Competition in the Movie Rental Industry in 2008: Netflix and Blockbuster Battle for Market Leadership

Topics: Film, Strategic management, Movie theater Pages: 6 (1889 words) Published: February 10, 2011
Competition in the Movie Rental Industry in 2008: Netflix and Blockbuster Battle for Market Leadership Although the corporate strategies implemented by Netflix and Blockbuster have allowed them to become leaders of competitive advantage in the movie rental industry, they sometimes encounter strategic issues that slow down their product and services process. My research of Netflix and Blockbuster will enable me to present a SWOT analysis and recommendations for each company. Netflix, founded in 1997 by Reed Hastings, has achieved its goal of becoming the largest online movie rental service in the world. By the end of 2007, Netflix recorded revenues of $1.2 billion. With a library of 100,000 movie titles and a subscriber base of over seven million, they had become the leaders of the movie rental industry (Gamble & Thompson, 2011). Netflix’s business model of internet subscription enabled them to compete in the movie industry. Consumers love going to the movies, but with increasing theatre prices found it too expensive to attend public viewings. Netflix provided an inexpensive way to view movies which could be done from the comforts of home. According to the text, (Essentials of Strategic Management, 2010), “Netflix’s success is due to its six-pronged strategy of providing comprehensive selection of DVDs, easy way to choose movies, fast delivery, no return due dates, and convenient drop in mail movie returns” (Gamble & Thompson, 2010). In an online survey by Nielsen Online, Netflix was rated number one for three years and for nine consecutive periods by Forsee/FGI Research (Netflix, 2009).

Netflix Strategic Issues
Blockbuster, Netflix’s fiercest competitor, experience many rental issues until 2007 when they regained market shares forcing Netflix to reduce subscription prices. Not only did Blockbuster gain presence, other competitors like Redbox also gained presence in the market due to new technologies (VOD & DVR) that are influencing the business environment. The business model used by Netflix caused a stir in the market industry. However, the damage control strategies of competitors and competitor recapture of market shares is threatening Netflix’s competitive advantage. Netflix has to change with the times. Competitive Forces

Netflix and Blockbuster are affected by the five forces of competition which are potential new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and rivalry among existing competitors (Gamble & Thompson, 2010). The companies must understand how these forces work and affect their operation. Threats of New Entrants -In the home video/game industries, new entrants must own large amounts of movies/games for rental or sale to fulfill customers' demands. Meanwhile they have to build up various distribution channels for products to reach customers in a very quick way (Xie & Lin, 2008). Bargaining Power of Suppliers -The inputs of suppliers in the home video/game industries are very important and since there are only a few qualified suppliers in the industry, their bargaining power is high. Netflix acquires its movies from movie studios and distributors, buying DVDs on a fee-per-DVD basis, paying license content fees, and signing revenue sharing agreements. Blockbuster also has revenue sharing agreements with its suppliers. To some extent, these agreements reduce the bargaining power of suppliers. In terms of the computer system, Blockbuster is using Provia's Viaware warehouse management system (packaging, sorting, and distributing rental products) in its supply chain management to keep costs down (Xie & Lin, 2008). Threats of substitutes -Substitutes include movie theaters, satellite TV, and cable TV. Customers can go to movie theaters and enjoy the vivid atmosphere. Alternatively, they can order "pay-per-view" or subscribe "on-demand" from satellite TV and/or cable TV providers to watch movies at home. Users can watch anytime they want. Satellite and cable...
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