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Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors or retail locations to control its value or supply chain. Vertical integration benefits companies by allowing them to control process, reduce costs and improve efficiencies. However, vertical integration has disadvantages, including the significant amounts of capital investment required.
Netflix is a prime example of vertical integration. The company started as a DVD rental business before moving into online streaming of films and movies licensed from major studios. Then, Netflix executives realized they could improve their margins by producing their own original content. Today, Netflix uses its distribution model to promote its original content alongside programming licensed from studios.
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