Competition in the Movie Rental Industry: Netflix and Redbox

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M E M O R A N D U M

DATE: Friday, February 22, 2013

SUBJ: A Look at the Competition Within the Movie Rental Industry

EXECUTIVE SUMMARY:

Analysis:

The competitive forces in the movie rental industry are quite strong, as I will explain through the five forces model. There are a vast amount of substitutes for watching a movie. You can go to a play, sporting event, concert, out the lake/beach, go for a run, watch regular television, go shopping; I could go on and on. Also, torrenting or pirating movies is growing increasingly popular. Buyers have a strong presence in this industry mainly because they are picky about how much they will pay to rent or stream a movie. With the amount of substitutes and their pickiness, they make this industry more competitive than what it may seem. Suppliers can make this industry very difficult because there is so much red tape in the movie industry. There are copyrights and restrictions on everything. This gives the supplier a lot of leverage and for the most part, they know that they can demand a price of just about anything. I see the potential and threat of new entrants being moderate to strong. First off; many customers have their loyalties whether it be to Netflix, Redbox or a local hometown movie rental. Secondly; pricing, availability and quality are all key factors. Lastly you have to have a large sum of money upfront in order to get the ball rolling. As I mentioned prior, gaining rights from movie companies is not cheap. The rivalry among the competitors is rather intense as they are battling for the best prices, biggest variety, quickest accessibility for the customer, and quality movies (HD streaming, few scratches and number of blu-rays).

With the growing increases in technology and home entertainment, there are major forces pushing for change in the movie rental industry. In addition to this; we now live in a world where people want something and they want it NOW. I work in retail and this “in the now” era is changing everything and is putting a lot of pressure on almost any company. This has increased the push for expansion of online streaming and or the ease of access to movie rental kiosks. Also in this new world, there is a huge demand for entertainment. Our generation spends more time in front of the TV and now computers, tablets and smart phones than ever before. The increase in the quality of televisions, surround sounds and filming capabilities is pushing the envelope. People are also always looking for the biggest bargain while maintaining quality.

When looking at a strategic map the two variables would be price and how quickly the product can be attained. Netflix and Redbox rank high within each category. On the other hand Blockbuster and Movie gallery would be ranked much lower due to their high prices and the fact that you have to go out of your way to a brick and mortar store.

The biggest key success factor to me over the next 3-5 years will be the capability to stream HD content at home. I understand that this hinders on your internet provider due to bandwidth. But I believe that if a customer can stream HD content it will save them the cost of purchasing a blu-ray player and blu-ray videos. To stem off of this idea, it’s going to depend upon how quickly the customer can obtain the video. After those two factors, I think that price (low) will then come into play. People want things to be as simple and as user-friendly as possible. Whether this is how it easy is to navigate a website or make purchase at a kiosk machine. Lastly I foresee the variety being a component of success; I don’t know about you but I do miss some of the movies from the 90s.

After performing a SWOT analysis of Netflix, the company looks increasingly more popular. First off, lets look at Netflix’s strengths. Overall Netflix has had strong financial stability as they have grown their margins year over year. They definitely have their brand name out on the...
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