3Why Netflix? Integrated Customer Experience Good Cultural Fit Increased Market ShareStreaming & Content Synergies
4Apple TV – Not your typical TV “I’d like to create an integrated television set that is completely easy to use. It would be seamlessly synced with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it.” – Steve Jobs
5Apple TV is Our New iOS Platform Leveraging our Next Portfolio Productintegrated with iTunes and App Store = new monetization opportunities through capture of streaming market shareNew User ExperienceFully integrated living room experienceDeeper content relationshipLeveraged synergies with a combined user base
6*Apple TV* Streaming Contracts Vertical IntegrationAcquisitionNeedOutcomeIn House: MacOSxiPhone, iPad, iPodsSolid State Flash StorageAcquisition 2011Design EfficiencyProduction Cost SavingsDistribution EfficiencyCompetitive EdgeTV as PlatformIntegrated User Experience*Apple TV* Streaming ContractsDesign Efficiency(Apple TV Integration)Production Cost Savings (Contracts)Distribution Efficiency(Streaming & Market Share)
7Movie Streaming on Apple TV: Capturing Market Share 23.8 million subscribers22 million streamingAlex – Notes for Presenter:Why Netflix is the best choice for Apple TV:By selecting Netflix as Apple TV’s movie streaming application, we will capture the vast majority of the existing DVD streaming market. Netflix currently serves 70% of the online DVD streaming market, with over 22 million streaming customers.
8Pricing Model Basic Membership - $7.99 per month Premium Membership - $14.99 per monthConservative YearChris and AlexBasic Membership - $7.99 per monthNetflix’s unlimited movie streaming model which includes all of their content such as award winning TV series, movies and upcoming original content. The streams will be available on the Apple TV as well as on all Apple devices and all existing devices that support movie streaming. However, it will not include the most recent movies nor will customers be able to watch the highest quality 1080p Blu-Ray quality streams which is in line with the current structure of this membership.Premium Membership - $14.99 per monthThis membership will include all of the content that the basic level does but it will add on the most recently released movies the day they are available, which is a synergy of combining the iTunes store with Netflix to offer these movies. This will be an unmatched service for movie fans who watch recent releases as they can rent unlimited new releases for only $7.99 more a month (Comcast charges $4.99 for one movie rental). Also, this membership level will support the 1080p Blu-Ray quality streaming on devices that can support it such as Apple TV.At a price of [subscriptions fee] per month, this will lead to increased Netflix revenues of Between [$] between 1.35B and 1.88B by 2017.New and existing Netflix customers will be more satisfied with their Netflix experience because they will have access to the combined content libraries of Netflix streaming, iTunes movie rental, and their personal movie libraries all in one place.MillionsExpectedMillions
9Comparative Value with sensitivity analysis Chris and AlexBecause Apple TV will bring increased customers and revenue to Netflix, and many existing Netflix customers may choose to access their account through AppleTV, the two companies can benefit from becoming one and fully leveraging the combined services.Because of the increased customers and revenue that Netflix will experience as a part of AppleTV, the value of Netflix within Apple is above the market average.
10Added ValueChrisAs an added bonus, new and existing Netflix customers will be more satisfied with their Netflix experience because they will have access to the combined content libraries of Netflix streaming, iTunes movie rental, and their personal movie libraries all in one place.In addition to the financial gains achieved through the ownership and leveraging of Netflix, Apple will benefit from additional financial gains related to: · Increased sales of other Apple devices and downloadable products Existing Netflix customers who choose to access their Netflix account through AppleTV will be introduced to the full range of applications and products offered on AppleTV, such as application and music rental and purchase options available on iTunes. This will lead to increased revenue as projected:
11Netflix current value Our OFFER $ 12.5 BillionDivested owners Joining 50%cash/ 50% 100% cash in Apple StockChrisWe intend to pay the total amount of the Netflix owners that wish to be dissolved of the company in cash. The owners who wish to stay on and join Apple Inc. will be compensated 50% in cash and 50% in stock of Apple. This way the returning owners will have a stake in our future gains and successes. We assert this is the best payment strategy as confident acquiring companies generally want to pay in cash as historically cash buyouts have resulted in investor confidence and a rise in stock price. Conversely, a stock based buyout can signal investors that our stock is overvalued and in 75% of cases the acquiring company’s stock has taken a dip after announcement of the deal. The cash buyout also makes sure that its shareholders do not give up any merger gains to the acquired company’s shareholders (according to Nitin Kumar: Board of Directors at The Lattice Group (Australia) Chief Executive Officer at Aujas Inc). As for concern as to whether the dissolved Netflix will be pleased with the deal we determined that owners who prefer stock deals are few. Usually, most owners care more about the price they're getting than the form of payment and most investors prefer hard cash, says Morton Pierce, chairman of mergers and acquisitions at law firm Dewey Ballantine. Lastly, Apple Inc. can easily afford to pay in cash as we currently have $9.82 billion in cash on hand (Hoovers.com).
12Hardware & Software Platforms Current Value ChainContent & ServicesMobileMeiCloudContent AggregationiTunesiBooksApp StoreHardware & Software PlatformsMacOSxiWorksAppliancesMaciPhoneiPadiPodApple TVRetail & DistributionApple StoreTelecomCompetitor Hardware
14Apple’s Innovative Culture Empower Employees to Make a DifferenceValues, not RulesDo What is ImportantFreedom & FlexibilityDo Everything Important InternallyControl the MessageGet MarketingLove & Cherish the CreativesMake a Dent in the UniverseThink DifferentEmpower employees to make a difference. Changing the world is grandiose and far-fetched. For Apple, Steve Jobs’ "make a dent in the universe" is somehow an entirely realistic goal.Value what's important, not minutiae. According to one associate, "It's a really fun place to work with loose rules. Employees mostly come and go as they please as long as they accomplish, not 100 percent of their goals, but 110 percent."Love and cherish the innovators. According to a BNET report, the way Apple "reliably churns out the industrial equivalents of da Vinci paintings ... stems from the meticulous care and feeding provided to a specific group: the creatives. Do everything important internally. It's a throwback to the old days of vertically-integrated computer companies, but it's a good thing that Apple never bought into the whole disaggregation thing. Everything important is under one roof: industrial design, operating system, hardware design, even the sales channel. Apple manages to do that by focusing on far fewer products than conventional consumer electronics companies.Get marketing. Marketing is the one great weakness of the technology industry. For some reason, high-tech CEOs don't get it, understand it, or value it as they should. Apple spends a great deal of effort diviningthe next big thing - figuring out what people want - even when they don't know it themselves. They don't use focus groups or research. They're their own focus group.Control the message. Few companies truly get communications and PR the way Apple does. A big part of its formula for creating a buzz like no other company is its famous secretiveness. Considering the sheer number of people, companies, and news outlets that would give anything for a tip, virtually nothing leaks until Apple's ready to spill it - the occasional iPhone prototype left on a bar-stool notwithstanding.Little things make a big difference. According to the Confessions of an Apple Store Employee, "During the iPhone 4 launch, they brought us food - and good food! Somebody told me that the 5th Avenue store in New York had a masseuse during one launch, and that another store had a kiddie pool full of goldfish as, like, a Zen thing." And one of my sources says the main cafeteria is serious gourmet quality.Don't make people do things, make them better at doing things. In an interview, Steve Jobs revealed, "My job is to not be easy on people. My job is to make them better. My job is to ... take these great people we have and to push them and make them even better, coming up with more aggressive visions of how it could be." Apple employees I've known are either operating at the top of their game, or think they are. Either way, it works.When you find something that works, keep doing it. The way Apple operates today is not some grand design by Jobs or his management team. They found their way one step at a time. The difference is that, the way Apple's organized, it can rapidly adapt to a new idea or process that works. After decades of single-digit market share, the iPod / iTunes breakthrough provided a winning formula that Apple's replicated with the iPhone and iPad.Think different. Apple doesn't do anything according to anyone else's timetable. Its product launches and company events - like today's iPad 2 announcement - happen when it suits Apple. It even shuns the venerable Consumer Electronics Show. Apple follows the beat of its own drum. How things should be done or are done elsewhere don't count. Apple finds its own way. As Jobs said in a Stanford Universitycommencement speech, "Don't let the noise of others' opinions drown out your own inner voice."On the same subject:
15Do Everything Important Internally Empower Employees to Make a DifferenceValues, not RulesDo What is ImportantFreedom & FlexibilityDo Everything Important InternallyControl the MessageGet MarketingLove & Cherish the CreativesMake a Dent in the UniverseThink Different
16Integration Change Management Apple-Netflix Integration TeamIntegration Change ManagementOperational SynergiesCOMMUNICATIONORGANIZATIONCULTUREMarket-Based SynergiesHead of iTunesHR, AppleCOO, NFLXHR NFLXResponsible for vision, direction and prioritization of all integration effortsCEO, NFLXR&D Apple TVApple CEOIntegrationTeam
17Integration Initiative CommunicationOrganizationCultureFacilitate integration effectivenessAlign Apple and Netflix to increase efficiencies and realize synergiesMinimize integration risks due to cultural differencesOrganize all stakeholdersEstablish 2-way feedbackLaunch internal communication campaignExternal PR CampaignMaximize stakeholder buy-in and involvementSet cross-organizational hierarchyMonitor retention ratesDevelop cultural transition strategyDeploy cultural progress surveysPut extra emphasis on gathering informal feedbackGoalsActions
18Integration Timeline Year One Acquisition TimelineIntegration Timeline Year OneDeploy Cultural Progress SurveysMarch 1Begin integration due diligenceFeb 1Integration Team formedFeb 8Set cross organizational hierarchyFeb 8Monitor retention ratesMarch 1February | March |October | SeptemberCommunication Initiative launchedFeb 8Netflix is acquiredFeb 1Maximize stakeholder buy-in and involvementMarch 1Integration Completed September 1Gather informal feedbackMarch - October
19Netflix Will Benefit from the Acquisition Fiscal IncentivesCultural FitCompetitive Positioning:Streaming Advantage & User BaseStrategic Leveraging:AppleTV as a Platform
20Summary Digital streaming experience unlike any other Now: Future: Netflix Digital Library & SubscribersSeamlessly Synced Apple Platforms & iCloud ServiceNow:#1 Digital Video Streaming Market ShareFuture:Streaming Content with Untapped Market Entry