The number of stages in a product’s or service’s value chain in which a firm engages represents the company’s vertical integration. Netflix has rapidly increased the level of vertical integration within the firm. The first major step at vertical integration by Netflix was similar to the example of HBO which is known as backward vertical integration. Essentially, Netflix increased the number of value chain stages in which they engaged and moved further away from the ultimate customer. The content play is important because it allows Netflix to avoid costly royalties and own the content in-house. Netflix began to purchase content as a first step then increased vertical integration by producing it.
Now Netflix is really stepping up the vertical integration by purchasing a massive TV and film studio called ABQ studios in Albuquerque, NM for $30 million which cost $91 million to originally build. This is a critical acquisition for Netflix which has made a stated goal of creating half of its library content in-house. The deal is a sweet one for Netflix because New Mexico offered some very rich incentives to lure the company to the state and employ its residents to assist with content creation. The vertical integration of Netflix continues the upward climb.
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