Assessing the business risk of a business model is only possible when it is tested. Multiple tools are recommended to undertake a stress test. One of the tools that I use is Pestle. If I were to apply that test to Netflix, I note that the biggest risk for Netflix is legal. It will probably also be true for competitors like Disney, Amazon, and others.
Business risk assessment entails identifying, analyzing, and evaluating potential risks that could impact a business’s operations, reputation, financial performance, and other aspects. It involves assessing the likelihood of different risks occurring and the potential impact of each risk on the business.
There are several steps involved in conducting a business risk assessment, including:
- Identify potential risks: The first step is to identify all potential risks that could affect the business. This may include risks related to operations, finance, legal and regulatory compliance, cyber security, reputation, and more.
- Assess likelihood: Once potential risks have been identified, the next step is to assess the likelihood of each risk occurring. This involves considering factors such as experience, industry trends, and the business’s risk management history.
- Evaluate impact: The third step is to evaluate the potential impact of each risk on the business. This involves considering the financial impact and the impact on the business’s reputation, operations, customers, and other stakeholders.
- Prioritize risks: Based on the assessment of likelihood and impact, risks can be prioritized in terms of their potential severity and likelihood of occurrence.
- Develop risk management strategies: Once risks have been identified, assessed, and prioritized, the business can develop risk management strategies to mitigate or address each risk. This may include developing contingency plans, investing in security and insurance, revising business processes and procedures, and more.
- Monitor and review: Finally, the business should regularly monitor and review its risk management strategies to ensure they remain effective and up-to-date. This involves ongoing risk assessment and adjustment of risk management strategies as needed.
Let me expand these concepts with reference to Netflix and similar platforms.
These platforms constantly look for content that will keep consumers returning for more of their platform. Content that is great and acceptable in a jurisdiction may be regarded as inappropriate or offensive by another.
Now that nearly all these platforms operate internationally, they have to contend with various regulations. A jurisdiction regulator may regard content as not right for the audience. It then could potentially ban the platform from operating in that jurisdiction.
It is a tough ask for any platform to create content that is universally accepted across the globe. Mitigation of that risk can be done successfully by the use of technology. Tweaking algorithms could assist in making offending content well-nigh inaccessible to viewers in a particular jurisdiction.
From the business strategy and business risk assessment standpoint, I think Netflix and other competitors are rapidly moving toward strategic convergence. Strategic convergence will make it difficult for a platform to secure a competitive advantage over the other. We are already seeing signs of this. Consumers will settle for those platforms that they are comfortable with. Viewership will get divided, and business stasis is likely to emerge. Strategic convergence is a major business risk to Netflix and others.