Netflix Value Chain Explained Guide: A Front Row Seat

It’s Friday night, and I can guarantee that most people’s plans include ordering in and binge-watching their favorite series on Netflix. This online streaming company has become very popular over the years (and for a good reason). So, today, you’ll get a front-row seat to the Netflix value chain explained analysis.

Movies at the theater are great, but sitting down after a long day and enjoying the luxury of choosing from a vast amount of series and films at the click of a button is heaven-sent. And all while sitting in the comfort of your own home? Now that’s worth the minimal subscription fee ($9.99 per month for the basic plan).

If you’re interested in reading about the Netflix value chain and how the company takes ideas and turns them into reality, bring out the popcorn and soda. This one is gonna be #bingeworthy.

My Bottom Line Up Front: What Is Netflix’s Value Chain?

With an online customer base of over 220.67 million subscribers, it’s no wonder this subscription streaming service (and production company) is continually upstaging the competition.

This is significantly due to Netflix’s successful value chain, which allows the company to gain a competitive advantage in the subscription streaming world.

Here’s a little sneak peek (or trailer, if you will) of the activities that make up the Netflix value chain:

Inbound logistics focus on how Netflix sources its operations.
Operations focus on activities to convert inbound logistics to outbound logistics.
Outbound logistics focus on delivering products to customers.
Marketing and sales focus on the advertising and marketing strategy.
Services focus on bringing the best service to the customers.
The firm’s infrastructure focuses on accounting and quality management.
Human resources management focuses on the employees.
Technology development focuses on utilizing technology in operations.
Procurement focuses on obtaining copyright licenses from outside sources.

What Is Netflix and What Does It Do?

So before we get this show on the road, let’s take a closer look at what Netflix is and what it does:

A Brief Overview of Netflix

Netflix is a worldwide American subscription streaming service and production company. The company was created in 1997 and is based in Gatos (an incorporated town) in California. What started as a DVD rental company (in April 1998) has boomed into one of the globe’s leaders in the online streaming industry.

It only took Netflix a year to realize that a pay-for-use business model (renting DVDs sent via mail services) was not the most lucrative way to do business. That’s when the company implemented a subscription business model.

In 2008, Netflix partnered with companies and started streaming on Xbox 360 and Blu-Ray disc players. By 2009, it started streaming on PS3 and smart televisions. In 2010, the company added Nintendo Wii, Apple iPhone, and iPad to its ever-growing list.

Fast forward a decade, and Netflix became one of the world’s largest and most popular streaming services. But wait, there’s more. Netflix didn’t just stop there; the organization started making its own productions known as Netflix Originals (#changingthegame), and the quality of the acting and special effects are superb.

Popcorn-worthy fact: In 2017, Netflix won its first Oscar for an original documentary short titled White Helmets.

Services and Content

Netflix is probably one of the few subscription services where you get more than what you pay (and that’s saying something). For this reason, Netflix has a loyal customer base and a mission to keep customers happy with new content that’s loaded almost weekly.

Here’s a quick look at some of the content that Netflix offers:

Unlimited movies
Netflix Original movies
Unlimited series
Unlimited Netflix Original series
Unlimited children’s series
Unlimited Netflix Original children’s series
Unlimited children’s movies
More than 25 mobile games
Netflix Original video games
Anime
Award-winning TV shows
Documentaries

The biggest drawcard for Netflix is you can watch as much content as you want (online or offline), and no adverts to interrupt your movie or series.

Popcorn-worthy fact: Netflix now has over 17,000 titles to choose from in the online library.

What Are Netflix’s Primary Activities?

Michael Porter created the value chain concept in 1985 and divided the analysis into primary and secondary activities. Netflix’s primary activities are its foundation and relate to its products and services.

Let’s take a closer look at the activities that help Netflix turn over a profit and increase the value of its products:

Inbound Logistics

It’s always best to start at the very beginning, and the inbound logistics activity is where it begins. Over the years, Netflix has built secure and strong relationships with big content developers such as WarnerBros and Universal (to name a few).

After extensive negotiations, Netflix and the content providers reach an agreement that benefits both companies significantly. The content providers provide Netflix with streaming rights to multiple series and movies at optimum costs.

Netflix is then able to increase its profits. But I know what you are thinking, “How does the content provider benefit from this?” Remember, Netflix wants to keep its providers happy (to keep the content coming) by giving its media content more exposure and marketing opportunities (such as advertising upcoming movies on Facebook and Instagram).

By allowing Netflix to stream its content, the company now has a competitive advantage over other media developers. A customer can stream a blockbuster on Netflix (as often as they like) and not have to pay high theater costs, which is definitely an attractive deal. It’s a win-win for everyone.

Popcorn-worthy fact: Netflix paid $300 million to stream content from Disney before the release of Disney+ in 2019

Netflix’s Operations

The following link in the chain is to convert inbound logistics to outbound logistics through various activities and processes. This is done through Netflix’s operations activities. The heart of Netflix’s operations is its streaming platform and strict management behind the scenes.

Netflix’s operations serve to improve the company’s productivity and efficiency. In a nutshell, these activities ensure the customer can access content on multiple devices (quickly) and organize the content they want to watch.

Netflix uses cloud architecture to store its media content. The customers can then connect to the server through their desired device, and they can stream content at their leisure.

The cloud architecture allows the customer to:

Search for content based on genre, title, and keyword.
Organize features to suit them.
Add movies and series to “watch lists.”
Receive recommendations through Netflix’s algorithm (based on your current viewing list).

Popcorn-worthy fact: Netflix paid $100 million for the streaming rights for the famous hit TV show Friends in 2015.

Outbound Logistics

The outbound logistics activities assist with distributing services to the customers. These activities ensure:

Content storage
Product delivery
24-hour customer service
Processing
Suggestions to encourage customers to watch content
Distribution of media to customers via downloading or streaming

Outbound logistics strive to achieve customer satisfaction and increase business growth by delivering the products to the customer. This is done through the Netflix website or app.

The cloud architecture from the above link (operations) connects with the outbound logistics and provides Netflix’s customers with fast streaming services.

Popcorn-worthy fact: Because of Netflix’s account sharing feature (you can add two screens on one account with the Standard subscription option or up to 4 screens with the Premium plan), about 41% of the users don’t have to pay for their accounts.

Sales and Marketing

Netflix spent $2.55 billion on marketing activities in 2021, slightly less than the $2.65 billion in 2019. Sales and marketing help this streaming giant gain more customers through promotions and advertisements on social media platforms.

Netflix prides itself on the fact that it is always honest and transparent with its customers. The streaming giant values customer relationship management, and its marketing focuses on brand development.

Netflix stays true to its word and doesn’t make false commitments regarding service delivery. This trait alone has given Netflix a competitive advantage over other streaming services.

Popcorn-worthy fact: Netflix was originally called Kibble. (#silly – I know.)

Netflix’s Services

Netflix is an online service, meaning there are no face-to-face dealings with its customers. Because of this, Netflix is adamant that customer service satisfaction is of utmost importance. Once a customer has subscribed to the platform, they have immediate access to Netflix’s after-sales services, such as:

24/7 customer care
Help that is available in different languages (worldwide streaming)
Real-time assistance with queries regarding customer accounts and profiles

To ensure its after-sales service is on point, Netflix has a range of activities for its support team that includes:

Training
Installation services
Product repair
Post-sales maintenance

Netflix’s most significant competitive advantage is that customers can stream content from any device at any time.

Popcorn-worthy fact: Netflix still offers DVD rentals on a separate subscription. One DVD will cost around $7.99 a month. For Blu-Ray DVDs, you’ll pay an additional $2.

What Are Netflix’s Secondary (or Support) Activities?

Netflix’s secondary activities don’t relate directly to the service or product of the company. Instead, the activities are aimed at supporting Netflix’s primary activities.

Michael Porter divided the support activities of the value chain into 4 categories.

Let’s take a closer look at the secondary operations (or processes) that support Netflix’s primary activities:

Firm Infrastructure

Netflix is an online company, meaning its products are digital, and transactions are done online.

It’s, therefore, crucial for Netflix to have good data security and management in place. This is where firm infrastructure plays a vital role for Netflix. The infrastructure supports:

General management, quality management, and legal services (managed at the business unit level)
Finance, accounting services, and planning ( handled at the corporate level)

Netflix’s firm infrastructure is very effective and runs smoothly, which has increased its value in the value chain. As a result, Netflix’s functions are well coordinated and allow the company to make a good profit.

Popcorn-worthy fact: In 2020, Ireland held the record for the most titles in the Netflix content library, which was 5,500.

Human Resource Management

To have a successful and thriving company, Netflix knows you need happy staff. The company appreciates its employees and involves them in the decision-making process. This is great for developing human resources.

Netflix doesn’t believe in strict procedures for its staff members. Instead, Netflix prefers to reward its employees for doing their best. The company has a great working environment and ethic where the staff is happy to give their best and go the extra mile.

Thanks to effective human resources management, Netflix isn’t concerned about losing staff to competition. The employees are motivated and committed and want the company to do well. In fact, Netflix ranked second in the Employee Net Promoter Score. Without an effective HR team, the company wouldn’t be as successful as it is today.

Technology Development

One of Netflix’s most significant support activities is technology and development. Netflix provides the customer with the best and most updated streaming service. Therefore, technology development is crucial to the success of Netflix.

The company brings creative and modern changes to its platform through technology development. Netflix has invested much time and money into research and development, ensuring customer value and satisfaction.

If there’s one thing that stands out about Netflix and its platform, it’s that the company is constantly updating its systems and developing better and more advanced ways of using the platform. This is one of Netflix’s competitive advantages.

The cloud infrastructure is continually updated to ensure customers have the best and most reliable streaming service. By continuously working on technology development, the company secures more subscriptions and benefits for the customer.

Popcorn-worthy fact: The average Netflix subscriber has watched over 1,130 hours (49 days) of content since opening their account.

Procurement

Netflix relies heavily on its customers’ satisfaction to guarantee its success. This is done by paying attention to what customers want to watch and having it available. In other words, Netflix prioritizes its subscribers’ access to original and in-demand content.

To do this, Netflix obtains copyright licenses from outside production houses for the digital content it then streams to subscribers. Netflix has been very successful in its procurement process.

The organization makes sure that its content is highly sought after and popular. There is something for everyone on Netflix (young and old). Netflix is also very successful with the company’s in-house production, bringing in an excellent profit. It casts famous actors, which also attracts subscribers to the platform.

Netflix has links in the movies and TV series industry, encouraging creators to come forward with new content. This is thanks to the excellent procurement activities. Netflix also urges customers to contact it with preferred content requests to help the company reach customer satisfaction and provide reliable and up-to-date content.

Popcorn-worthy fact: The most streamed show on Netflix (currently) is Squid Game (season 1), with total streaming of 1.65 billion hours in the first 28 days since it was released.

FAQs – Netflix Value Chain Explained

Question: What is a value chain vs. a supply chain?

Answer: A value chain in a company is several activities that a company does to increase its competitive advantage in the business world. A supply chain is the activities that assist with producing and distributing the product. This deals with getting the product onto the market by dealing with the suppliers and logistics.

Question: Why is a value chain important?

Answer: A company needs a value chain to help them increase its business’s productivity and efficiency. A value chain provides the company with more value and profit for less cost. This raises a company’s competitive advantage and increases its productivity.

Question: Which tool is used for a value chain analysis?

Answer: The tool used for a value chain analysis is based on Michael Porter’s Value Chain, created in 1985. The value chain is designed to divide a company’s activities into relevant sections to help them make better changes to the company.

My Final Thoughts on the Netflix Value Chain

Netflix has gained popularity over the years at a significant rate, and it has become a household name that’s taking leaps and bounds to improve its service and products continuously. This company puts the customer first, giving it a unique competitive advantage in online streaming.

Thanks to Netflix’s strong value chain, the company has been able to hold its leading position amongst its competitors, and few have come close to taking that title away.

So the next time you sit down to binge-watch a series on Netflix, you’ll know the process it took for you to enjoy online streaming at its finest.

If you would like to read about value chains vs. supply chains or read more about Netflix, check out these articles:

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Denine Walters

With over a decade of experience as both a project manager and writer, Denine Walters is an established business strategist who loves delving deep into strategies that can help businesses grow. Denine has an impressive track record in project management, helping to write comprehensive business plans, assessing markets and customers and creating financial projections to help ensure success in any business plan. Today, Denine likes to share her insights here on Business Chronicler to help others navigate the world of business.

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