Should Netflix provide a freemium model and why?
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in Strategy by (150 points) | 617 views

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For the business of Netflix to exist the goal must be to acquire and retain as many users as possible. 

Let's evaluate this in three dimensions if Netflix implements a freemium model with this example as an assumption:
User can watch parts of Netflix original series for free (episode 1-3 of season 1 Stranger Things). To watch all of it, they will have to upgrade to premium. 

1.Impact on the user 
2.Netflix as a business
3.Market

1. User impact

Pros:

  • Users can enjoy some of the content without worrying about being charged.
  • Users can sample a wide variety of content
  • Easier sign up process as no PCI is collected


Cons:

  • Unlike music, users will not be able to experience the true value of Netflix because they will not see the entire narrative arc. I.E. Users will only receive a subset of the experience
  • This gap in value will be experienced in almost all of the content. Also, the Netflix recommendation engine might be less effective here.
  • less likely to convert

2. Netflix as a company

Strengths:

  • Netflix is a production company that also partners with studios to release mainstream content as well. 
  • Netflix can attract great talent to produce its award-winning content
  • Netflix can tailor recommendations to engage its viewers across its vast library of diverse content.

Weaknesses:

  • Production of original content relies heavily on Netflix's cash flow. It is also expensive to produce original content. 
  • Netflix is less able to provide mainstream content on freemium due to licensing. 

3. Market:

  • Mainstream studios like Disney are making their own subscription programs. This threatens the content ecosystem of Netflix, forcing the company to create more and more original content to minimize this threat.
  • Competitors like Amazon, Hulu, and HBO attract viewers away from Netflix. Netflix has to be able to present its full value to a user to acquire and retain.

Recommendation:
Netflix's value to its users is its high-quality content. Users must be exposed to this content fully to be a subscriber. A freemium model would not allow users to experience the full value of Netflix and thus they are less likely to convert. Also, to stay competitive, Netflix must continue to produce quality original content. However, this content is expensive to produce and a freemium model does not support the expenditure needed for production. Netflix provides a trial experience today. This is essentially time-limited freemium that exposes the viewer to the entire library (full value) so that they are more likely to subscribe. 

On the other hand, if Netflix wishes to explore this possibility, it may be best to also explore advertising to offset the cost of freemium.

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