Case #6 – Netflix’s Business Model & Strategy
1. How strong are the competitive forces in the movie rental marketplace? Do five-forces analysis to support your answer.
Firms in Other Industries Offering Substitute Products
There is a small amount of possibilities for substitutes. The only substitutes would be illegally obtaining the movies by downloading or streaming, purchasing ³bootleg´ DVD¶s, or waiting until the movie is aired on public or cable TV stations. Suppliers of Raw Materials, Parts, Components, or other Resource Inputs Consisting of only a small number or suppliers, buyers do not have the upper hand. If suppliers run out of stock or decide to cut supplies short, there are not many alternatives to obtain DVDs or right to a movie. The seller has the power to control distribution and prices. Rivalry among Competing Sellers
There are very few competitors in the movie rental industry of which consist of Netflix, Blockbuster, and small businesses. These few control overall market share of the industry. The main competition is between Netflix and Blockbuster. Blockbuster is currently the leader in movie rentals until Netflix introduced their DVDs by mail program and subscription based business model. Buyers
Buyers have limited powers and options. An avid movie renter is limited to the selection available in store or library on line. The movie rental companies are limited to the supply they can purchase and stock their stores with. They are unable to control prices, but larger companies do have the upper hand since they can order larger quantities to get a better deal. Potential New Entry
There are little to no potential entrants into this industry. A recent entry into the movie rental industry is Red Box; they are a vending machine style movie rental. This market requires entrants to have large capitals to acquire movie rights along with fresh new ideas of movie delivery options.
2. What forces are driving changes in the movie rental industry? Are the combined impacts of these driving forces likely to be favorable or unfavorable in term of their effects on competitive intensity and future industry profitability?? Many renters are forced to choose from Blockbuster, Netflix or Red Box and this I believe is favorable because it will help these companies control the market share over video rentals. Convince consumers are always looking for easier and more convenient ways to do things. With all movie renal industry competitors moving in the same direction, it will ensure that there are choices for everyone.
3. What does your strategic group map of this industry look like? How attractively is Netflix positioned on the map? Why?
On my strategic group map, Netflix is best positioned due to the lack of having a large physical inventory like Blockbuster, to supply its physical stores. Although Blockbuster has the advantage when it comes making sales on other items aside from video rentals. They also offer games and other perishables which has contributed a percentage of their revenues. Blockbuster also has another slight advantage because not everyone knows how to use a computer. Netflix is can only be accessed via computer with at the very least, broadband connection. Netflix also has more subscribers than Blockbuster does at the end of 2007. It also seems like they both offer similar rental plans, except that Blockbuster offers games and in-store returns and exchanged. Overall, I believe that Netflix is best positioned due to the lack of venturing with different areas and excess liabilities with physical locations.
4. What key factors will determine a company’s success in the movie rental industry in the next 3-5 years?
How quickly will technology and availability of a product drive a company’s success? There are limited amount of competitors, and since most consumers are decision are made through the idea of convenience and price. No one wants to pay neither high prices nor do they...
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