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SNHU - IT-515 - Innovations in Information Technology
Written by: Chris Bell - October, 2015

Business Collaboration - Netflix Partners that Help Rapid Growth

Introduction

It was necessary for Netflix to collaborate with networks, TV shows and film makers in order to stream their content as a subscription based company. Without the licensed right to air such shows and movies Netflix would be nonexistent. They could have created each of the shows on their own so that they owned the rights to air them, but that's not feasible because they need a large set of shows in order to attain the necessary subscribers. Netflix partnered with companies such as The Walt Disney Company and Epix in order to offer their customers numerous options of entertainment. Both Netflix and its collaborators make big profits because the subscribers continue to grow. Netflix pays for the rights to air shows and movies while the subscribers pay monthly fees that cover the costs and create a profit.

Resource Fit

The relationship between Netflix, Disney and Epix is based on a yearly licensing deal that allows Netflix to air the TV shows and movies that Disney and Epix paid to create. Netflix needed the resources of more than just Disney and Epix because the subscribers like to have a variety of options to watch. In fact, according to Investopedia, "To keep subscribers satisfied with the number of choices available for streaming online, Netflix is constantly negotiating new licensing deals with TV shows, networks and filmmakers. Licensing in the realm of online streaming content is defined as the process of obtaining permission from the owner of a TV show or movie to stream its content through a service such as Netflix."

After becoming a multi-billion dollar company, Netflix started using some profits to create and air their own shows, however they will continue paying licensing fees to networks forever if they plan to offer their customers what they want, which is variety. In almost every way it's analyzed it's a great situation for the networks that collect the licensing fees from Netflix because the additional revenue is the first reward and the additional broadcasting of their shows is a second bonus. Disney is being paid to have Netflix air their shows which is a free marketing, or additional exposure, technique. Also, not every network is a part of Netflix's selection because they only have so much money available, which means networks that aren't yet involved with the millions of Netflix subscribers might soon get jealous.

Strategic Fit

Netflix and its collaborators both have a common strategic goal in mind which is to air the shows to everyone in the world. Even though Disney wants to make maximum revenue through licensing deals, they don't want to overcharge because they run the risk of losing collaborators and all over the revenue that goes along with it. The strategic fit between the two companies allows both to make money and neither should hold each other hostage as if they are somehow a bigger player than the other. It's a partnership that both benefit from, but if one tried to take advantage of the other it could result in zero revenue (in that segment) for both companies.

Early on Netflix was at the mercy of the networks because they could almost charge any fee for licensing, however with so many subscribers Netflix is going to begin to have an advantage over the networks. Soon, networks might beg for the chance to be a part of Netflix's 33 million subscribers in order to give their shows more air time. In fact Netflix might be able to renegotiate their contacts to their advantage in the upcoming years. Until then, Rebecca Greenfield of The Wire shares an interesting fact, "The going rate for digital rights has increased because the owners of said TV and movie shows know they have leverage over Netflix. For example, back in 2008, Netflix convinced Starz to make a deal for $30 million a year. When it came back to the table in 2011, $300 million wasn't enough for the network."

Conclusion

Netflix and its collaborators have a strategic and resourceful fit because they provide a service that consumers want and pay to have. Even though it's strategic for both parties Netflix needs the networks as partners to survive while the networks do not need Netflix to live on. It would seem as they all have a hold over Netflix to charge higher than normal fees, however Netflix's size has now created an advantage of their own. Their customers expect the numerous movie listings to be available so their collaborative partners are important to maintain. Younger people continue to drop cable for the small monthly fee Netflix charges, so if Disney and others can't be seen on cable networks they will need to continue a strong and strategic relationship with Netflix going forward.