Netflix PESTEL/PESTLE Analysis & Recommendations

Netflix’s opportunities and the threats to its business are assessed in this PESTLE/PESTEL analysis. The company formulates its strategies based on political, economic, social/sociocultural, technological, ecological/environmental, and legal factors (PESTEL factors) in the industry and relevant entertainment markets. These PESTLE factors create opportunities and threats that impact Netflix’s competitive position and business performance. The company’s streaming service, movies, series, and games are successful, allowing for business growth. However, this PESTLE analysis indicates the dynamic nature of external factors, which requires Netflix to fine-tune its strategies accordingly. Including the factors in this PESTEL analysis into strategic decisions can optimize long-term business outcomes.

This PESTEL/PESTLE analysis of Netflix presents industry and market trends that influence the opportunities and threats relevant to the company’s business performance. Strategic effectiveness regarding these trends can improve the company’s competitive advantages in content production and streaming services. Netflix competes with media and entertainment businesses, including Walt Disney, Sony, and NBCUniversal, as well as the production and streaming operations of Apple TV Plus, Amazon Prime Video, YouTube (Google (Alphabet)), Facebook (Meta), and Microsoft Movies & TV (Films & TV). Success in this competitive environment, detailed in the Five Forces analysis of Netflix, depends on strategies for the external factors in this PESTLE/PESTEL analysis.

Political Factors

This component of the PESTLE analysis considers governmental policies and their impact on companies in the media and entertainment industry. The following are the political factors relevant to Netflix:

1. Geopolitical tensions and trade bans and sanctions (threat)
2. Political censorship (threat)
3. Governmental support for sociocultural or national promotion through film (opportunity)

Netflix’s business growth in the entertainment industry and online service market is subject to geopolitical tensions that arise from disagreements or conflicts between countries. In this PESTEL analysis case, some of such tensions come with sanctions and bans, including a complete ban of Netflix’s streaming services. Also, for political reasons, governments may censor and limit access to some entertainment content from the company. These external factors are threats relevant to this PESTLE analysis of Netflix. Bans and censorship can reduce the company’s market share. On the other hand, political support for national promotion aims to encourage the popularization of content from various countries. In this PESTEL analysis case, such promotion in film is a political factor that offers Netflix the opportunity to distribute movies and series from various countries while making its streaming service more attractive to an international audience.

Economic Factors in Netflix’s Business

Economic trends and conditions are assessed in this component of the PESTEL analysis. The following economic factors affect Netflix:

1. Higher purchasing capacity (opportunity)
2. High inflation in some markets (opportunity and threat)

The economic development of countries, especially high-growth markets, comes with customers’ higher purchasing capacity for services, like Netflix’s. In this PESTLE analysis case, higher purchasing capacity is an external factor that gives the company an opportunity to grow its revenues and profits. For example, raising subscription fees in high-growth markets may improve Netflix’s profits from its international operations, although competition and customers’ price sensitivity may prevent the company from doing so. High inflation in some markets is another economic factor relevant to this PESTEL analysis of Netflix. This external factor is an opportunity because it can encourage customers to shift to online streaming, which is more affordable than going to cinemas. However, high inflation can also lead to an increase in subscription cancellations. Considering economic factors in this PESTLE analysis, Netflix’s competitive strategy and growth strategies ensure cost advantages that lead to the affordability of the company’s services, which supports competitiveness and profitable performance despite inflation-related limits in subscribers’ entertainment consumption.

Social/Sociocultural Factors

This component of the PESTLE analysis considers the social conditions that influence Netflix’s workers, customers, and business performance. The following are the sociocultural/social factors relevant to Netflix:

1. Rising interest in multicultural content (opportunity)
2. Strong regionalism in some markets (opportunity and threat)
3. Increasing consumption of movie and series clips on social media (threat)

Netflix distributes content from various countries to address rising interest in multicultural content, which is an opportunity in this PESTEL analysis. Regionalism threatens the company by reducing demand for some types of content in some countries. However, regionalism is also an opportunity in this PESTLE analysis of Netflix, in terms of how content delivery can enhance customer experience. For example, the company can improve its fine-tuning of content suggestions to make viewers more satisfied despite the issue of regionalism. Content production for the trends of multiculturalism and regionalism supports the global entertainment goals of Netflix’s mission and vision. On the other hand, the consumption of clips of movies and series on social media is a strategic challenge relevant to this PESTEL analysis case. This external factor attracts audiences to view multiple clips to completely watch movies and series for free on social media instead of paying Netflix for the same content. Despite limited options in addressing this issue, aligning the qualities, core values, and traits of Netflix’s organizational culture (business culture) to the market’s social condition considered in this PESTEL analysis can provide insights into strategies that maximize social acceptance and demand for the company’s streaming service and original movies, series, and games.

Technological Factors influencing Netflix

Technologies and technological trends are assessed in this component of the PESTEL analysis. The following technological factors influence Netflix:

1. Widespread use of mobile devices (opportunity)
2. Improving internet connectivity worldwide (opportunity)
3. Improving animation software capabilities (opportunity)

The widespread use of mobile devices worldwide is considered an opportunity in this PESTLE analysis case, such as for targeting demand for products specific to mobile devices. In this regard, the SWOT analysis of Netflix identifies product development and diversification as opportunities to use competitive advantages to provide new products, including more games for mobile devices. On the other hand, improving internet connectivity around the world gives opportunities for effective streaming services and improved customer satisfaction. In this PESTEL analysis of Netflix, this external factor can help retain customers, grow the business, and increase revenues. Moreover, the company can enhance its operations based on improving animation software capabilities. This technological factor is an opportunity in this PESTLE analysis case, in terms of how it increases the quality of Netflix’s animated content and subscribers’ satisfaction.

Environmental/Ecological Factors

This component of the PESTLE analysis assesses ecological trends or factors pertaining to the natural environment and its effect on business. The following are the ecological/environmental factors that affect Netflix:

1. Increasing availability of renewable energy (opportunity)
2. Increasing focus on sustainability (opportunity)

Netflix distributes its digital products through the internet. As a result, the ecological factors relevant to this PESTEL analysis mainly apply to the company’s office activities and film production and the operations of Amazon Web Services (AWS), which hosts Netflix’s content. For example, the increasing availability of renewable energy offers the opportunity to reduce the carbon footprint of the company’s movie production operations by using energy efficient equipment. Also, the increasing focus on sustainability is an opportunity in this PESTLE analysis of Netflix. The company can enhance its sustainability while encouraging subscribers to adopt more sustainable lifestyles. Netflix’s strategy for CSR/ESG and goals for sustainability and corporate citizenship are designed to enhance the business while accounting for these external factors and environmental trends in this PESTEL analysis case.

Legal Factors in Netflix’s Business Environment

Laws and regulatory trends are considered in this component of the PESTEL analysis. The following legal factors are relevant to Netflix:

1. Improving regulations on intellectual property (opportunity)
2. Protectionist regulation of media and entertainment (opportunity and threat)
3. Lawsuits involving various parties (threat)

Netflix benefits from improving legal and regulatory protection for intellectual property. This external factor is an opportunity in this PESTLE analysis, referring to support for further production of movies, series, and games, with decreasing concern for intellectual property violations, like content piracy. However, some countries have protectionist policies that limit the external influence of online service companies, like Netflix. This legal factor can reduce content availability and make the streaming service less attractive to some audiences. Nonetheless, protectionist regulation is also an opportunity in this PESTEL analysis of Netflix. For example, business strategies can optimize content availability to attract audiences despite regulatory restrictions on content availability. Moreover, considering protectionism in this component of the PESTLE analysis, the promotional strategies and tactics in Netflix’s marketing mix (4P) can help mitigate this threat by attracting new subscribers to allowed content. Still, the company’s strategies need to account for lawsuits against its operations. These lawsuits may involve shareholders, governments, subscribers, and other parties. In this PESTLE analysis case of Netflix, such lawsuits are an external factor common among large multinational companies with online operations.

Recommendations – Netflix PESTLE/PESTEL Analysis

Recommendations based on external factors in this PESTLE/PESTEL analysis of Netflix focus on mitigating the effects of threats and capitalizing on opportunities in the industry and regional markets. The PESTEL factors provide various opportunities for growing the entertainment and streaming business. The following recommendations support international business growth despite the strategic challenges associated with the external factors in this PESTEL/PESTLE analysis of Netflix:

1. Grow content production operations for movies, series, and games, based on economic, social, and technological factors and opportunities.
2. Enhance Netflix’s marketing strategies to mitigate the limiting effects of political, social, and legal factors and threats.
3. Develop consumer electronics to complement existing operations, especially gaming, to address external factors, particularly technological and legal opportunities and threats.
4. Improve Netflix’s business sustainability and the sustainability of business partners and suppliers, to account for environmental or ecological trends.

References

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• Schaffner, B., Stefanescu, A., Campili, O., & Chetty, M. (2023). Don’t let Netflix drive the bus: User’s sense of agency over time and content choice on Netflix. Proceedings of the ACM on Human-Computer Interaction, 7(CSCW1), 1-32.
• U.S. Department of Commerce – International Trade Administration – Media and Entertainment Industry.