Netflix Versus Blockbusters

Question 1:

From your reading of the case, compare the strategic position of Netflix and Blockbuster, using Porter's Five Forces Framework.

Executive Summary

The 5 forces framework is identified in tables 1 below.

Blockbuster business model back in the early 2000 was to pay-per-rental, customers were frustrated by late fees and not being able to find their movie of choice when they wanted it. Blockbuster's base business model heavily focused on new releases and their completive advantage in the area was driven by sheer saturation of retail units.

When Netflix came to the fore in 1998 they were successful because they took advantage of new technology and found a way to deliver their product to consumers utilising the existing US postal service mail. Netflix's level of success has been due to their commitment to improving the customer experience around the queue and creating the individual recommendations. They added different price plans so there would be something for everybody.

Netflix will be the one that succeeds in the end because they look at the needs of their customers and proactively utilize a value chain model and use information technology to sustain their competitive advantage 1(Laudon & Laudon, 2007 p. 118).

The 5 forces framework is identified in tables 1 below:

Table 1

Porters 5 Forces Blockbuster (BB) V Netflix (NF)

Barriers to entry (H/L)

Threat of new entrants The threat of new entrant's pre NF was low as it would take a large investment to really compete with the thousands of stores along with the warehouse and supply chain infrastructure of BB. High, based on large investment.

Threat of substitutes The threat of substitute to BB would be to other video shops, cable and satellite TV with VOD. Low based on current saturation of the market

Bargaining power -suppliers This would have been considered high until NF entered the market. There are multiple choices for film rental, not just DVD but online streaming of film. In these cases bargaining power is low. High, based on having to build relationship with Major studios for new title costs which are high and a large part of the business

Bargaining power- buyers Although BB has the new releases and more choice. Netflix has become a video rental leader and customer's can easily go online and rent. There are multiple companies in this area of Video on Demand such as vongo and movielink that are competing for the same customers. High there is large investment required to enter this industry

Rivalry among existing customers This is high when competition among existing competitors is fierce. BB was immensely successful in the past because of their size and presence. On line video rental and the internet has changed the business model as a move to on demand for those more technological inclined to the DVD rental with the lower fees, wider range, no cancellation fees. NF took the new emerging technology of the Internet to create a niche market for movie rental, which has allowed them to have lower cost of ownership, wider range, and longevity of DVDs. N/A