Netflix Case Analysis

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Competition in the Movie Rental Industry


This paper will analyze Arthur Thompson’s case study titled “Competition in the Movie Rental Industry in 2008: Netflix and Blockbuster Battle for Market Leadership.” I will address trends affecting the movie rental industry, analyze the competitive industry environment, and discuss the use of both the SWOT and balanced scorecard to assess Netflix’s overall strategy.

Trends Affecting The Movie Rental Industry

I chose the following areas as relevant in my analysis of the attractiveness of the industry: 1) Market Features( The movie rental industry was in a mature market stage prior to the utilization of the Internet as a distribution medium. Netflix utilized the Internet to gain market share by providing customers with direct movie download capability and direct shipments to their home. Netflix was a market leader and the first to realize the potential market that existed for Internet rentals. They made the product easier for the consumer to purchase by eliminating hassle and providing expedited delivery. 2) Industry Profit Margins ( Netflix gross profit increased from .8 million in 2000 to 419.6 million in 2007. This indicates that Netflix was able to capitalize on existing trends affecting the movie rental industry and their market entry was successful. 3) Intensity of Competition ( Netflix was entering an industry that was operating as an oligopoly as Blockbuster controlled a major share of the market. Netflix was able to compete against Blockbuster by effectively using the Internet and 1-day delivery distribution channels as its core competitive advantage. 4) Variations in Demand ( Movie demand is somewhat consistent. However, more customers seemed to like the idea of ordering DVD’s off the Internet. 5) Technology and Capital Requirements ( A large amount of capital is required to enter the movie rental industry and obtain any significant share of the market because of fees that must be paid to...
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