Why Netflix began the production of Netflix Originals
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School of Business |
Bachelor's thesis
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Authors
Date
2019
Department
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Mcode
Degree programme
Tieto- ja palvelujohtaminen
Language
en
Pages
37
Series
Abstract
Technological advancements of the internet and internet connected devices resulted in the convergence of media, telecommunications, and informatics. This caused a disruption in the US entertainment industry and allowed the aggregation of content to bypass traditional channels to customers. It also provided an opportunity for new entrants to enter the entertainment industry in the form of over-the-top (OTT) services, such as Netflix in 2007. However, Netflix did not remain as a pure content aggregator over the internet. Instead Netflix vertically integrated its business model by producing exclusive content, Netflix originals, in 2012. Since then, Netflix has continuously increased their investments into Netflix originals, which is a marked departure from its previous business model. Hence, the objective of this thesis, a literature review, is to identify the advantages and motivations of Netflix to produce content and vertically integrate their business model. Netflix’s motivators and advantages were divided into two categories, the ecosystem motivators and the new digital advantages of OTT services. To understand the ecosystem motivators, the ecosystem and its changes, due to Netflix’s business model changes, are first overviewed and analysed. The thesis primarily studies the ecosystem of the major players of the US entertainment industry ecosystem, due to its relative significance. The main trends in the industry that were discerned, was the increasingly vertically integrated entertainment industry as a whole and the increasing of the content scarcity strategy. Since the thesis is attempting to identify insights regarding Netflix, an analysis of the top five risk factors from Netflix’s annual reports during 2007-2018 is conducted. This is complimented with traditional competitive motivations for vertical integration (i.e. platformization, vertical integration advantages, horizontal integration, content scarcity and differentiation) in order to find the ecosystem motivators for Netflix. Netflix’s inherent digital advantages, as an OTT service, are subsequently reviewed. The capabilities identified are the new data capabilities of OTT services, the long tail content diversity strategy opportunity, and the international scalability of digital services. The thesis concludes by drawing upon the ecosystem motivators and digital capabilities to determine; why Netflix vertically integrated their business model prior to the rest of the industry.Description
Thesis advisor
Bragge, JohannaKeywords
Netflix, OTT service, entertainment industry, vertical integration