Netflix Case 6

1. How strong are the competitive forces in the movie rental marketplace?

I believe the competitive forces in the movie rental market place are very competitive and tough to stay in business. There are so many competitors that have and continue to take market share of the industry without any sign of it to be regained. This happens because of pricing and the medium in which that can be rented, sold or watched. These alternatives to rental are purchasing movie through retailers, renting through vending machine kiosks, Netflix ( movie delivered or streamed), cable subscription movie channels, pay-per-view and video on demand (VOD), internet movie and TV content providers (ITunes, Hulu.com, etc), and pirated files or films. These forces have all played a strong role in phasing out the classic traditional going into a video rental store and renting movies. I also think as time goes on those that will not assimilate to the new technology will not be a small market share, which will be obsolete.

Do a five-forces analysis to support your answer.

The five force analysis deals with the competitive intensity, which in turn gives the attractiveness of the market. Out of the 5 forces, 3 of them are external (horizontal), and the other two are internal (vertical). The external threats are the threat of substitute products, threat of established rivals, and the threat of new entrants.

The threat of rivals for Netflix could be Block buster video, red box, and any local vendors that rent out movies. They have been in the market and could have an advantage. Block buster for example is the number one movie renter before they had troubles. The threats of substitutes for Netflix are threats like the products that cable and satellite offer, such as VOD and pay-per-view ordering of movies. This is a segment in the market for customers that watch movies in the comfort of their own homes. The threats of new entrants are the threats that Hulu.com and other internet movie and TV content providers can do and will continue to. Their presence was a new thing at the time, when Netflix had no competition from that and made it worthwhile for others to enter. The other two internal forces are bargaining power of the customer and the supplier. For Netflix the cost of delivery their services whether it is via mail or streaming, if cost increases the customers will be more price sensitive than expected. The price elasticity in the movie rental industry can be something of a threat. As for bargaining power of supplier Netflix would have to forecast correctly and decided how much physical DVD’s it will need, including efficient distribution networks versus having a strong stream infrastructure. Once that is formulated Netflix would have negotiate prices and terms for the streaming and DVD’s. In all negotiations there is a risk of having unfair costly terms, which is what Netflix