L02.2 Presented by John O’Bryan Analyzing the External Environment of the Firm Why environmental scanning, environmental monitoring, and collecting competitive intelligence are critical inputs to forecasting. Environmental Forecasting- It’s purpose is to predict change 3 important inputs

The three inputs Environmental Scanning Environmental Monitoring Surveillance of a firm’s external environment Detect changes underway Environmental Monitoring Track evolution of Environmental trends Sequence of events Stream of activities Competitive Intelligence Collecting and interpreting data on competition Identifying competitors strengths and weaknesses SWOT Analysis: Build on its strengths Remedy the weaknesses or work around them Take advantage of the opportunities presented by the environment Protect the firm from the threats

Discussion Questions It is the year 2000 Netflix is a DVD-by-mail only service in their third year The dot-com bubble is in effect U.S. DVD Revenue increases by over 300% from 1999 ($800m to $2.5b) George W. Bush is elected president It is a pre-Enron and pre-9/11 world What are the top external threats to Netflix? What are the top external opportunities to Netflix? AT THE TIME, if you were Blockbuster, what would you have done with $50 million? Why? Acquire Netflix Start your own DVD-by-mail service Expand brick-and-mortar stores geographically Enter into a 20-year partnership with Enron to create a digital movie-on-demand service

Home-Entertainment Industry Timeline up to 2007 Oct 1985- Home video rental store Blockbuster founded Aug 1997- Netflix founded as a DVD-by-mail service 2000- Netflix offered to be acquired by Blockbuster for $50 million, declined 2002- Redbox founded, automated retail kiosks May 2002- Netflix goes public, IPO raising $82.5 million Apr 2003- Netflix reaches 1 million subscribers 2004- Blockbuster has 9,904 stores, offers unlimited DVD-by-mail rentals at $19.99/month 2005- Coinstar purchases 47% of the Redbox after an unsuccessful attempt by Redbox to sell half the company to Blockbuster and then Netflix 2005- Video sharing website YouTube went activate 2006- U.S. DVD sales/rental revenue at $24.1 billion Year U.S. DVD Sales/Rental Revenue (in billions) 2000 $2.5 2002 $11.6 2004 $21.2 2006 $24.1

2007: Opportunities seized & Threats fought off Successful Environmental Scanning Massive growth in broadband (high-speed internet) adoption in households in the United States Convenience over quality preference trend Fending off earlier streamer threats (Movielink) Capitalizing on their own competitive intelligence (Customer recommendations) First decline in U.S. DVD revenue Monitoring the new streaming industry

Beginning of the Cord-Cutting Era (2007-2012) Jan 2007- Netflix delivers billionth DVD, launches streaming service next month 2008- Apple’s iTunes store offers 24-hour movie rental downloading, launches Apple TV streaming player 2008- Netflix invest $6 million in streaming player manufacture Roku Mar 2008- Fox, NBC, and Disney launch joint venture Hulu 2010- Blockbuster files for bankruptcy, Dish Network purchases them 2011- Netflix splits streaming and DVD rentals into different packages, both $7.99/month Feb 2011- Amazon rebrands streaming service to Amazon Instant Video Apr 2011- Streaming service Vudu launched Nov 2011- Netflix lost 800,000 subscribers, stock price plummets from 42.16 to 9.12/share 2012 – Already in South and Central America, Netflix starts expanding in Europe

Continued Successful External Forecasting Understanding the customers Profiles feature New streaming plans Basic, Standard, and Premium plans Increase # of screens for streaming Understanding the competitions weakness Went international early Released original content

New Trends/Entrants into Cord-Cutting Feb 2013- Netflix releases 1st original content, House of Cards March 2013- Redbox releases their own video streaming service called Redbox Instant Nov 2013- Blockbuster closes all remaining stores Oct 2014- Redbox shuts down Redbox Instant after 19 months Feb 2015- Sling TV launched by Dish Network, a live TV streaming service, $20/month Oct 2015- Netflix raises standard HD subscription from $9 to $10 per month Nov 2016- DirecTV launches live TV streaming service DirecTV Now for $35/month April 2017- YouTube launches live TV streaming service YouTube TV for $35/month May 2017- Hulu releases live TV streaming for $39.99/month Jan 2018- Netflix has over 118 million subscribers

Discussion Question It is the year 2018, Netflix has 118 million subscribers in over 190 countries, it has just been valued at over $100 billion. Netflix just invested $8 billion in producing more original content and your co-workers/family members won’t stop recommending Netflix Originals you have to watch… such as Stranger Things and Narcos  What are Netflix's top external threats? What are Netflix's top external opportunities? What was the best thing Netflix did that got them where they are today?