Is Netflix a vertical integration? (2023)

Is Netflix vertical integration?

Today, Netflix uses its distribution model to promote its original content alongside programming licensed from studios. 2 Instead of simply relying on the content of others, Netflix performed vertical integration to become more engaged in the entertainment development process earlier.

The Netflix Model

Netflix is one of the most significant backward vertical integration examples in the entertainment industry.

Netflix started as a distribution platform (horizontal) and moved into content production (vertical). Apple, of course, always maintained a high level of vertical integration. The computing industry went from vertical (mainframe) to horizontal (PC, web) and back to vertical (smartphone).

Vertical integration involves acquiring or developing one or more important parts of a company's production process or supply chain. For example, Netflix's shift from licensing shows and movies from major studios to producing its own original content is an example of vertical integration.

Amazon. Amazon has vertically integrated much of its business. Not only does it act as a marketplace for buyers and sellers – but it also offers its own products and services, as well as its own distribution channel. So in effect, it has 3 stages in the supply chain.

Vertical integration refers to an expansion strategy where one company takes control over one or more stages in the production or distribution of a product. Both of these strategies are undertaken by a company in order to consolidate its position among competitors.

One of the earliest, largest and most famous examples of vertical integration was the Carnegie Steel company.

Netflix Started their Own Production and Shows

Netflix originally started with renting DVDs through mail service. Company then shifted to deliver on-demand entertainment globally. Netflix then started to develop their own production and shows which is a real-world industry example for backward integration.

Vertical integration had fallen into disuse in the wake of globalization. But the Covid crisis has reshuffled the deck. Since 2021, vertical integration has been at the center of the strategies of companies like Amazon, Apple, Ferrero, Tesla, and NVidia.

CATEGORIES Media Clips. The definition of vertical integration is as follows: “The combination in one company of two or more stages of production normally operated by separate companies.”

Why do companies use vertical integration?

Vertical integration helps a company to manage and control various aspects of the production, distribution, and sales processes. The goal of vertical integration is typically to increase sales, eliminate costs, and improve profits by improving business operations.

Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney's characters and movies. This allows Disney to capture profits that would otherwise be enjoyed by another store.

Vertical integration is when a firm extends its operations within its supply chain. It means that a vertically integrated company will bring in previously outsourced operations in-house. The direction of vertical integration can either be upstream (backward) or downstream (forward).

By integrating various levels of the supply chain, companies can control supplies, reduce costs, ramp up production and increase efficiency. In addition, vertical integration facilitates economies of scale—eliminating supply disruption and supplier dominance.

Amazon sources and develops its own private-label products (AmazonBasics, Kindle) and develops services like Prime or, again, Kindle. These are all examples of vertical integration. There's no other company at this scale with a similar approach of both horizontal and vertical integration.

Apple Inc. has employed a vertical integration strategy for decades. Its software products are placed into electronic devices and computer systems manufactured and assembled by Apple using hardware and components also manufactured by the company.

Effective Vertical Integration

McDonalds is integrated in every stage of the supply chain through partnerships with contracted suppliers. This means that the fast-food chain processes the meat themselves, grows its potatoes and transports its own materials.

Firms engage in two types of vertical integration. Forward integration is a method of vertical integration in which a firm will gain ownership of its distributors. Backward integration is a method of vertical integration in which a firm will gain ownership of its supplier.

All of Nike's products use the same resources and distribution channels. Nike uses vertical integration during the supply chain process when handling with producers, retailers, and providers (Soni, Phalguni). This is also an example of forward integration allowing Nike to increase their power over the suppliers.

If Wal-Mart were to purchase a factory to make socks and it planned to sell these socks in its stores, this would be an example of forward vertical integration. Opportunism exists when a firm is unfairly exploited in an exchange.

What are the three types of vertical integration?

Vertical integration lessens the risk of cost increases, disruption of critical material supplies, and quality problems. It has to do with the control we exert over successive stages of the entire production process. As risk falls, corporate value increases.

Sichel[43] uses a simple measure for vertical integration from the rule: Minimum (%ABC, %AB) (measure 6) V = Value added – Profits + 20% of investment Sales – Profits + 20% of investment (measure 4). V = Value added – Profit Sales – Profit (measure 3).

An example of backward integration might be a bakery that purchases a wheat processor or a wheat farm. In this scenario, a retail supplier is purchasing one of its manufacturers, therefore cutting out the intermediary, and hindering competition.

When one organization can control all aspects of their business operations without third parties involved, then there are greater efficiencies that can be built into the system. The disadvantage of vertical integration is that it reduces the amount of diversification that an organization can access.

A form of vertical integration, backward integration allows businesses to obtain control over suppliers and improve supply chain efficiency. Businesses merge with and acquire their suppliers to gain strategic advantages over competitors and lower costs.

Google's decision to become a full-fledged, vertically integrated device maker — controlling and blending together hardware, software and ecosystem design — may one day seem inevitable, obvious or even a little late.

Amazon sources and develops its own private-label products (AmazonBasics, Kindle) and develops services like Prime or, again, Kindle. These are all examples of vertical integration. There's no other company at this scale with a similar approach of both horizontal and vertical integration.

Vertical Integration is when a Media Company owns different businesses in the same chain of production and distribution. For example, a 20th Century Fox owns the studios in Hollywood, they also own the cinemas, the TV channels and the DVD rental shops.

Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney's characters and movies. This allows Disney to capture profits that would otherwise be enjoyed by another store.

How is Starbucks an example of vertical integration?

Global coffee brand, Starbucks uses a vertically integrated supply chain to surpass its rival, Dunkin' Donuts. The company is involved in every step of its supply chain process, from the coffee beans to the cup of coffee sold. With this system, Starbucks works directly with its nearly 300,000 coffee growers worldwide.

Vertical integration had fallen into disuse in the wake of globalization. But the Covid crisis has reshuffled the deck. Since 2021, vertical integration has been at the center of the strategies of companies like Amazon, Apple, Ferrero, Tesla, and NVidia.

Apple Inc. has employed a vertical integration strategy for decades. Its software products are placed into electronic devices and computer systems manufactured and assembled by Apple using hardware and components also manufactured by the company.

CATEGORIES Media Clips. The definition of vertical integration is as follows: “The combination in one company of two or more stages of production normally operated by separate companies.”

Disney-Pixar

Another notable example of a horizontal integration was Walt Disney Company's $7.4 billion acquisition of Pixar Animation Studios in 2006. 3 Disney began as an animation studio that targeted families and children.

Abraham Ravid: Yes, in the 1940s, the studios were vertically integrated. In other words, exhibition and production were integrated, were held by the same company. The exhibition then was only, of course, theaters, which meant that they could choose the movies that they would show.

By integrating various levels of the supply chain, companies can control supplies, reduce costs, ramp up production and increase efficiency. In addition, vertical integration facilitates economies of scale—eliminating supply disruption and supplier dominance.

Vertical integration can allow your business to expand geographically by adding distribution centers in new areas or by acquiring a new brand. Generally, geographical expansion works best when expanding within a company's own segment in the supply-distribution spectrum.

Horizontal integration is when a business grows by acquiring a similar company in their industry at the same point of the supply chain. Vertical integration is when a business expands by acquiring another company that operates before or after them in the supply chain.

Is Facebook vertically or horizontally integrated?

Social networking/Telecomm value chain. See above. Facebook has vertically integrated almost all the functions of a communications platform aspect of service delivery into itself. For example you start a message on Facebook and it's delivered on Facebook.

Unlike competitor Inditex, the group is not vertically integrated, but claims to operate a sophisticated supply chain with industry leading design and replenishment systems.

Starbucks uses a vertically integrated supply chain, which means that the company is involved in every step of its supply chain process, all the way from the coffee bean to the cup of coffee sold to consumers.