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Netflix’s 2020 Strategy for Battling
Rivals in the Global Market for
Streamed Video Subscribers
Arthur A. Thompson
The University of Alabama
eading into 2020, Netflix was demonstrating
significant competitive muscle in attracting
millions of new subscribers across the world
to its service for streamed internet content, despite
the entry of formidable new competitors in 2019 and
announcements of more to come in 2020. Netflix
grew its paid membership base from 139.3 million
at year-end 2018 to 167.1 million worldwide at yearend 2019; it expected to add another 7 million new
paid subscribers in the first quarter of 2020. Netflix
was addressing the growing competition in the
global market for streamed entertainment content
by increasing its releases of new original content and
strengthening efforts to grow its user base in highopportunity country markets.
Over the past nine years, the company had successfully transformed its business model from one
where subscribers paid a monthly fee to receive an
unlimited number of DVDs each month (delivered
and returned by mail with one to three titles out at a
time) to a model where subscribers paid a monthly
fee to watch an unlimited number of movies and TV
episodes streamed over the Internet. During the same
time frame, Netflix had expanded its geographic coverage to over 190 countries, making it the world’s leading Internet television network. During the past five
years, Netflix had made another adjustment in its business model, shifting from a content library consisting
mainly of titles licensed from the movie studios, broadcast TV networks, and other sources that produced
them to a content library that increasingly consisted
of its own self-produced original content (feature films,
­multi-episode series, and documentaries). Netflix members, as well as households subscribing to rival content
providers, could not only watch as much streamed content as they wanted—anytime, anywhere, on nearly any
Internet-connected screen—but they could also play,
pause, and resume watching, all without commercials.
In its April 2019 report of Netflix’s financial and
operating results for the first quarter of 2019, management said Netflix subscribers were watching more than
165 million hours of the company’s content offerings per
day. In reporting the company’s quarterly performance
during the remainder of 2019, Netflix management did
not disclose the total viewership hours per day, saying
only that daily viewership hours worldwide were growing. The company tracked viewership of each title.
In the United States, Netflix still had 2.1 million
members as of December 31, 2019 who, because of
limited Internet service or just personal preference,
continued to receive DVDs solely by mail (but the
numbers of mail-only subscribers had been declining
monthly as members transitioned to streaming).
Netflix’s swift growth to 61 million paid subscribers in the United States and its promising potential for
rapidly growing its base of international subscribers
far past 100 million (some industry analysts believed
Netflix had a clear path to 350 million subscribers
worldwide by 2025) pushed the company’s stock
price from $270 at the beginning of 2018 to $380 in
Copyright ©2021 by Arthur A. Thompson. All rights reserved.
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the second week of February 2020. (Netflix’s all-time
high stock price was $423 in July 2018). Already solidly entrenched as the global leader in paid memberships for streamed content, the principal questions
for Netflix in 2020 seemed to be:
and internal cash flows needed to finance an
ever-larger annual stream of original content that
would please subscribers and also (2) enable the
company to be attractively profitable over the
• Whether the company had sufficient competi-
Financial statement data for Netflix for 2015
through 2019 are shown in Exhibits 1 and 2. Netflix
had never paid a dividend to its ­shareholders
and the company had declared it had no present intention of paying any cash dividends in the
foreseeable future.
tive and financial strength to combat the efforts
of larger, resource-rich rivals looking to steal subscribers away from Netflix.
• Whether the company could grow its subscriber
base fast enough to (1) produce the revenues
EXHIBIT 1  Netflix’s Consolidated Statements of Operations, 2015–2019 (in millions,
except per share data)
[(g) For tables, all underlines should be the length of the longest numerical entry in each column, which
may sometimes vary from column to column; align vertically on $ and ones digits; set end parenthesis to
the right of the ones digit and no underline; underlines should be continuous, no breaks for commas or
Cost of revenues (almost all of which relates to
amortization of content assets)
Gross profit
Operating expenses
Technology and development
General and administrative
   Total operating expenses
Operating income
Interest and other income (expense)
Income before income taxes
Provision for (benefit from) income taxes
Net income
Net income per share:
Weighted average common shares outstanding
(in millions)
$ 6,779.5
$ 8,830.7
$ 11,692.7
$ 15,794.3
$ 20,156.4
$ 122.6
$ 186.7
$ 558.9
$ 1,211.2
$ 0.29
$ 0.44
$ 1.29
$ 2.78
$ 4.26
Note 1: Some totals may not add due to rounding.
Source: Company 10-K reports for 2010, 2017, and 2019.
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EXHIBIT 2  Selected Balance Sheet and Cash Flow Data for Netflix, 2015–2019
(in millions)
Selected Balance Sheet Data
Cash and cash equivalents
Current assets
Total current and non-current
content assets
Total assets
Current liabilities
Long-term debt*
Stockholders’ equity
Cash Flow Data
Net cash (used in) provided by operating
Net cash provided by (used in) investing
Net cash provided by (used in) financing
$ 1,809.3
$ 1,467.6
$ 2,822.8
$ 3,794.5
$ 5,018.4
$ 24,504.5
$ (749.4)
$ (1,474.0)
$ (1,785.9)
$ (2,680.5)
$ (2,887.3)
*All of Netflix’s long-term debt consisted of senior unsecured notes that were issued at various points in time and had various maturity
dates and various fixed rates of interest.
Sources: Company 10-K Reports 2011, 2015, 2017, and 2019.
In 2020, the world market for streamed entertainment
(movies, episodes of TV shows, and live-streamed
events) was undergoing rapid and disruptive change.
There were three big change drivers:
1. Increasingly pervasive consumer access to both
wired and wireless high-speed Internet connections. Worldwide rollout of 5G (fifth generation)
wired and wireless digital networks promised to
increase data connection speeds by 3 times those
of the 3G and 4G digital networks currently serving most households and individuals across the
world. Wired and wireless high-speed data connections greatly increased the ease with which
households and individuals could use a TV,
desktop computer, portable computer, or smartphone, coupled with a growing array of apps,
to instantly connect to any Internet-accessible
source/website with streaming capability and
content to stream. The upcoming introduction
of 5G mobile phones was widely expected to
dramatically increase the time consumers used
their smart phones to watch streamed content,
particularly broadcasts of live sporting events,
breaking news, and assorted other programs of
2. A fast-moving and likely permanent shift in
consumer preferences worldwide for watching
content streamed directly to whatever device they
wanted to use at whatever times they wanted to
watch, rather than being locked into watching
their favorite programs at the time they were
broadcast on TV channels. Cable and satellite
firms were losing subscribers annually, partly
because these subscribers were unhappy about
having to pay what they considered an outsized price for a multi-channel package containing more channels than they watched and
partly because they could access their favorite
programs from a growing number of streamed
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sources (and also subscribe to one or more
streamed content sources with sizable content
libraries containing ongoing releases of new
original content), thereby giving them an attractively wide variety of content selections at a
lower overall cost that could be watched whenever they wished.
3. The mounting vigor with which well-known,
resource-rich companies were launching strategic
initiatives to (a) build bigger and more attractive
content libraries—sometimes by merging with or
acquiring the owners of attractive content libraries, sometimes by licensing a bigger assortment
of attractive titles from various content owners,
and sometimes by establishing in-house content
development and production capabilities and
(b) launching marketing campaigns to publicize
and promote the content libraries they had assembled in an effort to secure a large enough base of
paid streaming subscribers to cover the costs of
their content libraries and streaming service and
earn a profit.
During the past decade, the market for inhome entertainment other than broadcast and cable
TV programs had evolved rapidly as households
with high-speed Internet service and/or Internetconnected TVs or DVD players quickly shifted away
from subscribing to Netflix’s DVDs-by-mail service or else renting or buying physical DVDs with
the desired content to almost exclusively watching
streamed movies, previously broadcast episodes of
TV shows, YouTube videos, and titles in the original
content libraries of paid-subscriber providers, and
other types of streamed content. This was because
streaming had the advantage of allowing household
members to access and instantly watch the movies,
TV episodes, and other available content they wanted
to see, which was much more convenient and often
cheaper than patronizing a nearby rent-or-purchase
location getting DVDs by mail from Netflix. This
shift had permanently undercut the once-thriving
businesses of selling movie and music DVDs and/
or renting DVDs at local brick-and-mortar locations
and standalone rental kiosks (like Redbox in the
United States) or delivering/returning DVDs by mail
(as at Netflix).
By 2020, faster internet speeds, the fastgrowing and likely permanent shift in consumer
preferences worldwide for watching content
streamed directly to whatever device they wanted
to use at whatever times they wanted to watch it,
and rapid entry of new streamed content providers like AT&T’s HBO Max, Disney+, Comcast’s
new Peacock offering, ViacomCBS, Apple TV+,
and dozens of others in various geographic
regions looking to compete with Netflix and
Amazon’s Prime Video had combined to unleash
an increasingly intense competitive global battle
among streaming providers to become serious
contenders in the global market for subscriberbased streamed content—a market that was widely
expected to be “the wave of the future,” include
billions of individuals and households, and be
highly disruptive to the businesses of traditional
cable and satellite providers, whose subscriber
counts had declined annually for several years.
College graduates and many millennials typically
avoided subscribing to cable providers because
of the “high” monthly prices and the growing
availability of cheaper substitutes for viewing the
programs they really wanted to watch or were satisfied with watching.
In 2019, a study by the Motion Picture
Association of America (MPAA) reported that
the number of streamed video subscribers grew to
613 million in 2018 (an increase of 27 percent over
2017), while the number of cable subscriptions
worldwide dropped 2 percent to 551 ­million.1
However, cable subscriptions generated the biggest revenues ($118 billion), followed by satellite
subscriptions and streaming video subscriptions.
According to the MPAA study, in 2018 80 percent
of people in the United States watched cable programs, with 70 percent also watching streamed
programs. The MPAA report further noted that
the number of views/transactions of TV and film
programs streamed from subscription-based providers, pay-per-view sources, and ad-supported
sources jumped from 76.4 billion in 2014 to
182.1 billion in 2018, a four-year increase of
238 percent. The increase was partly due to an
increase in the number of scripted original dramas across all sources from 390 in 2014 to 496
in 2018.
Exhibit 3 shows the percentage of Internet users,
by country, who watched online video content on
any device as of January 2018.
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EXHIBIT 3  The Percentage of Internet
Users in Selected Countries
Who Watched Online
Video Content on Any
Device as of January 2018
Percentage of Internet Users
Watching Online Video
Content on Any Device
Saudi Arabia
New Zealand
United States
South Korea
Source: Statista, www.statista.com (accessed April 10, 2018).
Going in 2020, Netflix’ principal direct competitors
included Amazon’s Prime Video, AT&T (with its
Warner Media and HBO Max subscription options),
Disney+, Apple TV+, Comcast’s new Peacock offering, and A new ViacomCBS streamin option, and
AppleTV+, CBS All Access, all of whom had professed or exhibited a strategic intent to rank among
the industry leaders—YouTube was not considered a
direct competitor because its free and paid video content was distinctly different from the titles offered by
Netflix and its direct competitors. Following is a brief
description of the media resources and competitive
capabilities of the chief rivals Netflix expected to
battle in competing for streamed entertainment subscribers in countries across the world.
Amazon’s Prime Video
Amazon competed directly with Netflix via its
Amazon Prime membership service. In 2020, individuals and households could become an Amazon
Prime member for a fee of $119 per year or $12.99
per month (after a one-month free trial); there was
a discounted price for students of $59 per year of
$6.49 per month. Membership in just Prime Video
was $8.99 per month. Going into 2020, Amazon
announced that it had over 150 million Amazon
Prime members globally.2 While Amazon had originally created its Amazon Prime membership program
as a means of providing unlimited two-day shipping
(more recently, one-day shipping in many locations
and two-hour grocery delivery in 2,000 cities) on
Prime-eligible items to customers who ordered merchandise from Amazon and wanted to receive their
orders quickly, in 2012 Amazon began including
movie and music streaming as a standard benefit
of Prime membership—Amazon’s video streaming
service was called “Prime Video.” Amazon Prime
members were not, however, eligible to view every
title in the Prime Video library for free; titles that
were not Prime-eligible could be watched on a payper-view basis or else purchased. Going into 2020,
many Amazon Prime members did not utilize their
Prime Video membership benefit (Amazon did not
disclose the overall percentage). Another video benefit of Amazon Prime membership was the ability to
subscribe to over 100 premium channels with Prime
Video Channels subscriptions.
In 2010, Amazon established Amazon Studios
to oversee the development and production of
new in-house original movies and multi-episode
series; approximately 200 new original titles
were released during 2015–2018. A 2019 report
by Streaming Observer, an independent news site
covering streaming industry news and reviews of
movies, said that Amazon’s Prime Video content
library contained 17,461 titles versus 3,839 for
Netflix and 2,336 for Hulu.3 However, according
to the same Streaming Observer report, Netflix had
592 titles that were “Certified Fresh” by Rotten
Tomatoes (the leading online aggregator of movie
and TV show reviews) versus 232 such films on
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Prime Video and 223 on Hulu. Additionally, the
report said almost 16 percent of all movies on
Netflix were “critically acclaimed” compared to
just 1.3 percent on Prime Video.
But in 2017 and continuing forward, Amazon
began a strategic initiative to upgrade its content
library, with both higher caliber new original content and licensed content. Amazon paid the National
Football League $65 million a year for three seasons
starting with 2017 season to live stream Thursday
Night Football games globally to Prime Video members in 200 countries (these broadcasts attracted
more than 18 million total viewers over 11 games in
2017). Amazon Studios spent a reported $250 ­million
for licensing right to Lord of the Rings, with plans
for spending up to $1 billion to produce 5 ­seasons
of episodes. Amazon Studios spent an estimated
$5–$6 ­billion on original content videos in 2019,
releasing new titles monthly, including new seasons
of Tom Clancy’s Jack Ryan, Emmy-winning The
Marvelous Mrs. Maisel, Bosch, Sneaky Pete, Good
Omens, Carnival Row, The Man in the High Castle, The
Boys, Emmy-winning Fleabag, The Romanoffs, Patriot,
American Gods, Preacher, and The Grand Tour. Prime
members watched double the hours of original ­movies
and TV shows on Prime Video in the fourth quarter
of 2019 compared to the fourth quarter of 2018, and
Amazon Originals received a record 88 nominations
and 26 wins at the Oscar, Emmy, and Golden Globe
awards shows.4
The Walt Disney Company,
Disney+, Hulu, and ESPN+
The Walt Disney Company in 2020 was a leading
diversified international family entertainment and
media enterprise with businesses that included the
ABC branded broadcasting network; multiple cable
channels (the ESPN family of five domestic channels and 15 international channels, three domestic Disney branded channels and approximately
100 Disney branded international channels, three
FX channels, Freeform, National Geographic, and
50 percent ownership of A&E, which offered its
own entertainment programming and operated four
other cable channels); ABC Studios, Twentieth
Century Fox Television, and Fox 21 Television which
produced many of the company’s TV shows; theme
parks and resorts; Disney Cruise Lines; the sale of
Disney-related merchandise at The Disney Stores and
assorted online sites; merchandising licensing covering a wide range of product categories and licensing of Disney’s wide-ranging intellectual property;
motion picture production and distribution under the
Walt Disney Pictures, Twentieth Century Fox, Marvel,
Lucasfilm, Pixar, Fox Searchlight Pictures, and Blue
Sky Studios banners; and direct-to-­consumer streaming services which included Disney+, ESPN+,
Hulu, and Hotstar.
Starting in 2018, Disney made a series of strategic
moves to strengthen its capabilities to enter the video
streaming market by acquiring 100 percent control of
streaming provider Hulu, which at the time had about
25 million subscribers in the United States. At the time,
Hulu was a joint venture co-owned by Walt Disney
(30 percent), Fox (30 percent), Comcast (30 ­percent),
and Time Warner (10 percent), but Disney put a deal
in place in late 2018 to buy Fox’s 30 percent share of
Hulu and then, months later, AT&T sold its 10 percent
of Hulu to the Disney-Comcast owners of the Hulu
joint venture for $1.43 billion. In May 2019, Comcast
and Disney announced an agreement whereby Disney
would have full 100-percent control of Hulu, starting
immediately. The Disney-Comcast agreement specified that Comcast would continue to allow Hulu to
carry all NBCUniversal content as well as live-stream
NBCUniversal channels for Hulu’s live TV service
until late 2024 (Comcast was the 100-­percent owner
of NBCUniversal). The deal called for Comcast’s
ownership stake in Hulu to be officially sold to Disney
starting in January 2024.
Hulu’s strategy for attracting subscribers had
been to attract subscribers by charging a subscription fee of $5.99 per month for regular streaming (interspersed with ads) and $11.99 per month
for commercial-free streaming; new subscribers
also got a one-month free trial. These two options
entitled subscribers to watch current season episodes of popular TV shows (the day after they aired
on ABC, NBC, Fox, and a few cable channels—no
CBS shows were included) plus an estimated 43,000
back-season episodes of 1,650 TV shows and 2,500
movies. In addition, Hulu offered plans that included
not only its video streaming service, but also packages that included 60+ live TV and cable channels
(that included sports, news, and entertainment) for a
monthly fee of $54.99 and options to add on HBO®,
Showtime®, Starz®, and Cinemax®. In March 2020,
Disney launched FX on Hulu” that featured every
season of many originals that aired on FX over the
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past 17 years and that, going forward, would include
new original scripted series by FX Productions shown
exclusively to Hulu subscribers. In recent years, consumers disenchanted with the Further expansions
are planned for Europe and Latin America in late
2020 through 2021, as Disney’s existing international
streaming distribution deals with competing services
expire. Reaming prices of cable subscriptions had
come to consider Hulu as their “go-to” choice, and
it was widely considered the best streaming provider
for watching TV shows. Nonetheless, Hulu had been
a money-losing operation every year since its streaming service began operations in March 2008.
Disney debuted its new Disney+ streaming service on November 12, 2019, in the United States,
Canada, and The Netherlands at low introductory
prices of $69.99 per year or $6.99 per month. A week
later, Disney+ was made available in Australia. New
Zealand, and Puerto Rico and then further expanded
to select European countries in March 2020.
Additional expansions were planned for Europe and
Latin America in late 2020 through 2021, as Disney’s
existing international streaming distribution licensing agreements with competing services expired.
Disney+ offerings centered on existing film and
television content from Walt Disney Studios (including the Star Wars series), the three Disney TV channels, Pixar, Marvel, National Geographic, and 20th
Century Fox, plus forthcoming new original content
from these same sources. Disney’s longstanding reputation for family entertainment attracted an unexpectedly large rush of new subscribers in the first three
months—50 million worldwide as of April 10, 2020.
This big subscription gain was partly due to the fact
that, due to a deal between Disney and Verizon,
whereby certain Verizon subscribers could sign up for
a free one-year subscription to Disney+ until June 1,
2020, if they agreed that when the free 12-month subscription expired their Disney+ subscription would
auto-renew at $6.99 per month, and they would be
charged monthly on their Verizon bill unless the subscription was cancelled with Verizon. The 50 million
number also included 8 million subscribers in India
who were able to access Disney+ through Hotstar, a
streaming service owned by Disney.
Concurrent with the launch of Disney+ in
November 2019, Disney began offering a bundle
of Disney+, (ad supported) Hulu, and ESPN+ for
$12.99 per month with no free trial included at both
the Disney+ and Hulu websites in the United States.
ESPN+ was a conglomeration of live sports programs
(select live MLB, NHL, NBA, MLS, and Canadian
Football League games, as well as multiple college
sports games, PGA golf events, Top Rank Boxing
matches, Grand Slam tennis matches, United
Soccer League games, cricket and rugby games,
English Football League games, and UEFA Nations
League games that were not broadcast live on any of
ESPN’s family of channels (ESPN, ESPN2, ESPNU,
ESPN Classic, ESPNews, ESPN Deportes, Longhorn
Network, SEC Network, and ACC Network). ESPN+
was only available to viewers in the United States; the
regular subscription fee for ESPN+ was $49.99 per year
or $4.99 per month. ESPN+ had 7.6 million subscribers in the United States as of February 2020, up from
3.5 million paying subscribers in November 2019—the
big increase was mainly due to the bundling promotion.
Disney management expected to have between
60 and 90 million Disney+ subscribers worldwide
by 2024—the same year it believed the service would
become profitable. The majority of those subscribers
were forecast to be outside the United States.
AT&T’s Two Video Streaming
Subscription Options: Warner
Media and HBO Max
In June 2018, AT&T completed its $108.7 billion
acquisition of Time Warner, whose businesses consisted of global media and entertainment leaders
Warner Bros. and WarnerMedia Entertainment.
Warner Bros. business assets included the film studios and content libraries of Warner Bros. Pictures,
New Line Cinema, Castle Rock Entertainment, and
DC Films; a television production and ­syndication
company; animation studios and their film
­libraries; and publishing company DC Comics. The
WarnerMedia Communication Group included such
assets as: the studios and film libraries of Home Box
Office (HBO); broadcast and cable channels CNN,
TBS, TNN, and TruTV; pay TV channels Cinemax,
Cartoon Network, Boomerang, and Turner Classic
Movies; and digital media company Otter Media.
AT&T’s new HBO division had 140 million subscribers who had access to HBO network’s seven
24-hour multiplex channels through their cable or
satellite provider (or as an add-on through Hulu); the
­add-on price paid to cable/satellite provider (or to
Hulu) was $14.99 per month, cancellable at any time.
All such HBO subscribers could download a free
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downloadable HBO GO app that could be used to
access the HBO GO website; then, after entering
their user name and password for their account at
whatever provider to whom their HBO subscription
fee was paid, the HBO subscriber could click on the
desired HBO content and view it on mobile phones,
laptops, and computers. AT&T/HBO had no interest in offering HBO GO access to people who were
not already HBO subscribers because HBO’s principal revenue source was a percentage of the monthly
fees that its 140 million subscribers across the world
paid their cable/satellite company (or Hulu) for
access to HBO programming as part of their total
subscription package.
AT&T executives believed Time Warner’s businesses nicely complemented AT&T’s core businesses
in mobile, broadband, cable and satellite TV, and telephone communications in the United States, mobile
services in Mexico, and pay TV services in 11 countries in South America and the Caribbean. AT&T’s
cable and satellite TV operations lost a combined
4 million subscribers in 2019, bringing the number of
total subscribers for AT&T’s various cable and satellite (DIRECTV) packages down to 19.7 million.
However, it was AT&T’s strategic plan in 2020
to achieve nationwide coverage of 5G by mid-year;
launch its new HBO Max streaming video service in
May 2020 with a goal of securing 50 million subscribers in the United States and another 25 to 40 million
international subscribers by 2025; and curtail the
loss of subscribers to AT&T’s cable and satellite services via simplified product packages and bundling
opportunities with such other AT&T communication products as higher-speed broadband service,
home security and monitoring packages, telephone
services, and possibly discounted HBO Max subscriptions. The announced monthly price for the HBO
Max streaming service was $14.99, the same price
currently being paid by HBO Now’s roughly 5 ­million
direct subscribers. Plans were for current HBO subscribers through cable/satellite providers and direct
HBO Now subscribers to be provided bundled access
to HBO Max for free. AT&T expected that HBO Now
subscribers would quickly migrate over to HBO Max,
which would help grow total HBO Max subscriptions
to 36 million by the end of 2020.
HBO Max was expected to launch with roughly
10,000 titles from the WarnerMedia film libraries
of its various movie studios, all of HBO’s content,
a number of licensed shows, and 20+ fresh Max
originals—the crown jewel of the originals was said to
be House of the Dragon, a 10-episode story about the
Targaryens centuries prior to the Game of Thrones.
Comcast’s New Peacock
Streaming Service
In January 2020, Comcast and its subsidiary
NBCUniversal, jointly announced the launch of a
new Peacock subscription video streaming service
that would become available at no additional cost for
Comcast’s more than 20 million Xfinity X1 and
Flex cable subscribers on April 15 and then launch
July 15 for everyone else. The free tier of Peacock
(Peacock Free) contained more than 7,500 hours of
ad-­supported programming, including next-day access
to first season TV shows broadcast on NBC, a collection of Universal movies, and access to back seasons of
such iconic NBC shows as Saturday Night Live, Family
Movie Night, and Vault. However, Comcast subscribers
and Cox cable subscriber could opt instead to subscribe
to Peacock Premium, which included 15,000 hours of
content, early access to NBC’s 2 late night shows, live
NBC sports programming, and non-televised Premier
League soccer games. There were two price tiers for
Peacock Premium: a $4.99 per month version that
included ads and a $9.99 version with no advertising.
Steven Burke, a Comcast Executive Vice President
and Chairman of NBCUniversal believed NBCUniversal
was uniquely positioned to create a streaming platform
that would monetize its content library and enable
NBCUniversal to play a leading role in the on-demand
video streaming world:5
Comcast management decided to use NBC’s
familiar peacock logo as the logo for the company’s
new subscription-based streaming service to remind
customers that NBC was a network with great programming and to drive interest back to NBC’s popular eventtype TV programs (The Masked Singer, The Last Voice,
America’s Got Talent) and NBC’s live sports programming, which included the 2020 Summer Olympics. Top
management at Comcast and NBCUniversal believed
that while streamed video might indeed be the future
of watching TV and movies, the cable business would
remain profitable for years to come (despite the
likely permanent declines in the number of cable and
satellite subscribers worldwide) and, further, that free
ad-­supported viewing was likely to remain far more prevalent and popular with consumers than subscription-­
supported viewing. Comcast management believed
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that bundling Peacock Free for customers with
Comcast cable subscriptions would help reduce the
number of customers dropping the company’s cable
service and switching to a rival streaming provider.
Hence, they saw no good business reason to create a
streaming platform with strategy elements that would
help undermine the profitability and longevity of
company’s cable business.
During a Peacock Investor Day presentation on
January 16, 2020, a NBCUniversal officer cited a survey
where consumers were asked “Which new streaming
service are you likely to try—one that is free with some
ads or one that is paid with no ads?” Eighty ­percent
responded “free with some ads,” and 20 ­percent
responded “paid with no ads.” These results were a
factor in convincing the Comcast-NBCUniversal management team to position Peacock as an ad-­supported
streamer of premium content in what they viewed
as a mostly vacant market niche (among rival video
streaming providers, only Hulu offered consumers a ­low-priced, ­ad-supported streaming option).
Moreover, the Peacock strategy was to help secure
a competitive edge by having an industry-low average of five ­minutes of ads per hour, which contrasted
sharply with TV broadcasting where there were
16–20 minutes of ads per hour and premium video
streaming where there was an average of eight minutes
of ads per hour.6 And Peacock Free’s ad-supported
streaming of premium content helped differentiate
it from the three competitively strong subscriptionbased providers—Netflix, Amazon Prime Video, and
HBO Max. Peacock ­management believed it would
have little difficulty ­selling ads for Peacock’s content,
given that NBC, ABC, CBS, FOX, and some 250
other channels had advertising-based business models representing 92 percent of total viewership.7
NBCUniversal said it would invest $2 billion in
Peacock over 2020 and 2021, with goals of reaching between 30 and 35 million active users in the
United States by 2024, generating $2.5 billion in new
­revenues with average revenue per subscriber of $6–$7,
and achieving break even on Peacock’s streaming service on an earnings before interest, taxes, depreciation,
and amortization (EBITDA) basis.
ViacomCBS and CBS All Access
Viacom and CBS completed their long-expected
and often contentious merger in December 2019,
creating a multinational media conglomerate with
assets approaching $50 billion and 2019 revenues
of ­­$27.8 billion. The new company’s main assets
included Paramount Pictures film studio and a
library of 3,600 movies; the CBS broadcasting network and its library of 140,00 TV episodes, a streaming platform called CBS All Access that provided
approximately 4.5 million subscribers in the United
States, Canada, and Australia with access to current
and back season CBS TV shows, CBS Sports (NFL,
college football, and college basketball games),
other recently-aired programs on CBS broadcast
properties; a number of CBS-affiliated television
stations; CBS Television Studios and CBS Studios
International; cable television networks MTV,
Nickelodeon (watched in 600 million households
around the world), BET, Comedy Central, CMT
(Country Music Television), Showtime, The Movie
Channel, VH1, Flix, and TEN (a high profile channel in Australia); free ad-supported video-on-demand
platform Pluto TV with 100+ live TV channels and
thousands of TV shows and movies; 50 percent coownership with AT&T’s WarnerMedia subsidiary of
The CW Television Network (commonly referred to
as just The CW); Nickelodeon Animation Studio; an
assortment of international and regional networks
and operations that provided the company with the
capability to engage in video streaming in many countries; and book publisher Simon & Schuster. CBS’s
media properties alone made it a global media titan,
with some 4.3 billion watchers of its broadcast and
pay TV programs in 180 countries at year-end 2019.
In early 2019, before the merger, Viacom had
purchased Pluto TV for $360 million and proceeded
to expand its offering of 100 ad-supported channels
by adding 43 channels in the fourth quarter of 2019,
including 22 Spanish and Portuguese ones that were
popular in Latin America and Brazil; Pluto’s subscriber base grew over 70 percent in 2019 to a total
of over 20 million going into 2020. On December 20,
2019, ViacomCBS announced it was buying a 49 percent ownership stake in Miramax Pictures for an
upfront payment of $150 million and an agreement
to invest $225 million in Miramax for movie and
television productions over the next five years. The
deal also specified that ViacomCBS’s Paramount
Pictures would become the exclusive distributor for
the Miramax library of 700+ films and have a firstlook at Miramax’s new content creation.
In February 2020, ViacomCBS executives were
in the final stages of readying plans to launch a new
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video streaming service built around the CBS All
Access streaming service, that would be expanded
to include a broad pay “House of Brands” product
offering comprised of a wide assortment of titles
from Viacom’s multiple libraries and selected popular shows on BET, Nickelodeon, MTV, Comedy
Central, Showtime, and perhaps others. Further, the
new streaming service would draw heavily upon the
capabilities of Paramount’s and Miramax’s movie
and television production studios, Nickelodeon’s
Animation Studio, and perhaps other ViacomCBS
operations to develop and produce new original content. Going into 2020, ViacomCBS had global production studios that were currently turning out over
750 shows with 43,000 episodes.8
ViacomCBS said the base tier of the new streaming service would be ad-supported, but there would
be two higher-end tiers: an ad-free version and a premium version that included Showtime. It was speculated that ViacomCBS’s new streaming service could
be the final significant streaming offering that hit the
market as traditional media companies repositioned
themselves and recast their strategies in preparing for
a post-cable TV future.
Apple launched its Apple TV+ video streaming service on November 1, 2019, in over 100 countries that
could be accessed on smart TVs connected to an
Apple TV box or on new TV models that had the
Apple TV app already installed, or Apple devices
with a downloaded Apple TV app. Pitched as Apple’s
strategic means of competing directly with Netflix,
Amazon Prime Video and Disney+, the new Apple
TV+ service streamed Apple’s original programming
only through Apple TV-capable devices. An Apple
TV+ subscription could be shared with up to six
family members. At $4.99 per month (or free for one
year with the purchase of a new Apple device), the
cost of Apple’s streaming service was lower than the
monthly subscription service for most of its video
streaming rivals.
At launch, there were just nine Apple Originals
available to view; the number had increased to a
total of 20 multi-episode shows and five films as of
June 2020. However, Apple had committed to adding new originals every month and 26 new original series and seven films were in development for
release later in 2020 and 2021. Apple was reportedly
planning to spend about $4.2 billion on original programming by 2022.
While Apple had yet to disclose subscriber numbers for its TV+ service, an analyst at Wall Street
firm at Sanford C. Bernstein had estimated that, as
of February 2020, fewer than 10 million of the eligible consumers purchasing a new Apple device had
opted to sign up for a free 12-month trial of Apple
TV+.9 It was speculated that Apple TV+’s failure
to resonate with consumers was largely due to its
unusually limited content offerings. In December
2019, one of the analysts participating on an expert
panel hosted by UBS (a well-known global financial
services firm) said that Apple TV+ “needs a megahit original series to ultimately retain subscribers,”
adding that the company “may likely have to ultimately also acquire an asset with a big backlog of catalog content—most of which will be very expensive
at this point.”10
YouTube TV
In April 2020, Google’s YouTube subsidiary was
offering a YouTube TV streamed entertainment service that included about 70 TV and movie channels
for a fee of $50 per month. The service could be
accessed on smart TVs, streaming boxes, computers,
and mobile devices. As of early 2020, YouTube TV
had over 2 million subscribers.
Since launching the company’s online movie rental
service in 1999, Reed Hastings, founder and CEO
of Netflix, had been the chief architect of Netflix’s
subscription-based business model and strategy that
had transformed Netflix into the world’s largest
online entertainment subscription service. Hastings’s
goals for Netflix were simple—build the world’s best
Internet service for entertainment content, keep
improving Netflix’s content offerings and services
faster than rivals, attract growing numbers of subscribers every year, and grow long-term earnings
per share. Hastings was a strong believer in moving early and fast to initiate strategic changes that
would help Netflix outcompete rivals, strengthen its
brand image and reputation, and fortify its position
as the industry leader.
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A Quick Overview of the
Evolutionary Changes in Netflix’s
Subscription-Based Business
Model and Strategy, 1999–2019
Netflix had employed a subscription-based business
model throughout its history, with members having
the option to choose from a variety of subscription
plans whose prices and terms had varied over the
years. Originally, all of the subscription plans were
based on obtaining and returning DVDs by mail,
with monthly prices dependent on the number of
titles out at a time. But as more and more households
began to have high-speed Internet connections, in
2007 Netflix began bundling unlimited streaming
with each of its DVD-by-mail subscription options,
with the long-term intent of encouraging subscribers to switch to watching instantly streamed content
rather than using DVD discs delivered and returned
by mail. As increasing numbers of subscribers gained
access high-speed Internet connections, most quickly
switched over to unlimited streaming subscription
plans, enabling Netflix to avoid incurring the order
fulfillment costs and postage costs associated with
servicing DVD-by-mail subscribers. About two-thirds
of Netflix subscribers in the United States had transitioned to streaming-only plans by year-end 2011, and
fewer than four percent of Netflix’s subscribers in
the United States were on DVD-by-mail plans at the
end of 2019.
A third major shift in Netflix’s strategy began
in 2010 when Netflix started to expand its streaming service internationally, beginning with Canada.
Entry into other countries followed quickly, as shown
in Exhibit 4, and Netflix became a truly global company in 2016. Despite dedicated efforts, going into
2020 Netflix had failed to surmount the barriers
erected by the Chinese government that prevented its
entry into the People’s Republic of China, the world’s
most massive market for entertainment. For the past
five years, the Chinese government had steadfastly
refused to issue Netflix a license to operate in China,
preferring instead to control the content its citizens
were allowed to see—for example, government censors required that an entire series of a multi-episode
offering had to be approved before it could begin to
be shown on an online platform. Aside from the censorship issue, most observers believed the Chinese
government was blocking Netflix’s entry in order to
EXHIBIT 4  Netflix’s Rapidly-Executed
Entry into New Geographic
Entry into New Geographical
September 2010 Canada
September 2011 42 countries in Central America,
South America, and the Caribbean
January 2012
United Kingdom, Ireland
October 2012
Denmark, Sweden, Norway, Finland
September 2013 Netherlands
September 2014 Austria, Belgium, France, Germany,
Luxembourg, Switzerland
March 2015
Australia, New Zealand
September 2015 Japan
October 2015
Spain, Portugal, Italy
January 2016
Rest of the world—some
130 countries (but excluding
the People’s Republic of China,
North Korea, Syria, and Crimea)
Source: Company 2017 10-K Report, p. 21.
protect aspiring local providers of Internet-streamed
content from foreign competition. Recognizing its
dim entry prospects, in 2017 Netflix negotiated a
licensing arrangement to exclusively provide some of
its original content to a fast-growing Chinese company
named iQiyi (pronounced Q wee), the leading provider of online entertainment services in China with
some 106 million subscribers (as of September 30,
2019) and a reported 500 million monthly active
users watching an average of 12 hours each month on
the company’s platforms.11 Use of a licensing strategy
was attractive to Netflix because it provided a means
of gaining content distribution in China and building
some awareness of the Netflix brand and Netflix content, but the licensing arrangement was expected to
generate only small revenues for some years to come.
The U.S. government had instituted restrictions precluding all U.S.-based companies from having operations in North Korea, Syria, and Crimea.
Netflix estimated that it usually took about
two years after the initial launch in a new country or
geographic region to attract sufficient subscribers
to generate a positive “contribution profit”—Netflix
defined “contribution profit (loss)” as revenues less cost
of revenues (which consisted of amortization of content
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assets and expenses directly related to the acquisition,
licensing, and production/delivery of such content) and
marketing expenses associated with its domestic streaming and international streaming business segments (the
company ceased all marketing activities related to its
domestic DVD business prior to 2015).
A fourth important shift in Netflix’s business
model and strategy began in 2011–2012. CEO Reed
Hastings and other senior Netflix executives realized that there were low barriers to entry into the
subscription-based video streaming business for
movie producers and TV broadcasters that had over
the years amassed big libraries of attractive content.
Indeed, many of the titles that Netflix was streaming
to subscribers were being licensed from these very
same entities, and the license fees for these titles were
rising rapidly, as content owners recognized that
their title libraries had significant value to Netflix,
Amazon, and others who were in the streamed entertainment business and that they commanded significant bargaining power to raise licensing fees as
current licenses expired. Netflix executives further
foresaw that the company was likely to be put at a
significant competitive disadvantage when these content owners came to the conclusion they could make
bigger profits from their content libraries by starting
up their own video streaming businesses to compete against Netflix for subscribers in many country
markets rather than licensing titles to Netflix. Reed
Hastings and his executive team believed that when
content-rich rivals entered the streamed entertainment business (as they were certain to do at some
point) and triggered a head-on competitive battle for
subscribers that the winners would be those companies that potential subscribers viewed as having
attractive and fresh content they were willing to pay
monthly or annual fees to watch. Furthermore, they
were certain that when these rivals emerged, they
would discontinue renewing their licenses for popular programs (especially TV shows) with Netflix, preferring to use these titles to attract new subscribers to
their own streamed entertainment services.
These realizations resulted in Netflix undertaking a long-term strategic initiative to change its portfolio of titles from mainly all licensed to a portfolio
of titles that was increasing comprised of original
content created, produced, and owned by Netflix.
The company immediately moved to develop and
continually strengthen its in-house content creation
and production capabilities, but it also elected to
supplement its internal efforts by entering into multiyear collaborative agreements with outside developers and producers not owned by its rivals to license
portions of their existing titles to Netflix and to produce new original content that would be owned by
Netflix or licensed to Netflix.
Netflix started streaming its first original content
title, House of Cards, in February 2012; House of Cards,
a political drama that ran six seasons, was a major
hit with subscribers, garnered acclaim from critics
and reviewers, and received 213 awards nominations (Golden Globe, Primetime Emmys, Screen
Actors Guild, and others) and 35 overall wins during
2013–2018. Netflix’s spending for new original content mushroomed during the ensuing years, with total
spending for new content of $12 billion in 2018 and
$15 billion in 2019, of which roughly 85 percent was
estimated to be for original content. Spending for 2020
was projected to be $17.3 billion on a cash basis, with
85 percent or more being allocated to original ­content.12
One Wall Street analyst projected that Netflix’s spending for new content could rise to $26 billion by 2028.13
Netflix’s Strategy in 2020
While over 4.5 billion (57.7 percent) of the world’s
population of 7.8 billion people used the Internet as
of January 2020 (an increase of 298 million since
January 2019)14, Netflix viewed the size of the nearterm market potential for securing streaming subscribers worldwide (including China) as being the
approximately 1.1 billion people/households currently having high-speed wired and wireless internet
service.15 Surveys conducted during 2019 indicated
that the worldwide average amount of time individuals spent using the internet on any device was
6 hours and 43 minutes, equal to more than 100 days
of online time per year.16 The worldwide average
fixed internet download speed in December 2019 was
73.6 million bits per second (mbps) and the worldwide average mobile internet download connection
speed was 32.0 mbps.17 These speeds were expected
to climb steadily toward 100 mbps (or more) by 2025,
thereby making it feasible for hundreds of ­millions
more households with fixed internet connections to
watch streamed content and paving the way for a rapidly rising percentage of people worldwide to access
streamed content on their smartphones or other
mobile devices—going into 2020 there were some
3.5 billion users of smartphones.
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Netflix’s strategy going into 2020 was focused
squarely on:
• Growing the number of global streaming subscrib•
ers, particularly in those countries/geographic
regions with the biggest growth opportunities.
Continuing to enhance the appeal of its library
of streaming content, with growing emphasis on
exclusive original movies and original series produced in-house and in collaboration with selected
outside movie and TV show producers.
Increasing partnerships with movie and television
producers in specific countries to produce original
content for audiences in that country’s language.
Focusing marketing and advertising on the particular countries and geographic regions deemed
to have the biggest subscriber growth potential.
Continuing to introduce mobile-only subscription
plans in countries where a big percentage of the
population used mobile devices to watch streaming content.
Subscription Pricing Strategy
Going into 2020, Netflix offered three types of
streaming membership plans. Its basic plan, currently priced at $8.99 per month in the United
States, included access to standard definition quality
streaming (640 × 480 pixels) on a single screen at a
time. Its standard plan, currently priced at $12.99 per
month and included access to high-definition quality
streaming (1080 × 720 pixels) on two screens concurrently. The company’s premium plan, currently priced
at $15.99 per month, included access to 4K ultra-high
definition quality (3,840 × 2,160 ­pixels) content on
four screens concurrently. Netflix recommended
three mbps of download speed for standard definition streaming, five mbps for high definition and
25 mbps for 4K Ultra HD. During 2019, all three plans
were attracting healthy numbers of new ­subscribers—
none of the three clearly stood out as “most popular” worldwide. Netflix management believed this
indicated “we’re providing a range of options at a
range of price points that allow consumers in the
markets that we serve to sort of select into the right
model.”18 However, over the past 5–8 years, there had
been a very gradual shift towards the highest-­priced
premium plan, a trend likely being driven by more
households purchasing big-screen ultra-high definition TVs.
As of September 2019, international pricing for
the three plans ranged from approximately $3 for a
mobile-only plan to $22 per month per U.S. ­dollar
equivalent for a premium subscription plan in
Switzerland; in many countries, the monthly prices
of standard and premium plans were in the range of
$9–$14 per U.S. dollar equivalent.19 Netflix executives expected that the prices of the various subscription plans in each country would likely rise over time,
thereby helping boost the global monthly average
revenue the company received per paying subscriber
above the 2019 average of $10.82.
Netflix began testing a cheaper mobile-only
$3 per month plan in 2018 in India, one of its key
developing markets because of the size of India’s
population and heavy use of mobile devices for video
streaming. The $3 mobile-only plan test in India
was successful in boosting subscriber growth and in
increasing member retention, prompting Netflix to
expand its low-priced mobile offering to Malaysia
and Indonesia in 2019; the test in these countries
similarly impacted subscriber growth and member
retention. In December 2019, Netflix began testing
subscription discounts of up to 50 percent if new subscribers signed up for three-, six- and 12-month plans;
the goal was to gauge the impact of both lower prices
and multi-month plans on new signups and member
retention and thereby learn more about which types
of mobile-only subscription plans tended to produce
the biggest gains in subscriber revenues. Netflix
indicated that mobile-only plans were likely to be
tested in additional countries in 2020, principally in
large-population countries where wired high-speed
Internet connections were not widely available and
where mobile devices were frequently or exclusively
used for video streaming.
In January 2020, Netflix CEO Reed Hastings
indicated the company had no interest in adding
an ad-supported subscription plan, largely because
of the difficulties in convincing advertisers to shift
some of their advertising dollars to Netflix’s streaming platform. In Reed Hastings view, Google,
Facebook, and Amazon had tremendously powerful
capabilities in online advertising because they gathered data about the browsing and purchasing habits
of people while they were online (and their personal
data as well) from many sources and provided it as
service to their advertisers. The valuable user-related
data advertisers got from Google, Facebook, and
Amazon allowed them to effectively target their ads
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and realize a bigger return on their advertising expenditures. The detailed data that Netflix collected on
every subscriber’s viewing history and title preferences was of no value to advertisers and provided
zero competitive benefit in taking advertising dollars
away from “the big three.” So, for Netflix to attract
$5 to $10 billion dollars in advertising to support an
ad-based subscription plan posed formidable challenges that Netflix executives firmly believed the
company should not try to surmount.20
Netflix’s Strategy to Develop
and Employ Viewership
Tracking and Recommendation
Software to Enhance Its
Engagement with Subscribers
For some time, Netflix had developed proprietary
software technology that allowed members to easily
scan a movie’s length, appropriateness for various
types of audiences (G, PG, or R), primary cast members, genre, and an average of the ratings submitted
by other subscribers (based on one to five stars).
With one click, members could watch a trailer previewing a movie or original series or TV show if they
wished. Most importantly, perhaps, were algorithms
that created a personalized “percentage match” for
each title that was a composite of a subscribers’ own
ratings of previously viewed titles, titles the member
had placed on a “watchlist” for future viewing, and
the overall or average rating of all subscribers (several billion ratings had been provided by subscribers
over the years).
Subscribers often began their search for titles by
viewing a list of personalized recommendations that
Netflix’s software automatically generated for each
member. Each member’s list of recommended titles
was also partly the product of Netflix-created algorithms that organized the company’s entire content
library into clusters of similar movies/TV shows and
then sorted the titles in each cluster from most liked
to least liked based on subscriber ratings. Those subscribers who favorably or unfavorably rated similar
movies/TV shows in similar clusters were categorized
as like-minded viewers. When a subscriber was online
and browsing through the selections, the software
was programmed to check the clusters the subscriber
had previously viewed, determine which selections in
each cluster the customer had yet to view or place on
watchlist, and then display those titles in each cluster
in an order that started with the title that Netflix’s
algorithms predicted the subscriber was most likely to
enjoy down to the title the subscriber was predicted to
least enjoy. In other words, the subscriber’s ratings of
titles viewed, the titles on the subscriber’s watchlist,
and the title ratings of all Netflix subscribers determined the order in which the available titles in each
cluster or genre were displayed to a subscriber—with
one click, subscribers could see a brief profile of each
title and Netflix’s predicted rating (from one to five
stars) for the subscriber. When subscribers came
upon a title they wanted to view, that title could be
watch-listed for future viewing with a single click. A
member’s complete watchlist of titles was immediately viewable with one click whenever the member
visited Netflix’s website. With one additional click,
any title on a member’s watchlist could be activated
for immediate viewing. Netflix management saw its
title recommendation software as a quick and personalized means of helping subscribers identify and
then watch titles they were likely to enjoy. Netflix’s
subscriber tracking data indicated that 80 percent of
subscribers’ watch choices came from their personal
recommendation engine.
Netflix invested in developing new software
capabilities and refining existing capabilities every
year. As of 2020, Netflix had data pertaining to:
• The titles each subscriber had viewed in the past
several days, the past week, the past month, the current calendar year, the past calendar year, and the
entire period the subscriber had been a member.
The subscriber’s ratings of each title.
The titles on the subscriber’s watch list.
The number of times each title had been viewed
by all subscribers in both each country and worldwide the past several days, the past week, the past
month, the current calendar year, the past calendar year, and the entire period that title had been
on Netflix.
The total number of hours subscribers spent
watching Netflix titles for each month of each
year in each country and worldwide.
Content Strategy
Going into 2020, Netflix had bulked its original
content offerings up to a total of 1,197 titles, but its
streaming library still included 3,751 licensed movies
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and 1,569 television shows.21 New seasons of five
original series and sequels to two original movies
had already been announced for showing in the first
quarter of 2020, following an unusually heavy slate
of new originals released in the last two quarters of
2019. Reed Hastings said the company’s fourth quarter 2019 slate of releases “set a new bar for the variety
and high quality of films we produce to appeal to our
members’ many diverse tastes.”22
Three high-profile shows —Parks and Recreation
(Peacock), Friends (HBO MAX), and The Office
(Peacock)—were all set to leave Netflix and return to
rivals during 2020 as current licenses expired. While
the loss of these programs was a setback, Netflix
management was not unduly disturbed; its chief content officer explained:23
We’ve had, over the years, incredibly popular product
come on and off the service . . . . . And typically, what
happens is our members, through our incredible personalization, deep library, and broad library, are able
to find their next favorite show. And [what will] will
happen with Friends fans, [is that] some of them will
find it elsewhere, and some of them will find their next
favorite show [on Netflix].
To help offset the losses of these popular shows,
Netflix had reportedly spent $100 million for a
multi-year license to stream Seinfeld episodes to
its subscribers.
Netflix streamed different sizes and combinations of portfolio titles to different countries. This
was because its title tracking data revealed there were
very big differences in the 20 to 30 most-watched
titles from country to country. This was partly
because of (1) the different languages spoken in different countries and the varying percentages of subscribers that understood storylines produced in one
language versus another and (2) varying subscriber
preferences from country-to-country for some types/
genres of movies, series, and documentaries versus
others. Netflix’s tracking of program viewership
showed clearly that a strategy of streaming much the
same number and combination of titles to all countries was inferior compared to a strategy of customizing the types of titles streamed to each country to
match up well with what its tracking data showed
subscribers were watching and to discontinue streaming of titles not watched or watched very infrequently.
As a consequence it had become standard practice at
Netflix to use its title-viewing data for each country
to guide decisions of which titles to stream to which
countries and then to make changes in each country’s title mix as shifts occurred in the viewing hours
devoted to particular genres and the popularity of
newly released titles.
However, to increase subscriber satisfaction
with its streamed offering to each country, Netflix
was continuing a long-term initiative to steam title
offerings to more and more countries in their native
languages so that subscribers could enjoy better
enjoy Netflix’s programs. In the last quarter of 2019,
Netflix localized the language of its streaming service to Vietnam, Hungary, and the Czech Republic
(Czechia). Furthermore, Netflix was engaged in an
ongoing effort to license content from local producers of movies and TV shows and bundle them with
the titles Netflix was streaming to that country from
its own title collection. In late 2019, Netflix added
new locally-bundled titles in partnership with Sky
Italia, Canal+ in France, KDDI in Japan, and Izzi
in Mexico.
A related shift underway in Netflix’s content
strategy in 2020 was the increased emphasis being
placed on growing the number of titles (1) produced
in languages other than English, (2) filmed in a
greater number of different locations, and (3) built
around local country storylines. This shift was being
driven not only by the positive local subscriber
response to new films and series produced in local
languages and containing locally-appealing content but also by Netflix’s tracking data that showed
many of these titles had gained popularity in other
countries. A new 2017 Brazilian science-fiction show
produced in Portuguese for Brazil, to the surprise of
Netflix executives, had scored well with audiences
around the world—this was Netflix’s first instance
of a local-language program working well in locations where other languages dominated. Local language films produced in India, South Korea, Japan,
Turkey, Thailand, Sweden, and the United Kingdom
were among the most popular 2019 titles. An original Spanish series titled La Casa de Papel, which was
retitled Money Heist in English-speaking countries
and was scheduled to begin its fourth season during 2020, had developed a wide audience, appearing on the top ten most watched titles in more than
70 countries. As of January 2020, Netflix had globally released 100 seasons of local language, original
scripted series from 17 countries and had plans for
over 130 seasons of such programs in 2020.
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As a consequence, in 2020 Reed Hastings and
Netflix’s other content programming executives were
focused on creating a portfolio of forthcoming titles
for every taste, every mood, and every region of the
world. A conscious effort was being made to schedule releases of premium quality new original films
and original series scattered fairly evenly across the
year and across all genres so as to provide subscribers in all parts of the world with an ongoing stream of
fresh new titles that looked interesting to watch and
proved very enjoyable after watching them.
Netflix began ramping up its capabilities to create new original animation films in 2017. Its first big
new feature, Klaus, was released in late 2019, and
was an instant audience pleaser in countries across
the world and an Oscar nominee for Best Animated
Feature. Two new big theatrical-scale animated features were on tap for release in 2020; Reed Hastings
believed both would be competitive with any animated films shown at movie box offices. Animated
films traveled more predictably across countries than
other types of titles.
Netflix management also relied heavily on
its viewership tracking data for each title to guide
decision-­making on how to allocate upcoming
expenditures for new original content. For example,
if season one of a new original series was highly
popular with subscribers, the series was renewed for
a second season, and if a new series failed to spark
widespread viewing and garnered only small audiences, with declining views of succeeding episodes,
the series was canceled. If a new original series or
film was viewed by 40 to 70 million subscribers in
the first few weeks or months or if its viewership built
significantly over a 4-to-12 month period, management was likely to invest in the development of a second season of the series and perhaps a new original
series or movie in the same genre (action, suspense
thriller, science fiction, or adult comedy) for release
in the following year. Netflix released two romanticcomedy films in 2019 that proved quite popular with
subscribers and quickly decided to follow-up with
sequels to both titles in the first half of 2020. It had
several action films scheduled for 2020 as follow-on
releases for a much-viewed action film released in the
last quarter of 2019.
Going into 2020, Netflix was continuing its
efforts to upgrade the content and production quality of all new originals—the objective was to present
subscribers with premium entertainment content
calculated to please subscribers, boost subscriber
retention, and help drive subscriber growth. Netflix
had further learned from its viewership tracking data
and subscriber growth statistics that media reports
of critically-acclaimed reviews of Netflix titles, coupled with media reports of Netflix titles receiving
numerous nominations and awards, were important
positive factors in steering existing subscribers to
watch these titles and stimulating subscriber growth.
Netflix’s original content programs in 2019 pulled
in 24 nominations for the 2020 Academy Awards,
more than any other studio. From 2013 through
February 2020, Netflix original titles had received
296 nominations and 83 wins24—an indication of
the progress the company had made in creating and
producing top notch original series and films. As
far as Netflix top executives were concerned, the
more viewer hours spent watching Netflix originals,
the more critically-acclaimed reviews of its original
titles, the more award nominations, and the more
award wins, the better. All contributed to improving
subscribers’ experiences with Netflix, higher company’s revenues and operating margins, bigger internal cash flows from operations, and more funds
available for creating more new original content
going forward.
Content development projects announced for
2020 included a multiyear pact with Nickelodeon for
animated originals; a multiyear film and TV deal with
“Game of Thrones” creators David Benioff and Dan
Weiss; and a three-year deal with a South Korean
media conglomerate for originals and licensed titles
and titles from another Korean film producer. Netflix
announced in January 2020 that 30 employees in The
Netherlands were being transferred to Rome, Italy,
for the purpose of opening a new office to strengthen
its local content creation partnerships in Italy and
work on growing the number of new movies and series made in Italy.
Marketing and Advertising
Strategy in 2019–2020
Netflix spent $2.65 billion on marketing and advertising in 2019, up from $2.37 billion in 2018. Netflix used
multiple marketing approaches to attract subscribers,
but especially online advertising (paid search listings,
banner ads on social media sites, and permission-based
e-mails), and ads on regional and national television.
Advertising campaigns of one type or another were
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Cases in Crafting and Executing Strategy
underway more or less continuously, with the lure of
one-month free trials and announcements of new and
forthcoming original titles usually being the prominent ad features. Netflix’s expenditures for digital and
television advertising were unreported in 2019 but
were $1.8 billion in 2018 and $1.09 billion in 2017.
Other marketing costs in 2019 included:
• Costs pertaining to free trial subscriptions.
• Payments to mobile operators across the world to
create quick and easy-to-use procedures for smartphone users to access Netflix streamed or downloadable programming. Netflix believed it was
particularly important to make mobile streaming
from Netflix instantly accessible to those people
who basically only wanted to have their relationship with Netflix on a mobile device.
• Promotional campaigns for new original titles to
generate more density of viewing and conversation around each title. Such campaigns involved
sending emails to subscribers at least weekly and
often more frequently calling attention to titles
highly matched to a title viewed the previous day,
previous several days, or previous week. E-mails
were also sent regularly to announce the availability of new releases that matched well with the
subscriber’s viewing history. When users were
browsing various titles in various genres of interest, there was always a row of titles with the heading “Because you watched [title] just under rows
of titles on the subscriber’s watch list.
On several occasions, Netflix CEO Reed
Hastings called attention to the growing importance
of marketing efforts calling a subscriber’s attention to titles closely matched to recently viewed
titles or to help make certain new titles a bigger hit
in a particular nation or among a particular demographic segment. These were deemed valuable contributors to heightening subscriber satisfaction with
the entertainment value Netflix was providing and
also aiding subscriber retention and the acquisition of new subscribers. Further, because Netflix
operated in so many countries, Hastings was a
big fan of experimenting with different marketing
approaches in different markets and thereby learning more about what worked well in marketing
Netflix’s original content and differentiating Netflix
from rival streaming providers.25 Those approaches
that were successful became candidates for use in
other locations.
Business Segment Reporting—
New Metrics for 2020
Until the fourth quarter of 2019 Netflix had reported
its performance for three business segments: domestic
streaming, international streaming, and domestic DVD.
Management used this business segment classification
for purposes of making operating decisions, assessing
financial performance, and allocating resources. The
company’s performance in each of these three business
segments for 2015 through 2019 is shown in Exhibit 5.
However, beginning with the fourth quarter of
2019 and going forward, management decided the company’s operations had evolved into a single business—
global streaming operations—and revealed that top
management, especially the CEO, had begun making
operating decisions, assessing financial performance,
and allocating resources based on the performance of
its streaming operations in four geographic regions:
the United States and Canada (UCAN), Europe, the
Middle East, and Africa (EMEA), Latin America
(LATAM), and the Asia-Pacific (APAC). The company provided a breakdown of its performance in each
of the four regions for 2019—see Exhibit 6.
Reed Hastings made special mention of the fact
that while subscription prices were different in every
country around the world and while management definitely took note of the average monthly revenues per
subscriber in each country and region, Netflix was
not managing its business to boost ­average revenue
per subscriber in each country. Rather, management
was managing to maximize revenues worldwide.
Hastings said:26
Obviously, as we have lower-priced mobile offers, that’s
going to bring down a blended [average revenue per
subscriber] in a country or in a market. But if we’re
doing that in a revenue-accretive way, we think that’s
great for our long-term business. We’re growing subscribers, and we’re growing revenue.
In the first quarter of 2020, as governments in
many countries instituted home confinement orders
to stem the spread of coronavirus (COVID-19),
Netflix’s global streaming membership surged by a
quarterly record 15.8 million to a total of 182.9 ­million
paid subscribers. School-closings and work-from-home
policies on the part of many organizations caused
mushrooming demand for home entertainment and
a jump in the average number of daily viewing hours
of Netflix members. In March 2020, Internet usage
became so great that a number of governments and
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EXHIBIT 5  Netflix’s Performance by Business Segment, 2015–2019 (in millions, except
for average monthly revenues per paying member and percentages)
Domestic Streaming Segment
Paid memberships at year-end
Paid net membership additions
Average monthly revenue per paying membership
Cost of Revenues (Note 1)
Marketing costs
Contribution profit (Note 2)
Contribution margin
International Streaming Segment
Paid memberships at year-end
Paid net membership additions
Average monthly revenue per paying membership
Cost of Revenues (Note 1)
Marketing costs
Contribution profit (Note 2)
Contribution margin
Domestic DVD Segment
Paid memberships at year-end
Average monthly revenue per paying membership
Cost of Revenues (Note 1)
Marketing costs
Contribution profit (Note 2)
Contribution margin
Global Totals
Paid memberships at year end
Global average monthly revenue per paying
Operating income
Operating margin
Net income
$5,077.3 $    6,153.0 $    7,646.6 $    9,243.0
     412.9           603.7       1,025.4       1,063.0
$1,712.4 $    2,078.5 $    2,582.9 $    3,312.6
$ 7.48
$ 7.81
$ 8.66
$ 9.43
Note 3
$3,211.1 $    5,089.2 $    7,782.1 $10,616.2
     684.6          832.5       1,344.1       1,589.4
$    (333.4)
$    (516.2) $        (102.9) $                662.0 $    1,577.1
$ 10.30
$                    645.7
$     321.8
$ 8.15
$ 10.19
Note 3
$                    542.3 $             450.5 $             365.6 $            297.2
           —                          —                          —                            —
$     279.5 $       248.0 $       212.5 $       174.0
$ 8.61
$ 9.43
$8,830.7 $11,692.7 $15,794.3 $20,156.4
$ 558.9
* Includes United States and Canada, due to a Q4 2019 change in Netflix’s reporting of its geographic business segments.
Note 1: Cost of revenues for the domestic and international streaming segments consist mainly of the amortization of streaming content
assets, with the remainder relating to the expenses associated with the acquisition, licensing, and production of such content. Cost of revenues in the domestic DVD segment consist primarily of delivery expenses such as packaging and postage costs, content expenses, and
other expenses associated with the company’s DVD processing and customer service centers.
Note 2: The company defined contribution margin as revenues less cost of revenues and marketing expenses incurred by segment.
Note 3: Netflix discontinued reporting this statistic due to a change in the definitions of its geographic business segments, effective with
the fourth quarter of 2019.
Source: Company 2017 10-K Report, pp. 19–22 and pp. 59–61; Company 2018 10K Report, pp. 20–22 and pp. 60–62; and p. 15 of Reed
Hastings’ “Letter to Shareholders,” included as part of the company’s Report of Fourth Quarter 2019 Earnings, January 21, 2020.
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Netflix’s Performance by Geographic Region, 2019 (in millions, except
for average monthly revenues per paid subscriber)
Three months ended
UCAN Streaming
Paid Memberships
Paid Net Additions
Average Monthly Revenue per Paid Subscriber
EMEA Streaming
Paid Memberships
Paid Net Additions
Average Monthly Revenue per Paid Subscriber
LATAM Streaming
Paid Memberships
Paid Net Additions
Average Monthly Revenue per Paid Subscriber
APAC Streaming
Paid Memberships
Paid Net Additions
Average Monthly Revenue per Paid Subscriber
Total Streaming
Paid Memberships
Paid Net Additions
Average Monthly Revenue per Paid
March 31,
June 30,
Sept. 30,
Dec. 31,
Full Year
$ 2,257
$ 11.45
$ 2,501
$ 12.52
$ 2,621
$ 13.08
$ 2,672
$ 13.22
$ 10,051.2
$ 12.57
$ 1,233
$ 10.23
$ 1,319
$ 10.13
$ 1,428
$ 10.40
$ 1,563
$ 10.51
$ 5,543.1
$ 10.33
$ 630
$ 7.84
$ 677
$ 8.14
$ 741
$ 8.63
$ 746
$ 8.18
$ 2,795.4
$ 8.21
$ 320
$ 9.37
$ 349
$ 9.29
$ 382
$ 9.29
$ 418
$ 9.07
$ 1,469.5
$ 9.24
$ 4,440.0
$ 4,846.0
$ 5,173.0
$ 5,399.0
$ 19.859.2
$ 11.13
$ 11.06
$ 10.82
Source: Company website, Excel spreadsheet regional information for 2019, posted in the Investor Relations section as part of the
company’s report of Fourth Quarter 2019 Financial Results, www.netflix.com, accessed February 15, 2020.
internet service providers asked Netflix to temporarily
reduce the network traffic of its members. According
to CEO Reed Hastings,27
Using our Open Connect technology, our engineering team was able to respond immediately, reducing
network use by 25 percent virtually overnight in those
countries, while also substantially maintaining the quality of our service, including in higher definition. We’re
now working with ISPs to help increase capacity so that
we can lift these limitations as conditions improve.
Netflix executives expected as progress was
made in containing the virus and reducing new
infections that membership growth and viewing
hours would decline
The Financial Strain of Netflix’s
Growing Expenditures for
Original Content and Other
Content Acquisitions
The company’s heightened strategic emphasis on
original content produced in-house had resulted
in multi-billion-dollar annual increases in Netflix’s
financial obligations to pay for streaming content
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Netflix’s 2020 Strategy for Battling Rivals in the Global Market for Streamed Video Subscribers
and sharply higher negative cash flows from operations (see Exhibit 7). Netflix was covering these obligations with new issues of common stock and new
issues of senior notes; details of Netflix’s outstanding
senior notes are shown in Exhibit 8.
Netflix management forecasted that the company would have a negative free cash flow deficit
of about $2.5 billion in 2020 and that the company
would continue to experience negative, but progressively smaller, cash flow deficits, for several more
years due to growing expenditures for original content. However, executive management was confident
that the company’s expected growth in subscribers,
subscription revenues, and operating profit margins
would in the near future result in positive and growing
cash flows from operations, enabling the company
EXHIBIT 7  The Growing Financial Strain of Netflix’s Strategic Emphasis on Producing
Original Content In-House, 2015–2019 (in millions of dollars)
Streaming content obligations at year-end
Additions to streaming content assets
Additions to DVD content assets
Amortization of streaming content assets
Amortization of DVD content assets
Net cash used in operating activities
Proceeds from issuance of debt
Proceeds from issuance of common stock
Outstanding senior notes
$ 19,490.1
Note 1
$ 19,285.9
$ 17,694.6
$ 14,479.5
$ 10,902.2
Note 1: This item was reclassified and merged into a different accounting category on the company’s Cash Flow Statement.
Source: Company 10-K Reports 2019, 2018, 2017, 2016, and 2015.
EXHIBIT 8  Netflix’s Outstanding Long-Term Debt as of December 31, 2019
Debt Issues
Principal Amount
at Par
4.875% Senior Notes
3.625% Senior Notes
5.375% Senior Notes
3.875% Senior Notes
6.375% Senior Notes
4.625% Senior Notes
5.875% Senior Notes
4.875% Senior Notes
3.625% Senior Notes
4.375% Senior Notes
5.500% Senior Notes
5.875% Senior Notes
5.750% Senior Notes
5.50% Senior Notes
5.375% Senior Notes
$1.00 billion
$1.23 billion
$1.34 billion
$900 million
$800 million
$1,260 million
$1.9 billion
$1.6 billion
$1.561 billion
$1.0 billion
$700 million
$800 million
$400 million
$700 million
$500 million
Issue Date
Maturity Date
Interest Due Dates
October 2019
October 2019
April 2019
April 2019
October 2018
October 2018
April 2018
October 2017
May 2017
October 2016
February 2015
February 2015
February 2014
February 2015
February 2013
June 2030
June 2030
November 2029
November 2029
May 2029
May 2029
November 2028
April 2028
May 2027
November 2026
February 2022
February 2025
March 2024
February 2022
February 2021
June 15 and December 15
June 15 and December 15
June 15 and December 15
June 15 and December 15
May 15 and November 15
May 15 and November 15
April 15 and November 15
April 15 and October 15
May 15 and November 15
May 15 and November 15
April 15 and October 15
April 15 and October 15
March 1 and September 1
April 1 and October 1
February 1 and August 1
Source: Company 2019 10-K Report, p. 55.
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Cases in Crafting and Executing Strategy
to reduce borrowing and begin to pay down its longterm debt. In April 2018, CEO Reed Hastings said:28
We will continue to raise debt as needed to fund our
increase in original content. Our debt levels are quite
modest as a percentage of our enterprise value, and we
believe [issuing] debt is [a] lower cost of capital compared to equity.
Reed Hasting’s View of
the Forthcoming Globally
Competitive Battle for Streamed
Entertainment Subscribers
In Reed Hastings’ “Letter to Shareholders” in
October 16, 2019, he talked about the upcoming
streaming war with all the various new competitors:29
We compete broadly for entertainment time. There
are many competitive activities to Netflix (from watching linear TV to playing video games, for example).
But there is also a very large market opportunity; today
we believe we’re less than 10% of TV screen time in
the U.S. (our most mature market) and much less than
that in mobile screen time. Many [industry observers]
are focused on the “streaming wars,” but we’ve been
competing with streamers (Amazon, YouTube, Hulu)
as well as linear TV for over a decade. The upcoming
arrival of services like Disney+, Apple TV+, HBO
Max, and Peacock is increased competition, but we
are all small compared to linear TV. While the new
competitors have some great titles (especially catalog
titles), none have the variety, diversity, and quality
of new original programming that we are producing
around the world. The launch of these new services
will be noisy. There may be some modest headwind to
our near-term growth. . . In the long-term, though, we
expect we’ll continue to grow nicely given the strength
of our service and the large market opportunity. By way
of example, our growth in Canada, where Hulu does
not exist, is nearly identical to our growth in the U.S.
(where Hulu is very successful at about 30 million paid
As reported by Andrew Liptak, “The MPAA
says streaming video has surpassed cable
viewing worldwide,” posted at www.theverge
.com, March 21, 2019 (accessed February 3,
Amazon press release announcing 4th
Quarter 2019 financial results, January 30,
Savannah Marie, “Report: Amazon Prime
Movie Library almost 5x the Size of Netflix and
Nearly 7.5x the Size of Hulu,” Xanjero Media,
January 29, 2019, posted at www.xanjero.com
(accessed February 3, 2020).
Amazon press release announcing 4th
Quarter 2019 financial results, January 30,
Transcript of Peacock’s Investor Day
Presentation, January 16, 2020, posted in the
Investor Relations section at www.cmcsa.com
(accessed February 7, 2020).
Peacock Investor Day Presentation Slides,
January 16, 2020, posted in the Investor
Relations section at www.cmcsa.com
(accessed February 7, 2020).
Transcript of Peacock’s Investor Day
Presentation, January 16, 2020, posted in the
Investor Relations section at www.cmcsa.com
(accessed February 7, 2020).
ViaconCBS Factsheet, posted at www.viacbs.
com (accessed February 13, 2020).
Ryan Vlastelica and Bloomberg, “Apple’s
push in TV is ‘failing to resonate’, says analyst,”
posted at www.fortune.com, February 3, 2020
(accessed February 9, 2020).
Monthly active users and hours watched are
based on information about iQiyi posted on
Wikipedia (accessed January 27, 2020).
Todd Spangler, “Netflix Projected to Spend
Over $17 Billion on Content in 2020,” Variety,
January 16, 2020, posted at www.Variety.com
(accessed February 11, 2020).
Digital 2020 Global Overview Report,
posted at www.thenextweb.com on January
30, 2020 (accessed February 10, 2020).
Transcript of remarks by David Wells, Netflix’s
Chief Financial Officer, at Morgan Stanley,
Technology, Media & Telecom Conference,
February 27, 2018, www.netflix.com (accessed
April 5, 2018).
Digital 2020 Global Overview Report,
posted at www.thenextweb.com on January
30, 2020 (accessed February 10, 2020).
According to the Speedtest Global Index,
posted at www.speedtest.net (accessed
February 10, 2020).
From p. 7 of Netflix’s 4th Quarter 2019 Earnings
Call Transcript, January 21, 2020, posted in the
Investor Relations section at www.netflix.com.
Rebecca Moody, “Which countries pay the
most and least for Netflix?” posted September 3,
2019 at www.comparitech.com (accessed
February 12, 2020).
For more details, see p.14 of Netflix’s
4th Quarter 2019 Earnings Call Transcript,
January 21, 2020, posted in the Investor
Relations ­section at www.netflix.com.
According to data from JustWatch.com,
posted on January 17, 2020 and cited
in Joe Supan, “Everything You Need to
Know About Netflix,” Allconnect, posted
at www.allconnect.com, January 17, 2020
(accessed February 11, 2020).
Reed Hastings, “Letter to Shareholders,” p. 3,
included as part of Netflix’s announcement
of fourth quarter 2019 earnings, January 21,
2020, posted in the Investor Relations section
at www.netflix.com.
From p. 11 of Netflix’s 4th Quarter 2019
Earnings Call Transcript, January 21, 2020,
posted in the Investor Relations section at
Wikipedia, https://en.wikipedia.org/
(accessed February 14, 2020).
Based on Reed Hastings’ comments during
the company’s conference call announcing the
company’s financial results in the first quarter
of 2018, April 16, 2018.
Netflix’s 4th Quarter 2019 Earnings Call
Transcript, January 21, 2020, posted in the
Investor Relations section at www.netflix
Reed Hastings, “Letter to Shareholders,” p. 2,
included as part of Netflix’s announcement of
first quarter 2020 earnings, April 21, 2020,
posted in the Investor Relations section at
Company press release, April 16, 2018.
Reed Hastings, “Letter to Shareholders,” p. 5,
included as part of Netflix’s announcement
of third quarter 2019 earnings, October 16,
2019, posted in the Investor Relations section
at www.netflix.com.
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