Netflix Business Model and Strategy in Renting Movies and Tv Episodes

Netflix's Business Model and Strategy in Renting Movies and TV Episodes

Netflix's Business Model and Strategy in Rending Movies and TV Episodes

Netflix, founded in 1997 by Reed Hastings is the world's largest online movie rental service; with revenues of 1.2 billion by the end of 2007. Netflix has a library of 100,000 movie titles; and currently has a subscriber base of over seven million. "Netflix launched its movie rental service in 1999 with the goal of using the DVD format and the Internet to make it easier for people to find and get movies they will enjoy. As a result, our members can reliably discover and enjoy lesser-known titles. As we succeed, more people are watching more films, and filmmakers are reaching a larger audience. In turn, we believe they will produce more new films. Netflix strives to be the world's largest and most influential movie supplier. (netflix.com/pressroom)" The competition in the movie rental industry is highly competitive. New entrants are threating the industry with the ability to rent via kiosk and vending machines.

How strong are the competitive forces in the movie rental marketplace? Do a five-force analysis to support your answer.

Threats of Substitutes: - Medium to Strong

Bargaining Power of supplier: Strong

Rivalry in the industry: Weak - Medium

Bargaining Power of Buyers: Weak

Threat of New Entrants: Strong

Threats of substitutes: Substitutes could be VOD (cable TV), Pay-per View; satellite, and

movie theatres With VOD or Pay-Per-View people can stay in the comfort of their own homes,

and pay one nominal fee ranging from five to seven dollars for the entire family to watch with

the prices of movies today, and the economy, this is the better choice. Moreover, with the DVR

service that is offered by cable and satellite the consumer can pause and rewind; additionally

most On-Demand movies are available for 24-48 hours from the time you rent. Therefore the movie

can be viewed several times at no additional charge. Today, Cable offers movies 30 days before

they are released to Netflix customers.

Bargaining power of Suppliers: There are very few suppliers of the video and gaming industry. Therefore the bargaining power of the supplier is strong. Company's like Netflix would purchase the movies from the movie company and in return shared the revenue.

Rivalry in the industry: The biggest rivalry would be Blockbuster and Red Box. Red Box has cheaper prices and kiosk's at your local supermarket, 7-11, Wal Mart and those alike. This force is rather strong as well, as there is no brand loyalty here. It won't cost the consumers anything to switch.

Bargaining power of buyers: The buyers can actually shop around for the better price. There is no loyalty and switching cost would be very low. People often would rather purchase the DVD themselves at one low cost. There is really no bargaining power in this industry.

Threat of New Entrants: This force is rather strong as this is one of the fastest growing markets. Technology allows for many ways of streaming movies right into the comfort of your own home. Downloading capabilities allows one to download movies from a site, sell those movies (albeit bootleg) on the street. The new comer will face high operating cost, however, there is the threat of them coming into the market.

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?

Forces that are driving change:

* Changes in the industry long term/short term -

* Increasing Globalization

* Changes in who buys the product and how they use it

* Technology change

* Emerging new Internet capabilities and applications

* Product and Marketing innovation

* Regulatory influences and government policy changes

* Changing societal concerns, attitudes, and lifestyles

The combined impact of the above mentioned drivers of change can be collectively favorable insomuch that with the way the industry is changing, if a company is already a strong player, the changes will not affect them in the long run. A good stable company will have a plan in place to counteract any of the drivers and will be well prepared to face them head on. Globalization can always a benefit for an organization, expanding your business to other country's can increase revenue. Technology change will benefit the company to show they are innovative and are able to keep up with new technology. Emerging with new internet capabilities and applications would be in the same category as technology changes. It takes a certain amount of speed up and down to download a movie in a reasonable amount of time. The ability to market your product to make it appealing to the customer is a key attribute in marketing. Such as regulatory influences and government policy, in the movie industry is regulated by the FCC and many issues detour the industry. The way the economy is today could have a huge impact on the way this industry can flourish. People are not going to the movies as much and are deciding to stay home for their entertainment. Netflix, On Demand or any other way to view movies are more appealing as you are getting more for your buck.

What does your strategic group map of this industry look like? How attractively is Netflix positioned on the map? Why? (SEE ATTACHED FOR MAP)

Netflix, in my opinion is head of the pack. They were the fist-mover in this industry and are still financially strong. Today in 2011 you have a choice of delivery of the DVD to your front door step or streaming the VOD (video on demand) directly to your TV set. Netflix has a strong marketing and advertising plan, as they used multiple marketing channels to attract subscribers.