Netflix Case

1. How strong are the competitive forces in the movie rental marketplace? Do a five-forces

analysis to support your answer.

suppliers: Since there aren’t many places to obtain movies legally, aside from purchasing them or viewing them in the theaters, I would say that suppliers are a strong force and can set prices as they choose. However, given the lax punishment of illegally downloaded movies, if suppliers raise prices too high, customers may turn to illegal downloads as an alternative. It’s also important that the film industry (technically the supplier of the films) continue to make movies that people want to watch and are willing to pay to see. Therefore, suppliers are a high force.

Rivals: There aren’t too many rivals. Blockbuster, owned by Dish, isn’t much of a rival considering that nearly all of their stores have closed and they were a little too slow to reposition themselves as a competitor. The only other potential rival would be Red Box, however Red Box lacks the instant stream feature that Netflix has. For this reason, rivals are a weak force.

New Entrants: Although it wouldn’t be necessary to have a physical location, aside from a warehouse to store the DVDs that consumers might want to rent, gaining the rights to stream and lend the videos could be really expensive. In addition, the new entrant would have to find a way to position themselves that is different from Netflix and Redbox For that reason, new entrants is a weak force.

Substitutes: As I said before, illegal downloads would be an alternative to using Netflix’s services. Other substitutes would be to wait until the movie is released for purchased, watch the movie in theaters, or wait until the movie is played on TV. The biggest threat within substitutes is illegal downloads. For this reason, I would say that substitutes is a moderate threat.

Government: Because the government regulates punishment for copyright violation, I would say that the government plays a moderate role. For example, if punishment for infringement was higher or was more widespread, individuals would be less likely to take the risk to download illegally.

2. What forces are driving change 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?

The main force driving the change in the movie rental industry would have to be convenience. With the changes in technology that allow people to do many things within the comfort of their homes that were previously unavailable (web banking, online shopping, etc), customers want to be able to have instant access to things when they want it. This is a favorable force, since