My essay of Marketing Strategy module during my exchange period at Warwick Business School. The task was to fully analyse the marketing strategy of a new product/service launched in 2015. I got 81.

1. Netflix in Italy
Marketing Strategy – IB3870
Alberto Maria Fasulo – 1532810
EXCHANGE AND PART-YEAR STUDENT
Word count*: 2193
*the word count is excluding headings, tables, figures, footnotes, references and appendix

2. TABLE OF CONTENTS
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Marketing objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Environmental analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Market analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Customer analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Competitor analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Market entry timing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. Growth strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10. Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.1 Appendix I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Appendix II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.3 Appendix III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.4 Appendix IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. List of references. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1

3. 1. INTRODUCTION
This essay deals with Netflix launch in Italy, which took place on 22 October, 2015. After stating its
marketing objectives and the main results emerging from the environmental analysis, Netflix's marketing
strategy will be carefully described and assessed in all its aspects, such as value proposition and strategic
options, with a particular focus on the timing and growth strategies in the end. Any comments, critiques or
recommendations will be provided, when appropriate, throughout the text.
2. MARKETING OBJECTIVES
“For the first year we aim at the happiness of subscribers: we want first of all satisfied customers. After this
period, we aim at making subscribe one third of households in 7 years” (Hastings1
, 2015). This implies that
Netflix’s short-term objectives are to enhance customer satisfaction and, since it is a new entrant, brand
awareness; after the first year, economic objectives will be more relevant, with Netflix aiming at a market
share of about 8 million households2
by 2022. The statement also emphasises Netflix’s customer-based
approach, which is, coherently with its value proposition, oriented to customer experience.
3. ENVIRONMENTAL ANALYSIS3
The first main trend that emerges from the environmental analysis is the evolution of TV: viewers are
witnessing a convergence of TV and internet video, which implies the transition from linear television to on
demand TV. On one hand, this scenario benefits Netflix as they have great experience in on demand
internet streaming4
. On the other hand, it provides the opportunity to change watching from a one-
directional transmission model to a two-way interactive model, implying a TV built on fans, not just
audiences (Google, 2015). Netflix could exploit this opportunity, for instance, by improving customer
satisfaction via customers’ suggestions and by creating communities, especially for the Originals, which will
improve viewers’ loyalty. Another aspect that will benefit Netflix, whose offering stresses the ubiquity of
viewing, is the massive introduction in Italy of devices, such as smartphones, tablets, smart-TVs and set-
top-boxes, which allow this pervasiveness of watching5
.
Secondly, the atavistic problem of Italian broadband coverage6
, that can affect Netflix’s data transmission
and therefore its demand, will be largely smoothed soon by the implementation of the € 6.6 billion
Superfast-Broadband-Plan that Renzi’s government has recently approved. The importance of this political
intervention has been also underlined by Hastings at the press conference: “It is not important the actual
state of broadband: what is fundamental is the direction”. Remaining in a political perspective, Netflix
should pay attention to the evolution of both the stop of Safe Harbour7
that may jeopardize a business that
relies massively on user profilation, and the recent government’s bill concerning a so-called purpose tax8
against web giants (Fontanarossa, 2015).
1
Reed Hastings is Netflix CEO.
2
Italian population: 60.782.668; Italian households: 25.791.690 (ISTAT, 2013).
3
The complete environmental analysis is available in Appendix I.
4
Netflix entered this industry in 2007 in the US.
5
For instance, smart-TV sales in Italy are growing so much that are expected to reach 8 million of units by the end of
2015 (Espresso, 2015) and the growth between 2013 and 2014 of smartphones and tablets has been, respectively,
from 37 to 45 million of units and from 7,5 to 12 million (NeoMobile, 2015).
6
Solely 34% of Italian population are reached by superfast broadband, relative to an EU average of 68% (European
Commission, 2015).
7
It is the US-EU agreement on the management of European data by US companies.
8
Its purpose is to finance the production and distribution of Italian movies and TV series taxing web giants, such as
Google and Netflix.
2

4. In a social/cultural perspective, despite the low digital literacy of Italy, Netflix will benefit the increasingly
positive attitude of Italians towards video streaming and their willingness to pay9
.
The problem the firm, whose abroad catalogue is made of about 80% of American and 20% of local
content, will cope with is that Italy is hungry for its content10
. This is the reason why Netflix’s choice of
purchasing 18 Italian TV series from Rai11
and co-producing immediately the first original Italian TV series,
Suburra, is strategically wise. This achievement is much more relevant considering that purchasing or
licensing copyrights is highly difficult in the Italian entertainment market12
.
Finally, Netflix has converted the threat represented by the quick evolution of technology, which could
weaken its competitive advantage mainly based on user experience and technological leadership, as well as
quality content, into opportunity. In fact, Netflix is part of the UHD Alliance, which is developing HDR13
, the
future’s video definition standard. Moreover, Netflix focuses also on the development of wearable devices:
recently, a developer associated a Fitbit to Netflix to pause automatically the program when the incoming
data from the wristband suggest that the viewer fell asleep (Pesce, 2015).
4. MARKET ANALYSIS
As it has been highlighted previously, one of the main trends affecting television industry is the
convergence of TV and internet video, which will lead to watching videos more and more over the internet
and on demand. In fact, the Italian SVoD segment14
, in which Netflix currently competes and whose
potential size is 25m households, is experiencing an enormous expansion in terms of revenues, as can be
seen in the following chart.
9
About 75% relies on a regular basis on streaming to view movies and TV series. Of this 75%, 40% are willing to pay
for access to movies and TV streaming, percentage that has increased from the 10% of last year (Chiesa, 2015).
10
Italy is the second country in Europe for the percentage of national films and TV series watched over the total of
movies and series viewed (Niola, 2014).
11
Rai is the national public broadcaster.
12
Fandango, Rai Cinema, Lucky Red, BIM, Medusa are the main majors and studios and, generally, they licence their
content only in few cases (Niola, 2014).
13
HDR is an imaging technology used to reproduce brighter colours and greater luminosity. It is the evolution of 4K.
14
The internet video market can be divided into 3 main submarkets: Subscription Video on Demand (SVoD), which
operates with renewable monthly subscriptions and allow users to watch any content without any limit; Transactional
Video on Demand (TVoD), in which viewers pay an amount based on the content they buy or rent from time to time;
Advertising Video on Demand (AVoD), which is based on advertising and free of charge.
29,185
59,691
99,971
120,911
140,201
156,712
166,293
104,5%
67,5%
20,9%
16,0% 11,8%
6,1%
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
120
140
160
180
2014 2015 2016 2017 2018 2019 2020
Growth(%)
Absolute(millionUSD)
Absolute Growth
Chart 1 – SvoD revenues and growth, Italy: market value will reach almost 60m by 2015
Source: Author
Data source: Statista (2015)
3

5. Regarding the key success factors of the market, the main
assets and competencies needed to compete successfully can
be clustered in four categories (MTM London, 2014).
Firstly, investments: in order to licence contents and build the
necessary technology platform and brand, very high initial
investments are essential.
Secondly, content is vital for every company competing in this
industry: on one hand, breadth of product is vital to meet a
wide variety of tastes and personal interests (this is especially
true for mass market aggregators, such as Netflix); on the
other hand, also premium movies and TV series with exclusive
and/or local content are required to compete positively. This is the reason why the main players are
increasingly looking to licence in order to secure differentiated content. Consequently, both capabilities in
connection with content providers and expertise in contract negotiation become indispensable
competences.
The third key factor is about technology: in such a high pace innovation industry, it is essential that
technology is up to date, custom built and, if possible, available on all platforms.
Finally, significant above-the-average marketing is necessary to build brand and viewers: indeed,
subscription model relies on retaining customers after high initial spend on acquisition.
5. CUSTOMER ANALYSIS
Customer needs
Customer needs are many and, except for few cases such as place shifting or ultra-HD, generally common
to all possible segments of the market. The table below shows what these needs are and how Netflix tries
to meet them; also, when possible, specific evidences will be provided.
Table 1 – Customer needs and Netflix’s offer
WHAT USERS WANT EVIDENCE15
WHAT NETFLIX OFFERS
Ubiquity of programming In order to view videos, Italians weekly
spend on average 15 hours watching TV,
8 hours watching PCs, 6 hours watching
smartphones and tablets
Service is available through an enormous
amount of devices
Quality of content Netflix original contents have received 34
Emmy Awards nominations in 2015, 31 in
2014 and 14 in 2013
Quality of streaming HD is fundamental for 56% of Italians;
40% of Italians believe that 4K TV for
their future watching experience and
20% is willing to pay to obtain it soon
Standard and Premium subscription offer,
respectively, full-HD and 4K; moreover,
Netflix provides an advanced connection-
adaptive streaming
Affordability Netflix prices range from 7,99 to 11,99
€/month, in line with competitors
User-friendly interface Netflix has a very intuitive and simple
interface
No ads 53% of Italians consider important not
to be interrupted by advertising
Netflix, like its competitors, is ad-free
Place shifting Almost 36% of Italians practise place
shifting on a weekly basis
Users are able to pause and to start again
from where they left, independently of
devices used before and after
15
Evidences are taken from Ericsson, 2014 - ConsumerLab TV&Media, cited by Guimares, 2014.
KSFs
Investment
Technology Brand and
marketing
Content
4

6. Individualized
entertainment and binge
watching
43% of Italians would like all the
episodes of their favourite series were
made all available earlier in the season,
so they can customize their
consumption activity
Netflix has an sophisticated
recommendation system; moreover, all
episodes are available when the new
season is released
Contractual flexibility Users can easily subscribe, unsubscribe
and re-subscribe as they like, without
constraints or penalties
Recent content The possibility of having latest movies
available interests 50% of Italians,
whereas 25% is willing to pay an extra to
be able to watch them.
TV series are up-to-date, but, at least for
now, movie catalogue for Italy is good in
terms of quality but it is too old
(Macitynet, 2015)
Download content Unmet need
It emerges clearly that Netflix’s value proposition is extremely coherent with both “traditional” needs, such
as affordability and quality of content, and needs that are emerging from latest trends and technologies,
like place shifting, 4k and individualized entertainment.
Moreover, Netflix positions itself as a global company. To give customers tangible proof of what this means,
Netflix, unlike its direct competitors, allows viewers to access content even abroad16
and to choose many
different subtitles and languages.
Additionally, Netflix has recently made a European partnership with a number of major consumer
electronics manufacturers, such as Panasonic, Philips, Sony, Toshiba and Vestel. This involved adding a
“Netflix button” to remote controls, allowing subscribers to enjoy the service much quicker (Netflix, 2015).
This choice is surely effective since it will also guarantee brand recognition: this way, Netflix will not be
seen as one of many available streaming services, but as the video on demand service.
However, despite this excellent customer-based strategy, Netflix should quickly update its movie catalogue
since films are not just complementary but, together with TV series, are part of the core offer17
.
Furthermore, Netflix should pay attention to the download feature. Since watching movies in mobility is
rather impossible in Italy18
, this therefore excludes many potential customers – e.g. students or people who
commute to work – from the service. Netflix, instead of offering a download feature, could plan
partnerships with Italian mobile operators in order to create contracts that will allow subscribers to enjoy
Netflix without limits and without consuming internet data.
Segmenting
Within the video streaming market, customer theoretical segmentation is typically based on three different
aspects (Almohaimeed, 2014):
 Demographic segmentation, whose most relevant variables are age, sex, income, lifestyle and
accessibility to technology.
 Physiographic segmentation, whose aim is to identify customers’ trigger of using streaming
services, an inexpensive way of watching content, an accessible and user-friendly entertainment
experience and a way to view missed content that would otherwise not be aired again.
16
Obviously, content will vary accordingly to local acquisition rights.
17
“We are not a generic "video" company that streams all types of video such as news, user-generated, sports, porn,
music video, gaming, and reality. We are a movie and TV series entertainment network” (Netflix, 2015).
18
Viewing 40/50 minutes of HD video streaming without Wi-Fi connection needs almost 450 Mb of data consumption
and in Italy mobile contracts offer, on average, 2 Gb/month (Pezzali, 2015).
Source: Author
5

7.  Behavioural segmentation, which is related to the usage experience: genres watched, connection
mode, device used and average time per session.
However, in reality, being able to achieve a meaningful segmentation is very challenging: not only do
watching preferences change quickly, but they are also influenced by many factors, such as mood, time,
company, beliefs, the premier of new movies, awards, ratings and trends on social media. This prompted
Netflix to develop complex prediction algorithms and an advanced recommendation system in order to
offer a highly-tailored-to-individual-needs service, which also has the benefit of allowing Netflix an ex post
one-to-one segmentation (Otto, 2014). This system also allows Netflix to have a huge database of users’
profiles, which is useful especially in a content production and acquisition perspective.
Targeting19
As a mass-market aggregator, Netflix is not targeting a specific segment; the only discriminating factor is
internet availability. Thus, its potential target includes customers between the ages 5 to 60, with variability
in their watching preferences, income, technological advancement and many other variables.
Nevertheless, Netflix, unlike its competitors, has a differentiated offering: Basic subscription is catered
towards young people who are only interested in watching content in an inexpensive way; Standard
subscription principally targets the young, who are interested in a better streaming definition, and small
families; Premium subscription chiefly targets large families who expect a first-class streaming experience.
Despite this wide base of potential customers, Netflix could focus its advertising and marketing efforts on
students and young families (aged 14-35), since they are more technologically proficient and trend-
conscious.
Positioning
The two charts below depict Netflix’s position in comparison with its direct competitors – Sky Online,
Infinity and TImVision. The first chart takes into account content, in terms of both quality and breadth of
selection; the second considers, as dimensions, affordability and convenience, which includes factors such
as quality of streaming adaptation, video definition, possibility of watching abroad, numbers of accessible
devices and personalisation of video streaming. This result is inferred from the considerations made in
Appendix IV.
19
The complete evaluation is available in Appendix II.
Age Sex Income Lifestyle Accessibility to technology
Inexpensive way of watching content User-friendly entertainment experience Way to view missed and vintage content
Genres watched Device used Connection mode Average time per session
6

8. Figure 1 – Netflix position relative to competitors. Dimensions: content quantity and content quality
Figure 2 – Netflix position relative to competitors. Dimensions: price and convenience
Thus, in Italy Netflix positions itself as a global film and TV streaming service, complementary to pay TVs20
,
which provides a high entertainment experience and quality contents at a reasonable price.
6. COMPETITOR ANALYSIS21
The Italian market is well controlled by competitors, in terms of both well-known direct competitors, such
as SkyOnline, TimVision-Telecom, InfinityTV-Mediaset, and many substitutes. Among these, one plays a
fundamental role: video piracy, a black market that, in Italy, is worth approximately 400 million (Grosso,
2015). Whilst it has had some positive effects, such as creating demand and developing habits like binge
watching, it is a very threatening competitor in Italy22
. Due to its relevance, Netflix should constantly
20
As in fact Hastings declared at the press conference “We are complementary to pay TVs: in fact, we spend only 1%
of our time to evaluate what they do” (Repubblica, 2015).
21
The complete analysis is available in Appendix III.
22
As a matter of fact, Italy was removed from the “watch list” of the US Special 301 report – the report on the
adequacy and effectiveness of intellectual property actions by US trading partners, made by the United State Trade
High qualityLow quality
Low
selection
High
selection
Netflix
High priceLow price
Low
convenience
High
convenience
Sky Online
Source: Author
Source: Author
7

9. monitor the piracy market to detect new trends that could be useful in guiding the company’s content
creation and acquisition policy, thus convincing users to abandon illegal streaming leveraging on high and
superior quality entertainment experience.
In order to summarise the strengths, weaknesses, opportunities and threats that have thus far been
encountered, the following table is provided.
Table 2 – SWOT analysis: it précises the strengths, weaknesses, opportunities and threats described throughout the
text.
STRENGTHS
assets and features that are helpful to achieve the objectives
WEAKNESSES
liabilities and features that might damage performance
 Technological proactivity
 Huge customer database
 High customer satisfaction, thanks to an advanced
recommendation system
 Strong brand recognition, since Netflix is a global
player, first mover in the US and has won many
prizes as well as Emmy Awards
 Production of original content, which also increases
customer loyalty
 Content acquisition costs represent a high
proportion of its cost structure  high bargaining
power of content providers (Otto, 2014)
 Financing content production may affect Netflix
liquidity (Otto, 2014)
OPPORTUNITIES
external conditions that are helpful to achieve the objectives
THREATS
external conditions that might damage performance
 Development of new technology, such as HDR and
wearable devices
 Multi-device penetration
 Transition from linear television to internet and on
demand TV, and from audiences to fans
 Government’s commitment to improve broadband
coverage
 Increasing positive attitude towards video streaming
and improvement of digital cultural gaps
 Expansion of VoD and SVoD market
 Poor diffusion of broadband
 Safe Harbour stop
 Purpose tax on internet giants
 Historic poor digital literacy
 Hunger for local content
 Content creators and studios’ reluctance to license
rights
 Well-protected market by competitors and presence
of many substitutes, especially piracy
7. MARKET ENTRY TIMING23
Netflix, in Italy, can be considered an early entrant, since Infinity was launched in December 2013 and Sky
Online and TimVision in the following Spring. Netflix has been waiting to see the evolution of Italian
consumerism and the potential growth of the market in order to evaluate the market’s feedback to the
first-mover’s entry. Then, seeking to minimise the advantages of pioneering, Netflix implemented a
“product enhancement/second-but-better” strategy, with particular focus on the quality of its content and
on its above-average convenience, in terms of usability, ubiquity, video definition, personalisation and
production of original content. Not only has Netflix been able to learn from the pioneers’ experience and to
exploit first players’ burden to educate the market, but, in being the first mover in the US and a global
brand, it also has the potential to exploit advantages that are typical of pioneers, such as a strong brand
recognition24
and experience effects. The most relevant entry barrier, that incumbents have been able to
erect, regards content licences and it can be destroyed by Netflix by leveraging its original production and
through a focused new-contents acquisition.
Representative (USTR) – only last year and illegal websites such as Popcorntime.se and Butter Project, which both
suddenly replaced Popcorntime.io after being banned, are very popular in Italy (Guidi, 2015).
23
This paragraph has been elaborated taking into account S.P. Schnaars’ framework regarding first mover advantages,
appeared in the article When Entering Growth Markets – Are Pioneers Better Than Poachers? (1986).
24
According to Young & Rubicam BrandAsset Valuator, cited in Marketing Management (Kotler, Keller, 14th ed., p.
247), Netflix is a “leadership” brand, namely has “become irresistible, combining high brand strength [energised
differentiation and relevance] with high brand stature [esteem and knowledge]”.
Source: Author
8

10. This timing strategy seems to be appropriate, especially considering the immaturity of Italy in previous
years regarding its digital divide in terms of both infrastructure and consumers’ digital literacy. Additionally,
since this process of “ripening” is not yet completed – demonstrated in the environmental analysis – Netflix
should penetrate this market with a cautious investment policy.
8. GROTWH STRATEGY
Considering the Ansoff Matrix (1957), Netflix chose to implement a
“market development” strategy, launching an on-demand service
(present product) in Italy (new market). The effectiveness of this
decision can be evaluated using three dimensions: market
attractiveness, transferable assets and competencies and ability to
adapt to new market. Firstly, as has been stated previously, Italian
consumers are more willing to pay for streaming services and the
Italian market, though small and well controlled by previous
entrants25
, is rapidly growing. Regarding the second aspect, this should
not be a problem, since Netflix can easily transfer its assets and
capabilities, such as the technological ones (e.g. recommendation
algorithm), its original production and its great customer orientation
and user-analysis ability. Moreover, Netflix will be able to distribute the costs of its own production on more
customers. The last dimension is more problematic as, in Italy, movies and TV series rights and licences are
difficult to obtain and Italian audiences are more willing to watch local content than other European
countries.
Finally, in order to better penetrate this new market, Netflix wisely formed two partnerships with Telecom
and Vodafone26
, which will include Netflix services in their new (superfast) broadband subscriptions.
According to Varadarajan and Jayachandran’s definition (1999) these can be deemed “strategic alliances”27
:
in fact, on one hand they allow Netflix to optimise content distribution and to be more easily accessible to
potential customers, coherently with its customer orientation; on the other hand, they are important in
terms of co-marketing, since, after all, the new superfast broadbands need content to add value to their
offering and therefore to support investments in network.
9. CONCLUSION
To conclude, Netflix strategic choice can generally be considered positive and the firm has a well
differentiated product it can leverage in the new market, but, in order to be successful, this strategy needs
to be immediately sustained by various courses of action, such as making efforts to communicate the
different Netflix positioning relative to its competitors and its superior value proposition, fostering Italian
content creator relationships and producing original content, specific for Italian reality (e.g. Suburra series).
Failing to do so will cause Netflix to underperform in the long term, however it is reasonable to forecast its
short-term success: Netflix is not likely to exceed 150,000 subscribers by the end of the year28
.
25
For instance, according to Meta’s appraisal (2015), Sky Online, Infinity TV and Tim Vision has respectively almost 1
million, 360.000, 200.000 subscribers and Chili TV, a TVoD service, has more than 400.000 users.
26
Telecom and Vodafone are the main telco companies in Italy.
27
“Strategic alliances are a form of interorganizational cooperation entailing the pooling of skills and resources by the
alliance partners, to achieve one or more common goals. […] An interorganizational partnership can be viewed as a
strategic alliance only if the partnership would enable the cooperating firms to achieve a competitive advantage in the
marketplace” (Varadarajan and Jayachandran, 1999, p.132).
28
This is the number of subscribers Netflix reached at the end of the year after the roll out in France and Germany in
September, 2014; both countries had a very similar environmental analysis, market ripeness and competitive
landscape relative to Italy nowadays (Zambardino, 2015).
Source: Free-management-ebooks.com
9

11. 10. APPENDIX
10.1 Appendix I – PEST Analysis
Technology
One may think the quick evolution of technology could be a threat for Netflix, destroying its competitive advantage
mainly based on user experience and technological leadership, as well as quality content. But, as an innovative
company, Netflix has converted this threat into opportunity: Netflix is part of the UHD Alliance, which is developing
HDR29
, the new standard of video definition beyond Ultra-HD/4K. Moreover, Netflix focuses its attention on the
development of wearable devices: indeed, last year a developer associated a Fitbit to Netflix to pause automatically
the program when the incoming data from the wristband suggest that the viewer fell asleep (Pesce, 2015).
In particular, the technological tendencies affecting Italian video-on-demand (VoD) industry are mainly three: the
expansion of broadband, the evolution of television and the development of a large amount of devices.
Multi-device development in Italy
Regarding the latter, Italy is experiencing a massive introduction of devices that satisfy a more and more demand of
ubiquity of video watching, such as smartphones, tablets, smart-TVs and set-top-boxes. For instance, smart-TV sales in
Italy are growing so much that are expected to reach 8 million of units by the end of 2015 (Grosso, 2015) and the
growth between 2013 and 2014 of smartphones and tablets has been, respectively, from 37 to 45 million of units and
from 7,5 to 12 million (NeoMobile, 2015). Therefore this is an external condition will be helpful to achieve Netflix’s
objective, since its offer is focused also on the ubiquity of viewing.
The future of TV
The second main trend regards the evolution of TV: it is being assisted a convergence of TV and internet video. After
the shift from analog to digital, delivery is still changing, setting internet TV as the new standard. Therefore, this
implies the transition from linear television to on demand TV: viewers will no longer sit on their sofa waiting for their
favourite series or looking for a movie among hundreds of channels. Now they will be able to watch (almost) whatever
they like, anywhere, anytime and through any device they wish (Google, 2015).
On one hand, this scenario benefits Netflix who has great experience in on demand internet streaming (they entered
the industry in 2007 in the US). On the other hand, it provides a large opportunity: to change watching from a one-
directional transmission model to a two-way interactive model, implying a TV built on fans, not just audiences. Netflix
could exploit this opportunity, for instance, by improving customer satisfaction via customers’ suggestions and by
creating communities – especially for the Originals – which will improve viewers’ loyalty.
Expansion of Italian broadband
Regarding the expansion of broadband, the current state is more
problematic: solely 34% of Italian population is reached by superfast
broadband30
, relative to an EU average of 68%; furthermore, only 2-3%
of population uses it, compared with an EU average of 30%. Despite
recent progresses due to telecom operators’ investments – superfast
broadband coverage was only 14% by the end of 2013 – statistics above
show an evident technological delay in data transmission (European
Commission cited by Assante and Longo, 2015).
Moreover, another concern is the price level of access to the service: a
standalone internet-only subscription through a connection speed between 4 and 8 Mbps costs 78% more than the
European average and between 8 and 12 Mbps costs 107% more than the EU average (European Commission cited by
Scorza, 2015).
These are all aspects that have always delayed Netflix’s entrance in Italian market.
29
HDR is an imaging technology used to reproduce brighter colours and greater luminosity.
30
Broadband is named superfast when it is over 30 Mbps
Population reached
by super fast
broadband
34%, Italy
68%, EU
Population that uses
super fast
broadband
2-3%, Italy
30%, EU
10

12. Politics
In this situation, the intervention of government is crucial in order to smooth Italian digital divide. In March 2015,
Renzi’s government approved the € 6.6 billion Superfast Broadband Plan with two main objectives by 2020: 100% of
the population connected to 30 Mb and 50-58% connected to 100 Mb. The problem is that the Communication
Decree31
, which was to implement the plan, has not been approved yet, especially because the government is still
negotiating with the European Commission to receive a share of the funds required. However, the plan is expected to
be implemented soon (Assante and Longo, 2015).
Finally, two scenarios threat Netflix’s future performance. Firstly, the uncertainty regarding the stop of Safe Harbour –
the US-EU agreement on the management of European data by US companies – jeopardizing a business that relies
massively on user profilation: in absence of a new pact, measures developed by the national authority32
will prevail
(Lee, 2015). Secondly, Italian ministries of Economic Development and Culture have filed a document concerning the
possibility of a purpose tax against web giants, such as Google, Amazon, Netflix, to finance the production and
distribution of made in Italy films and TV series. This model was inspired by an idea of the German government, which
is though still awaiting the approval of European Commission (Fontanarossa, 2015).
Society
The infrastructural digital divide has reflected over years on the cultural digital gap, which, therefore, means deep
differences relative to the rest of Europe in terms of digital skills and habits. This can be summarised by the graph
below that shows the number of users classified above basic considering the digital skills indicator constructed by the
European Commission (2015): solely 4.22% of Italian internet users were classified above basic, against a European
average of 7.33% 33
.
Despite these differences, the process of change towards an increasingly digital and connected society is taking place:
according to current forecasts, mobile traffic will increase by 8 times by 2019 with an average annual growth of 50%
and, even more important for the future of Netflix in Italy, consumer internet traffic will see an increase in
entertainment video of 30% in 2018 and video consumption will be 72% of the total traffic in 2019 – compared to 55%
of last year (Meta, 2015). This scenario evidences not only the shift of Italy towards an internet-based video watching,
but also that this will occur more and more in mobility.
31
In particular, the two most innovative aspects of the original decree regarded vouchers to encourage users to
purchase superfast broadband and fiscal incentives for operators to stimulate investment (Repubblica, 2015).
32
The national authority is Garante della Privacy.
33
This indicator incorporates the skills considered essential for internet users around four aspects: information,
communication, content-creation and problem solving. The scores given were ranked “below basic”, “basic”, “above
basic”.
11

13. Furthermore, the attitude of Italians towards video streaming is increasingly positive: about 75% relies on a regular
basis on streaming to view movies and TV series. Of this 75%, 40% are willing to pay for access to movies and TV
streaming, percentage that has increased from the 10% of last year. Moreover, Italy ranks second in Europe for the
average expenditure on streaming, 13.89 €/month, against a European average of 11.02€ (Chiesa, 2015).
Finally, Italian market is subject to a peculiarity. Italy is a hungry for its content: it is the second country in Europe for
the percentage of national films and TV series watched over the total of movies and series viewed (Niola, 2014). This
could seem a detail, but it is not, especially considering that Netflix catalogues at the beginning of each expansion
abroad are made of about 80% of American and 20% of local content, followed by a gradual increase of the latter in
time. This is the reason why Netflix choice of purchasing 18 Italian TV series from Rai34
and co-producing immediately
the first original Italian TV series, Suburra, was strategically wise (Fontanarossa, 2015).
This achievement is much more relevant since purchasing copyrights is highly difficult in Italian entertainment market:
Fandango, Rai Cinema, Lucky Red, BIM, Medusa are the main majors and studios and, generally, they licence their
content only in few cases (Niola, 2014).
Economics
Despite the financial crises, forecasts for Italy – illustrated in the chart below – depict an improvement in all the main
macroeconomic indicators: the decrease of unemployment and the moderate growth may sustain internal demand
and households’ expenditure.
The following chart shows the main data from the Italian office of national statistic (ISTAT, 2015), in order to provide a
brief economic outlook for the future of Italy:
2015 2016 2017
GDP annual growth + 0,7% + 1,2% + 1,3%
Private consumption + 0,5% + 0,7% + 0,9%
Investments + 1,2% + 2,5% + 2,8%
Unemployment rate 12,5% 12,0% 11,4%
Finally, Netflix’s expansion in Italy, as well as in the rest of Western Europe, will raise concerns about the euro/USD
exchange rate, since its fluctuations impact on Netflix’s fiscal performance. Goldman Sachs (cited by Provenzani, 2015)
forecasts a steady depreciation over the next two years, despite the recent euro’s appreciation: the exchange rate is
supposed to be 0.95 by next summer and 0.80 by the end of 2017.
10.2 Appendix II - Targeting
As mass-market aggregator, Netflix is not targeting a single and specific segment: cartoons for kids combine
sophisticated film for mature and educated audience (e.g. Beasts of no Nation); its library contains dozens of genres,
including vintage movies, recent TV series and original content; its price is not expensive and viewers can benefit from
the service through an user-friendly interface over almost every type of device. Thus, Netflix’s potential target
includes customers of ages from 5 to 60, with highly differences in their watching preferences, income, technological
advancement and many other variables. Indeed, Netflix “depends on the large number of subscribers to break-even:
focusing on a particular segment will not make this achievable” (Otto, 2014), due to the presence of high sunk costs,
such as content production and licensing costs and technological infrastructure.
Nevertheless, Netflix, unlike its competitors, has a differentiated offering, even if primary since it is based only on
three variances. Basic subscription mainly aims at young people who are only interested in watching content in an
inexpensive way (it is the cheapest, HD is no available and only 1 screen at the same time). Standard subscription
targets principally young and small families and young people who are interested in a better streaming definition (it
costs 9.99 €/month, full-HD is available and two simultaneous screens). Premium subscription targets chiefly large
34
Rai is the national public broadcaster.
12

14. families wishing a first-class streaming experience (it is the most expensive, ultra-HD/4K is available and four
simultaneous screens).
Despite this wide base of potential customers, it can be recommended Netflix focusing its advertising and marketing
efforts on students and young families (aged 14-35), since they are more tech proficient and trend-conscious.
10.3 Appendix III – Competitor analysis
Netflix’s Italian competitors can be clustered in the following groups: direct competitors, substitutes, new entrants35
(such as YouTube Red and Amazon Prime Instant Video).
Direct competitors are companies with a similar business model that compete within the SVoD segment. They are Sky
Online, Infinity (Mediaset) and TimVision (Telecom). The information in Appendix 4 are used to elaborate the
following chart, which describe the main features of their service and show – again – Netflix focus (and superiority) on
content quality and user experience.
Substitutes include players that compete in the transactional-video-on-demand (TVoD) segment, such as Chili TV,
which had 400.000 users in 2014 (Carli, 2014), the Japanese Wuaky TV (Rokuten), Xbox Video (Microsoft), PSN Video
(Sony), Itunes (available via AppleTV) and Google Play Store. On the last four platforms users can also rent or buy
realities, videogames, newspapers, magazines, music and books.
This category also includes maybe the most threatening competitor: piracy, a black market that in Italy is worth
approximately 400 million only for videos (Grosso, 2015). Even if it has had some positive effects, such as creating
demand and developing habits like binge watching, it is still a strong phenomenon in Italy. As a matter of fact, Italy
was removed from the “watch list” of the US Special 301 report36
only last year and illegal websites such as
Popcorntime.se and Butter Project, which both suddenly replaced Popcorntime.io after being banned, are very
popular in Italy (Guidi, 2015). Due to its relevance, Netflix should constantly monitor the piracy market to detect new
trends that could be useful to guide the company’s content creation and acquisition policy, in order to convince users
to abandon illegal streaming leveraging on high quality entertainment experience.
35
Due to its slight relevance for this essay, new entrant threat will not be analysed.
36
It is the report on the adequacy and effectiveness of intellectual property actions by US trading partners, made by
the United State Trade Representative (USTR).
Price
Content
quality
Content
quantity
Video
definition
Compatible
devices
Watching
in other
countries
Differentiat
ed offering
Local
content
Netflix 10 9 4 10 9 10 7 2
Sky Online 10 7 5 3 5 0 0 5
Infinity 5 4 9 7 7 0 0 8
Tim Vision 10 6 9 5 7 0 0 6
0
1
2
3
4
5
6
7
8
9
10
Competitors Canvas
Source: Author
13

15. Moreover, even if the phenomenon of cord cutting37
is arising also in Europe, especially in Italy that witnessed a
decline in overall pay TV uptake during 2014, the two Italian pay TVs, Sky and Mediaset Premium, cannot be
considered Netflix competitors. Indeed, at the press conference Hastings declared “We are complementary to pay
TVs; in fact, we spend only 1% of our time to evaluate what they do” (Dipollina, 2015).
Finally, although they are not Netflix competitors, in order to complete the Italian panorama it is useful to remind that
also the niche and independent films streaming market is well-manned by two players, MyMovies and Mubi
(Zambardino, 2015).
37
Cord cutting is the phenomenon whereby households cancel their pay TV subscriptions, often due to internet TV
services. It is much more dramatic in the US than in Europe, since US pay TV subscriptions are much expensive relative
to European ones (Mance, 2015).
14

16. 10.4 Appendix IV – Comparison of Netflix’s direct (SVoD segment) competitors
Company
Price
(€/month)
Free
trial
Content
Buy
content
Rent
content
Free content
Video
definition
Devices
Contractual
obligations
Simultaneous
devices
Offering's strengths Offering's weaknesses
Netflix
Basic: 7,99
Standard:
9,99
Premium:
11,99
Yes
(1
month)
Almost 1000
among movies,
TV series,
documentaries
and cartoons
No No No
Basic: SD
Standard:
SD, HD,
Full HD
Premium:
SD, HD,
Full HD,
Ultra HD
(4K)
Smartphone,
tablet, PC,
smart TV (Sony,
Panasonic,
Hisense,
Samsung,
Sharpe,
Toshiba Philips,
LG), game
console, set-
top-boxes
No
Basic: 1
Standard: 2
Premium: 4
> Content quality, original
contents and monthly library
update
> Advanced recommendation
system
> Advanced adaptive
streaming
> 4K
> user-friendly interface
> more compatible devices
> up to 5 profiles for one
account
> Availability abroad and
many subtitles and audios
> offer differentiation
> Movies are too dated
> Poor local content
Sky Online
(Sky)
9,99
Yes
(1
month)
Sky
Entertainment:
3 Fox channels,
Sky Atlantic,
Sky Uno, Disney
Channel, Disney
Junior, DeAKids,
Sky TG24, 30+
TV series
OR
Sky Cinema: 8
Sky Cinema
channels, 600+
on demand
films, Sky TG 24
Yes, but
only
some
sport
events
No No Sd
Smartphone,
tablet (only
Ipad and
Samsung), PC,
smart TV (only
Samsung),
game console
(except
Nintendo), set-
top-boxes
No 1
> Sky channels
> Trendy TV series
> Few compatible smart
TVs and tablets
> Video quality: only
standard definition
Infinity
(Mediaset)
6,99 (4,99€
for the first
12 months)
Yes
(1
month)
5000+ among
movies, TV
series, cartoons
No Yes No Hd, Full HD
Smartphone,
tablet, PC,
smart TV (Sony,
Panasonic,
Tivuon,
Samsung),
game console,
set-top-boxes
No 2
> Download&Go (for offline
viewing)
> Content quantity
> Much local content
Poor on-demand choice
in terms of quality
Tim Vision
(Telecom
Italia)
10 (5€ for
people who
are already
Telecom
customers)
No
6000+ among
movies, TV
series,
cartoons,
documentaries,
few music
Yes
(films
from
4,90 to
14,90
€/each)
Yes
(films
from
1,99 to
4,99
€/each)
Yes, but few
contents, such
as English Club,
Class CNBC, last
7 days of
programming
of Rai and LA7
Sd, Hd, Full
HD
Smartphone,
tablet, PC,
smart TV, game
console, set-
top-boxes
Yes (possibility
of pause the
service only 3
times a year
and necessity of
Telecom ADSL
contract)
6
> Possibility to pay by bill
> Content quantity
> Tim mobile customers do
not consume GB accessing
TimVision in mobility
> Contractual obligations
> No original language is
possible, only Italian
Source: Author
15

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