Netflix: Strengths, Weaknesses, Opportunities, Threats

One of the best ways to develop a picture of any company is with the SWOT analysis, a look at a company's strengths, weaknesses, opportunities, and threats. Today, I'd like to focus on Netflix (Nasdaq: NFLX  ) , the movie-by-mail-and-streaming company. With yesterday's announcement of Hulu going to a subscription model, it seems a perfect time to take another look at Netflix. While there is a lot going for the company, it's not on a path strewn with nothing but rose petals.

Strengths:

• User experience. Delivering DVDs straight to the home is a major convenience that pretty much has led to the demise of the bricks-and-mortar business of Blockbuster (NYSE: BBI  ) . With just a little bit of timing, customers can have movies coming and going so as to almost always have a movie ready to watch. Add the recommendation engine for additional suggestions along with streaming and strong customer support, and you've got a pretty good experience generating loyal and enthusiastic customers.
• Streaming capability. A benefit of having any monthly plan costing at least $8.99, for those nights when the random urge takes you. Plus, Netflix streaming is available on many different consumer electronic devices and is becoming a standard feature for new TVs.
• Very competitive prices. For as little as $8.99 a month, people can watch as many movies as they want, either streaming or on DVDs. For just a bit more, a higher number of DVDs can be out at a time, giving users more flexibility. Less expensive than paying for cable movie channels, while giving more selection.

Weaknesses:

• Pricing power. The studios can still dictate some serious terms to Netflix, limiting when various movies become available (the infamous "28-day window" for instance) or for how long.
• More on pricing power. It has to accept the rates and delivery schedules set by the U.S. postal service, as well as the rates set by streaming providers. Even though Akamai Technologies (Nasdaq: AKAM  ) gave Netflix a good deal recently, that might not last very long or be renewed at such favorable rates.
• The terms of content distribution. These are not exclusive, allowing competitors access to the same movies and television shows, leaving the way open for competition.

Opportunities:

• Branding. Netflix can become the first thing people think of for watching movies at home, just like "google" is the first thing many think of for searching. There's been at least one instance of using the word "netflix" as a verb, so this could be the beginning.
• International. There's an upper limit to the number of subscribers here in the States, so to keep growing, the company must expand outside the borders. We can expect the first foray abroad sometime later this year.
• Distribution. As more subscribers come aboard, the value of Netflix as a distributor of content for studios like Time Warner (NYSE: TWX  ) and Disney (NYSE: DIS  ) goes up, leading to more pricing power for Netflix and less for the content producers.

Threats:

• Content producers going their own way. Hulu is owned by Disney, General Electric's NBC, and News Corp., and likely gets very favorable deals for their content. If enough people favor what's on Hulu and Netflix cannot provide the same content, that's going to be a serious problem for Netflix.
• Other streaming offerings. It's pretty much accepted that streaming will be the primary way movies will be viewed in the not-too-distant future. Just about anyone with a big enough bankroll can get licenses on content and provide this service. Google's (Nasdaq: GOOG  ) YouTube is the next most serious threat after Hulu.
• Internet pipe providers. Many of them are also movie distributors. They can limit the traffic traveling over their lines, favoring their own stuff over Netflix's.

What parts of Netflix's SWOT need more detail or are missing? Fill in the blanks by using the comments section below.