Value Chain Analysis

Information technology has become such an essential part of a company’s success in today’s world. As recent as 10 years ago it was unheard of to run a company solely though the internet. Today we have Amazon. com, which is one of the biggest internet companies and which led the way for the rest of them to follow. Another company that was born during the . com boom is Netflix. It got its start in 1997 as an idea to rent DVD’s over the internet. Founders Reed Hasting and Marc Randolph believed in the potential of the disc replacing the bulkier VHS tape and saw the bonus of its light weight which would help with the shipping costs.
Netflix did not have much competition until Hulu entered the market in 2007. However, Hulu had a different approach; they wanted to start a website where you can watch TV clips, full length shows, and movies. Hulu has provided people with a sense of choice. Until Hulu people were kind of forced into one direction as far as internet options. Unlike Netflix, Hulu is owned by NBC Universal and News Corp. they announced their new online venture in March 2007. Hulu does not rent DVD’s, everything is viewed online and you don’t have to download anything as long as you have a flash 10. 0. 2 enabled computer or device like an smart phone, tablet, smart TV, or gaming console. Both Netflix and Hulu are taking advantage of the fact that today it is relatively cheap to stream on the internet for the average person. Things have changed since the internet became a household name; before a person had to have a land line to connect to the internet and it was very slow. On top of that you had to pay for service and physically connect a cable to your desk top. Today, we have lap tops with a wireless device and you are able to log on to the internet for free wherever you can find a signal typically a Starbucks coffee shop.
Netflix and Hulu are essentially competing with the television set which is the old fashioned way of watching shows, movie trailers, and movies. Netflix saw the potential of the internet right away because it provided people with easier choice than Blockbuster and because they were saving on overhead and location costs associated with actually having a store that a customer could visit, they were able to provide customers a penalty free way to rent DVD’s for a flat rate and people have the option to keep the DVD until they are ready to return it.

In the beginning they only had one shipping center in California, now they have more than 20 shipping centers around the U. S. to speed up delivery times. (http://www. fundinguniverse. com/company-histories/Netflix-Inc-Company-History. html) Netflix and Hulu’s winning strategies have to do with advertising, marketing, and distribution/delivery. Both companies have partnered up with the movie and entertainment business. For example according to MercureyNews. com, Netflix has announced a deal with Lionsgate to put the first four seasons of “Mad Men” on its streaming service starting in July, (http://www. ercurynews. com/breaking-news/ci_17827807? source=rss&nclick_check=1). According to IBIS World industry report 53223, the company generates additional revenue through placing paid advertising from its e-mails and on its distinctive red DVD postal envelopes, (pg 26). As for Hulu, they have partnered up with over 260 content companies. It was easier for Hulu to establish those relationships since they are already an entertainment channel. Because of this they are able to offer people a larger choice in terms of TV shows where Netflix is known primary for their large selection of movies.
According to IBIS World industry report 51913b, Hulu generates revenue through very short (no longer than 30 second) video ads shown during shows. The content provider receives between 50% and 70% of the revenue from these ads, depending on the specific agreement, (pg 26). Netflix and Hulu use heavy advertising to attract a partnership. The partners know that when they make a deal with either Netflix or Hulu they are getting exposure for their channel or show. The movie industry also gets their movie exposed buy the availability of the trailer being offered on heir site.
According to Hulu’s website their mission is “to help people find and enjoy the world’s premium video content when, where, and how they want it. As we pursue the mission, we aspire to create a serve that users, advertisers and content owners unabashedly love”, (http://www. hulu. com/about/company_timeline). Part of the winning strategy for Netflix is their distribution process. In their beginning they started shipping from California and quickly realized they needed to open more shipping locations so now they have more than 20 around the U. S. hich has sped the process to one to two days for delivery times. They also implemented a computer bar-code scanning process in each site to help with their daily orders. (http://www. fundinguniverse. com/company-histories/Netflix-Inc-Company-History. html). The entertainment industry is fearful that online viewing has climbed in the last year; according to IBIS World industry report 51913b content providers are reluctant to fully embrace internet broadcasting, for fear of cannibalizing revenue generated from traditional media sources like cable television, (pg 13).
Also according to MercuryNews. com, “Consequently, broadcasters in the United States are at risk of ceding territory to Netflix as the go-to destination for television on the Internet. ” Overall, online television revenue in 2010 climbed 34. 2 percent from the year before to $1. 6 billion. The biggest gainer was Hulu, which doubled its ad revenue to $200 million, (http://www. mercurynews. com/breaking-news/ci_17827807? source=rss;nclick_check=1). I believe that the future of the entertainment business is always changing according to the latest trends.
It has been that way since the invention of television; not too long ago the movie industry was fearful of the invention of the VHS and there was even a lawsuit to try to stop the production of the VHS tape. It is just a matter of adapting quickly to what the latest and greatest is at the moment. I honestly don’t believe that online viewing will do away with watching television the old fashioned way. There is too much at stake for that to happen.
For example, people still appreciate the fact that they could turn on the television and see real people conducting the news and talking to them about what is going on in their communities. Another factor to consider is the cable industry. The way the cable industry is designed it is too big to break up into something as simple as online viewing. Each channel has to agree to go with online viewing either in part or exclusively. In conclusion, I think that it is interesting how things have changed in the last 10 years in terms of how we view our favorite TV shows and movies.
However, I personally feel that as long as the fundamentals of how we live as a society don’t change then people will still prefer to watch television the old fashioned way; on the couch in the living room watching television programming on a regular old fashioned television surrounded by family and friends the way it has been for more than 50 years.
Works Cited
Thormahlen, Casey (Feb 2011); The big bang: Revenue will surge ahead, aided by strong advertising and demand; IBIS World Industry Report 51913b; Internet publishing and broadcasting in the U. S. (pg. 13, 26) Thormahlen, Casey (Oct 2010); End of the reel: Demand will fall as consumers opt for video-on-demand and downloads; IBIS World Industry Report 53223; DVD, Game and Video Rental in the U. S. (pg. 26). http://www. fundinguniverse. com/company-histories/Netflix-Inc-Company-History. html http://www. hulu. com/about/company_timeline http://www. netflix. com/HowItWorks http://www. mercurynews. com/breaking-news/ci_17827807? source=rss;nclick_check=1 http://www. valueframeworkinstitute. org/May2002/feature. article. htm

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