Netflix V Blockbuster

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

Strategic Issues
Netflix has limited streaming via online downloading. They also have limited market segment. Blockbuster does not maintain enough inventories of new releases, and also needs to expand into online downloading.

Industry’s Dominant Economic Features
The movie rental industry’s market size is relatively large with $24.9 billion in 2007, which is up from $22 million in 2004. The growth rate will continue to rise with the demand for movie entertainment. There are a few numbers of rivals, but the industry is consolidating to an even smaller number of competitors. Today the scope of competitive rivalry is a globalized industry but in the beginning of this industry it would have been local, regional and national. The numbers of buyers have been increasing since 2000 with the introduction of new technologies has rapidly increased consumer opportunities to view movies. Consumers could obtain movies through various channels. They could purchase them through retailers such as Wal-Mart, Best Buy, and Amazon or they could subscribe to Netflix or Blockbuster and have movies directly mailed to their own homes. They could also subscribe to any cable movie channel to order movies instantly streamed to their TV’s on a pay-per-view basis. The degree of production differentiation is low since movies are a commodity. Customer can either get their product through digital streaming online, by mail, vending machine, Video on Demand (VOD) or in stores and all be the same product and quality. Concerns with production innovation, the movie rental industry should continually pay attention to research and development to gain competitive advantage over rivals by being first to market with a new product. A new product for this industry has been the Video-On-Demand (VOD) where VOD providers delivered rented movies via a file downloaded to a PC or streaming the rented movie directly to a TV via a high-speed internet connection, a cable TV connection or a fiber optic network. As more and more sellers enter this market the demand-supply conditions would drive the price down as well as profits. . The technology change is constantly changing in this industry. The newest technology change is with the VOD and digital downloading. All companies in this industry will need to have strong technology capability to survive. Under current movie distribution, the vertical integration does not apply to this industry because the technology has so few parts and component to distribute movies and making their own movie is unrealistic. In the movie rental industry, member can enjoy economies of scale in shipping activities and partnership agreements with studios for e.g. Netflix has developed sophisticated software to track its inventory and minimize delivery times. Netflix’s system allowed the distribution centers to communicate to determine the fastest way of getting the DVD’s to customers. Learning/experience curve effect would be insignificant because technology driven. Very little human factor in it this industry.

Five forces of competition

The threat among rival sellers is the most important of the five forces when it comes to the rental industry is rivalry among competing sellers. Firms will use any resource or tool available to gain a better position or a competitive edge in the market. The competition in the online DVD rental industry is extremely high. In this industry rivals carry a weakly differentiated product, which makes the threat from rivals more intense since majority of the competitors offer the same services and at almost the same price. As a result buyer bargaining power is high. There are low costs to switch, which make it easier for consumers to pick and choose what they feel is the best suited product and have less brand loyalty. The only area in the online movie rental industry that has...
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