FORMATIVE ASSESSMENT 1 [100 Marks] Read the article below and answer ALL questions in this section. The battle for video

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FORMATIVE ASSESSMENT 1 [100 Marks]
Read the article below and answer ALL questions in this section.
The battle for video streaming: Netflix vs. Amazon is a
clash worth watching In the profitable U.S. market, Netflix's
biggest competition comes from Amazon and Hulu, but in other
countries Netflix is the only game in town
Author of the article: Jonathan Ratner
Publishing date: Apr 20, 2016
Netflix Inc. has a huge advantage as the first mover in the video
streaming market, along with the benefits that come with
being a recognizable brand in terms of attracting customers. But
it’s facing an increasingly competitive battle for producing
and providing appealing content, and equally important, on
price.
That became more evident on Sunday, when e-commerce giant
Amazon.com Inc. lowered the pricing for its video streaming
service. The new monthly fee option gives Amazon video subscribers
access to its Prime Video library of movies, TV shows
and original series for US$8.99, whereas Netflix will hike its
basic monthly service to US$9.99 a month in May.
An escalating price war was exactly what Netflix shareholders
didn’t need, since the company’s disappointing
secondquarter outlook for international subscriber growth helped
wipe 13 per cent off the stock on Tuesday.
The numbers showed that Netflix is having trouble matching its U.S.
success with growth in some of the 200 countries it
hopes to expand to by the end of 2016.
In the profitable U.S. market, Netflix’s biggest competition comes
from Amazon and Hulu — a joint venture between Disney,
21st Century Fox and Comcast. But there is a lot of overlap between
the services, with some consumers subscribing to two
or all three services.
In other countries, Netflix is the only game in town, or ranks
second in subscribers to domestic video streaming providers.
Since viewers have similar taste in markets like Canada, the U.S.,
Australia, and England, Netflix’s competitive advantage
is pretty strong with popular offerings like House of Cards and
Orange is the New Black. As a result, Netflix will likely be
the
leader in those markets for a long time.
The problem, as Wedbush Securities analyst Michael Pachter points
out, is the company isn’t generating any profits
anywhere else.
“Having a competitive advantage in a place you don’t make money
really isn’t that big of a deal,” he said.
Netflix shares are still up 190 per cent in the past five years, so
plenty of investors clearly aren’t scared off by the stock’s
multiple of 330 times earnings. But if the havoc Amazon wrecked on
the retail sector is any guide, they do have something
to be worried about in the US$300 billion giant.
“Netflix can’t grow as fast as people think if Amazon is serious
about competing,” Pachter said. “I believe Amazon is serious
about competing. (CEO Jeff) Bezos is in this to win.”
Amazon also has a much stronger balance sheet than Netflix does,
and has much more revenue from other sources to plow
into its video business
When you compare the two services, a case can be made for Amazon
having superior recent film offerings. Netflix has a
deal with Dreamworks and Disney, but Amazon has Epix and HBO
movies.
“Amazon also kicks their butt in originals because it also has HBO
titles like Empire, Six Feet Under and The Sopranos,”
Pachter said. “That’s much better than anything Netflix can come up
with.” He is one of only four analysts (out of 46 in total)
tracked by Bloomberg with a sell rating on the stock.
Those with buy ratings on the stock like Mark Mahaney at RBC
Capital Markets believe timing had a lot to do with Netflix’s
weak outlook.
“We continue to believe that Netflix’s value proposition has
universal appeal – as demonstrated by its success in North
America, Latin America, and Western Europe,” he said, adding that
the company’s international efforts will pay off as it
provides more localized content, language and payment options
Mahaney continues to forecast more than US$10 in earnings per share
by 2020 driven by 180 million global subscribers.
As a result, the analyst thinks Netflix shares could double over
the next three years.
Similarly, Doug Anmuth at J.P. Morgan doesn’t think the lacklustre
guidance changes the thesis on Netflix.
He noted that the company has historically shown seasonal
subscriber weakness in previous years – falling 44 per cent
on
a quarterly basis, on average, between 2012 and 2014.
Anmuth also thinks the Q2 could prove conservative given Netflix’s
global rollout.
“Investor focus will shift from U.S. to international subscribers,
and overall Street numbers will likely come down,” he said.
“However, we would be buying the weakness in Netflix shares.”
Yet with Netflix set to post negative cash flow for at least two
years as its content spending continues to ramp up (from
US$5 billion this year to US$6 billion next), it’s tough for some
to find meaningful catalysts for the stock.
Macquarie Capital analyst Tim Nollen, who rates Netflix at neutral
with a US$110 price target, noted that the spending plans
should come as little surprise given the company’s push in both
acquired and self-produced original programming.
But he also highlighted how “ungrandfathering” in the U.S. will
lead to some customer churn, as more than 50% of Netflix’s
subscribers in the country will see a price hike. This comes at a
time when there is already a lot of over-the-top
(Internetprovided) competition
Source:
https://financialpost.com/investing/the ... h-watching

Answer ALL the questions in this section.
Question 1 (20 Marks)
Although the service that Netflix provides is not a new one, their
innovative marketing and targeting strategies created a
new flourishing segment, with the result that its service concept
has become a generic term: “Netflixing”.
Based on this statement, assess the various complexities that
Netflix may face when targeting an emerging market like the
India. Suggest strategies that can be adopted by Netflix to
successfully target a changed marketplace.