1. 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

2. 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

3. 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 ($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

4. Home-Entertainment Industry Timeline up to 2007
Oct Home video rental store Blockbuster founded
Aug 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 Netflix goes public, IPO raising $82.5 million
Apr 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

5. 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

6. Beginning of the Cord-Cutting Era (2007-2012)
Jan 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 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 Amazon rebrands streaming service to Amazon Instant Video
Apr Streaming service Vudu launched
Nov Netflix lost 800,000 subscribers, stock price plummets from to 9.12/share
2012 – Already in South and Central America, Netflix starts expanding in Europe

7. 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

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

9. 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?