Chapter 14- Mergers and Acquisitions

This chapter deals with the mechanics involved in mergers and acquisitions. Mergers and acquisitions is a way for companies to expand and diversify as a method to increase revenues, reduce cost, and resulting in higher profits. According to the FTC, there are five categories of mergers and acquisitions and they are as follows.

·       Vertical merger- acquires either suppliers or additional customers

·       Horizontal merger- acquires former competitor

·       Product extension merger- acquires complementary products

·       Market extension merger- acquire new geographic markets

·       Conglomerate merger- all other types of acquisitions

Netflix has not been very active in mergers and acquisitions. They are more concerned about mergers and acquisitions that are happening between ISPs. They have lobbied against merging of Comcast and Time Warner Cable. Netflix believes that this is very close to a monopoly and they will be at the mercy of an ISP to charge whatever they want for Netflix’s bandwidth usage. Netflix requires very fast and consistent bandwidth for their service. Any disruption in speed can have consequences resulting in loss of subscribers. 

Chapter 13- Strategic Alliances

In this chapter the book deals with strategic alliances. These are alliances created to reduce costs and hopefully increase revenues and profits for both firms. There are three types of strategic alliances: equity, non-equity, and joint ventures. Netflix has been involved in a few different strategic alliances. They have formed a strategic alliance with Google for the sole purpose of defending net neutrality, making sure that they always have sufficient bandwidth for their respective companies which are very bandwidth intensive. Netflix has also entered into joint ventures when they produce content for their own subscribers. An example of this alliance is like the one between Disney and Netflix for the production of Marvel series. This alliance has resulted in enabling Netflix to be the first company to stream the new Star Wars movie in certain markets, i.e. Canada.

Chapter 12- Implementing Corporate Diversification

Chapter 12 deals with the importance with implementing corporate diversification. The main benefit derived from implementing by having a balanced, diversified board of directors. It allows investors to maximum their potential investments. Netflix follows the classic diversified group of directors by having the majority as outside of the company. These Directors, some who are major shareholders, along with industry leaders from other firms, help keep the confidence of the shareholders. Shareholders main focus is on maximizing to its fullest potential the growth of the firm and returns on investment. The main insider is the chairman of the board who is also the founder of Netflix, Reed Hastings.

Chapter 11- Diversification Strategies

According to the book there are many types of strategies to diversify. All these strategies mention in the book fall into three categories: limited, related, and unrelated diversification. Netflix would fall in the limited diversification as they have 70% or greater of their earnings coming from a single business. In Netflix case this means that their business is all within in the streaming media industry. There is little in the way for diversification except the strategies they have embarked in the past few years. The first one is producing their own content. The second one is making alliances with Internet providers to improve the quality of their streaming. And a third being, licensing agreements with major studios/producers. Netflix is always trying to keep it’s market leading subscriber based happy by finding things that will keep them loyal and happy. 

Chapter 10- Vertical Integration

Vertical integration is when the supply chain of a company is own and controlled by that company. Apple, Inc best demonstrates an example of vertical integration. They are a hardware company plus a software company plus a service company and at the end of the chain they are a retail company. They control their product from the beginning to the customer.

 Netflix in the beginning was a provider of steaming media. Various companies produced the content they provided and Netflix would pay a fee to stream them. In its recent history, Netflix has started to vertically integration by becoming also a producer of content. This has provided Netflix with an area that they have exclusive rights that cannot be lost. 

Chapter 9- Tacit Collusion: Cooperation to Reduce Competition

Collusion results when two or more companies get together to provide cooperation within their industry to reduce the competitive of firms not part of this collusion. Netflix has small areas which could be taken as collusion as to increase their competitiveness within industry. This can be demonstrated by a few of their agreements with other media providers. The one area is in content, where Netflix has made deals with Disney and some of Disney subsidiaries. The original programming Netflix has embarked on is in with full cooperation with Marvel studios, which is owned by Disney.  Netflix has also made deals with cable companies that will host or mirror their video library enabling customers to have greater access to 4k steaming technology. The first one in North America is a deal with Rogers’s media to provide 4k streaming to Rogers’ customers. This is done even though Rogers has a streaming service of their own.  

Chapter 8- Flexibility under Risk and Uncertainty

Flexibility in the business world is when a company can make changes quickly and without great expenditures to adapt to a changing environment. These changes can be technological as well as market changes and competition. Everything changes and recently very quickly. Netflix has been adept to either anticipating or reacting to changes within their industry.

There are many risk factors evaluating Netflix and the industry they are in. This is a very new industry, and even though Netflix is by far the most dominate player in it, there is still possibilities for risk. The biggest risk facing Netflix is if there is more than one major competitor entering the market. This market when fully matured will always be able to handle two major players. As long as, Netflix is one of the players, this risk is reduced. Content can be a major risk factor in this industry. It can become very expensive and difficult to pass along to a customer who is used to paying a very low rate to subscribe. The other problem with content is if it’s no longer available to Netflix, but is available to their competitor.