao, 2000) This is equally true for Subscription TV:
2.1.2 Netflix has taken advantage of this trend targeting members globally permitting economies of scale and spreading costs of commissioning content over a wider audience. Marketing over the internet allows global advertising campaigns which can be supplemented by local media campaigns e.g. in the UK Netflix used outdoor advertising on billboards for “The Crown” series.
2.1.3 More generally economic globalisation has largely been positive with strong global growth in recent years. However, there is still a great disparity in wealth between richest and poorest nations. (Schwab and Zahidi, 2018)
2.2 Political Globalisation
2.2.1 Political Globalisation refers to ‘the expansion of global political system, and its institutions in which inter-regional transactions are managed' (Modelski et al., 2008). A stable political environment provides opportunities but can also create barriers.
2.2.2 Despite its global reach Netflix doesn't currently operate in a few countries e.g. China, where there is already a strong competition and tight censorship laws restricting Netflix in the world's most populous market. The company is also restricted by US sanctions in Crimea, North Korea and Syria. For example, there are restrictions on ‘direct or indirect exportation or supply of any services to Syria from the US' (OFAC Syria Sanctions Program, 2018). This indicates there is risk that political decisions in certain countries may restrict Netflix operations in the future. Similarly, if Governments globally seek greater control over the internet then that might restrict growth opportunities. Moreover, other markets have been protective of local language content e.g. controversy at the Cannes' film festival led to Netflix refusing to submit any of its content to the festival. Given internet content is difficult to regulate, it is unlikely that attempts to manage language content will be successful in entertainment delivered through the internet. My survey (Appendix B) suggests political issues are not a priority for Netflix members.
2.2.3 More generally political globalisation in my view has been positive and will be needed to address major global challenges such as climate change.
2.3 Cultural Globalisation
2.3.1 Cultural globalisation refers to the ‘transmission of ideas, meanings and values around the world in such a way to extend and intensify local relations'. (James, 2006)
2.3.2 Netflix has adopted a transnational strategy (Bartlett and Ghoshal, 1989) prioritising global integration whilst also maintaining high local responsiveness. It utilises its global customer base to make the majority of its content available worldwide. As a result of ‘Americanisation' viewing preferences of customers worldwide have become more similar. Despite this Netflix also responds locally and provides local content targeted at local markets. For example, this year it will spend USD 1 billion on original European content. This maximises the potential audience whilst ensuring a networked organisation exploiting scale economies and facilitating global learning and knowledge transfer.
Netflix has a competitive advantage when launching new content; Linear networks attract an audience on a given night at a specific time whereas Netflix can be flexible. Taking advantage of high-profile launches including Netflix Exclusives can attract and retain members, then use data on viewing habits for marketing initiatives to target specific content for its viewers.
2.3.3 Cultural globalisation has in my view had a mixed impact. Whilst opening up new opportunities to many, there may be a threat to diversity and a risk that a homogenous world may be less creative and productive.
2.4 Technological Globalisation
2.4.1 Technology is a key driving force of globalisation permitting global spread of information and innovation.
2.4.2 Netflix has benefitted from advances in communication, establishing a huge presence through various platforms and its marketing through social media. Social media has allowed Netflix to personalize adverts making them more appropriate to the individual to attract new customers. Netflix utilises a marketing strategy known as geo-targeting; for Facebook where it suggests the most appropriate content to that specific area, for Instagram and Twitter Netflix has regional accounts where it uploads humorous content in order to engage its customers.
The internet is getting faster and more accessible whilst the penetration of smart phones is also rising. The ease of payment through online apps represents a positive technology development for Netflix. From my survey, 61% of under 25s use phones to view content and, 131 of 150 people, use more devices than 5 years ago. This combined with increasing availability of 4G network means people can view content almost anywhere with phone signal. Netflix is competing successfully against Linear TV funded by licensing fees (BBC) or adverts (ITV/Channel 4) with a younger audience watching content on demand as the primary way of viewing. However, watching linear TV still remains the preference for those above the age of 25 offering market potential.
2.4.3 More generally this supports the view that technological globalisation has had a positive impact on society.
3 Effects of Globalisation on Netflix's stakeholders and beneficiaries
Stakeholders are “individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn the organisation depends” (Johnson et al., 2002). The following framework is used to consider 3 key stakeholder groups and evaluate their respective power and level of interest to target strategies for each group.
High levels of interest and power as Netflix revenue relies completely on customer membership subscriptions. Netflix subscriptions cost $7.99 per month, (Greenfield, 2018) and customers need to be entertained in order to justify these fees so there is a high level of interest. This is shown by the regular communication with customers via email and marketing from media new and hold e.g. online but also newspapers. Netflix holds a vast amount of data on every customer; on their tastes, interests etc. (Carl Erik Kjaersgaard, 2018) which it can use to disrupt traditional broadcasters. A few individuals have some influence such as journalists when they carry out reviews. However generally speaking individual customers don't have much power and little influence, but a collective demand for new content could invoke a response from Netflix to keep customers satisfied and maintain revenue. Customers have benefited significantly from globalisation; not only has it become available to millions more people due to international expansion but also it has penetrated new markets and cultures increasing diversity and culture of the content provided. Some people may however argue that the predominance of US content limits diversity of viewing, so it becomes important that Netflix attempts to source more local content. Primary research I carried out in the UK is split on whether US content is too dominant but there is significant support for more local content. (refer Appendix B)
Shareholders have a high degree of power as they are able to replace the board/management. As they have invested money in the company through buying shares, they also have a high level of interest, meaning they are Key influencers. Return on investment is a priority and Netflix must look at improving dividends to satisfy shareholders. Given the importance of shareholders Netflix communication strategy provides information and performance updates with a specifically dedicated investor website and regular presentations to investors. Globalisation has had undeniably positive outcomes for shareholders as the growth of members in new global markets has generated significant revenues. Expanding to international markets has led to strong growth in Netflix share price, as seen below, and increased dividends. In summary shareholders have through increased returns been beneficiaries of globalisation in the case of Netflix Inc.
3.3 Key talent
Actors have lots of power as they feature in the content and can attract a global audience, but interest is low putting them in Category C. Netflix also needs to ensure actors are informed of audience levels and feedback so need a targeted communication approach. Globalisation has benefitted global stars as Netflix has provided a global platform with a worldwide audience that have access to their work. One could argue globalisation has had a negative impact on some developing talent as it is less risky for Netflix to launch a new series with established stars making it harder for less well-known actors to get a break. My survey supports this view as a majority of respondents attach some importance to the presence of a star in the viewing decision.
4.1 Is globalisation a force for good or evil?
Undeniably globalisation has facilitated the transfer of knowledge, skills, information and created many opportunities by liberalising trade via organisations such as GATT and WTO. The emergence of TNCs in a global marketplace has proven that, if organisations adapt, they can capitalise on scale economies and create a worldwide brand. Conversely, many have argued the negative impacts of globalisation as they see it as the convergence of cultures dominated by the US. This ‘Americanisation' has led to other countries and cultures automatically embracing values strongly linked to America. The homogenisation of cultures can lead to a disappearance of indigenous values and cultural diversity. Moreover, globalisation has been attributed with an increase in poverty and economic inequality as shown with the champagne glass phenomenon (Conley,2008) where the richest 20% of the world's population earn 82.7% of the world's income whereas the poorest 20% only earn 1.4%.
Additionally, globalisation may have contributed to environmental problems such as climate change and food security and added to the exploitation of workers in less economically developed countries. Despite this globalisation has had unquestionable benefits by reducing barriers between countries, increasing capital flows and increasing integration of the global trade cycle.
Organisations such as Netflix have exploited opportunities and potential that globalisation offered and capitalised to increase customers and revenue at the same time allowing its subscribers to see content, they might not have otherwise had access too. Netflix used various marketing techniques to expand operations across different cultures/societies consequently creating a global brand successfully operating in the vast majority of countries. Whilst all discourses are of relevance, with Netflix the net impact of technological and cultural globalisation are arguably the greatest.
4.2 Final comment
Globalisation can have both positive and negative impacts but on balance I view it as a force for good.
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