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.
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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 could face from time to time. 2.
What forces are driving changes in the movie rental industry and 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? Some of the driving forces is technology itself and consumers are more aware of alternatives. They are also more empowered to choose how they want their service. This has happened because of economic reasons which have affect consumer purchasing behaviors. They will find what they want at the best price to them and so competition is very fierce.
Some have gone online to find what they want, while other have tried to find cheaper alternatives, including the alternative to record movies at home or use the VOD feature. VOD is a feature in cable and Satellite Company which can be introduce to customers easily. I think it is has intensified the competition for market share in the industry. Block Buster will be obsolete if it does not figure something out to save themselves from total liquidation. Red box and Netflix has been a huge player against Blockbuster.
Netflix has tried to not lose and possibly keep customers by having their movie streaming feature. Red box can be applauded for their grasp of market share. They can be seen as for those who still want an actual DVD, it’s cheaper to operate, and cheaper for customer than compared to a big bulk operation like Block Buster. 5. What is Netflix strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Netflix is taking? What type of competitive advantage is Netflix trying to achieve?
Netflix’s strategy is to build an ever-growing subscriber base. This base included providing subscribers with a comprehensive selections of DVD, continue to acquire new content through building and maintaining business relationships, making it easy for subscribers to identify movies they liked with the use of software, offering a choice to subscribers to watch through instant streaming or DVD’s by mail, spend aggressively on brand and service awareness, and gradually transitioning subscribers to streaming delivery rather than mail delivery.
They simply want to be the “clear leader in the rental segment via its Watch Instantly feature”. I believe that Netflix is trying to achieve the Best-Cost Provider competitive Strategy. This is because they are offering different plans that can give the subscriber their best option for their value. In addition Netflix is spending money in advertising and infrastructure to make it worthwhile for subscribers to stay, which in turn for I think spells out best-cost. Netflix is trying to offer the best value for their subscribers.
The competitive advantage that Netflix is trying to achieve is their ability to stream and have a vast selection for it in the future. They have even done so to insure this by making free apps on mobile devices, and have begun to work closely with the makers of electric entertainment to have Netflix-ready electronic devices to help generate and keep new subscribers. An example of this approach is video game consoles such as the Wii and X-box have Netflix ready abilities.