Netflix PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social, technological, environmental and legal factors. Netflix PESTEL analysis involves the analysis of potential impact of these factors on the bottom line and long-term growth prospects of the popular streaming platform.
Political Factors in Netflix PESTEL Analysis
There are many political factors that can affect the financial performance of on-demand streaming services such as Netflix. These factors include government stability, trade union activities, bureaucracy and government tariffs. Moreover, corruption, trade controls and the freedom of press also belong to the list of political factors with a potentially significant impact on entertainment services providers.
Leaving a market because of war
Netflix was indirectly affected by Vladimir Putin’s invasion of Ukraine. Having entered Russian market in 2016, the largest streaming service in the world announced on March 6, 2022 the suspension of its services, projects and acquisitions in the country. Leaving the country within 10 days after Putin declared war in Ukraine was an act of solidarity with Ukraine and other global brands suspending their operations in Russia. At the same time, Netflix had no other choice, because had the company remained in Russia its brand image would have suffered significantly with negative implications on the stock price.
Apart from Russia, China is the only country where Netflix is not available. Although they dress it otherwise, the Chinese government has banned the popular streaming platform because they don’t want their citizens to be influenced by western culture. In other words, Chinese authorities fear that a wide range of shows and programs available on Netflix may influence the population and they might become more difficult to control. Taking into account the massive size of Chinese market, not being allowed to operate in the market is huge loss of potential revenues for Netflix.
Economic Factors in Netflix PESTEL Analysis
External economic factors do affect the revenues of streaming platforms. Economic factors affecting Netflix and other on-demand video providers include overall macroeconomic climate in the country, changes in disposable income of the target customer segment, currency exchange rate changes and availability of credit. Furthermore, changes in inflation rate and interest rate also affect streaming services financial performance.
Changes in Currency Exchange Rates
Changes in currency exchange rates are one of the most important external economic factors that affect any multinational business. For Netflix currencies denominated in other than the U.S. dollar accounted for 56% of revenue for the year ended December 31, 2022. The largest streaming service in the world lost approximately USD1,773 million due to changes in currency exchange rate in the same period.[1]
Taxation
Taxation in general and changes in taxes in particular also belong to important economic factors for private sector organizations. In 2021 Netflix paid US federal tax of just 1,1 per cent on USD5.3 billion in profits.[2] The largest streaming service in the world and many other companies were able to get away with paying low taxes using loopholes created by tax law enacted under former President Donald Trump, which lowered the statutory tax rate from 35 percent to 21 percent. However, Build Back Better Act signed by President Biden into law on August 16, 2022 prevents Netflix and others from continuing this practice in the future, with direct implications on profitability.
Netflix Inc. Report contains a full version of Netflix PESTEL analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Netflix. Moreover, the report contains analyses of Netflix business strategy, leadership, organizational structure and organizational culture. The report also comprises discussions of Netflix marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[2] Gardner, M. (2022) “Netflix Posts a Record USD5.3 Billion in Profits and a Federal Tax Rate of Just 1.1 Percent” ITEP, Available on: https://itep.org/netflix-posts-record-profits-federal-tax-rate-of-just-1-percent/