Netflix Case

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SUBJ: Movie Rental Analysis

EXECUTIVE SUMMARY

The movie rental industry is a large market and it is growing extremely fast. Blockbuster has been the leader in movie rentals for the past decade, but Netflix has entered the market and is taking off fast. Recommendations for Netflix and Reed Hastings: look for ways to get exclusive content, look into the idea of vending machines, and keep a competitive price point. Recommendations for Blockbuster and James Keyes: lower subscription prices so that are lower than Netflix, and find a way to stream movies online.

ANALYSIS

Since 2000, the rapid spread of new technology has changed the way consumers can view movies. You can rent movies through in store rentals, rentals via mail, Video-on-Demand services, and even vending machines have entered the market. This is causing a major battle between two Blockbuster and Netflix for market leadership.

Let’s first take a look at the movie rental industry as a whole. Using the Five Forces Model of Competition, we see that rivalry among competing sellers is a strong force. There are many rivals in this industry whether that is Video-on-Demand services, vending machines, movies by mail, or in store movie rentals. Theses competing forces drives the prices down, this is ultimately good for the consumer. The potential for new entrants is a strong driving force. Buyer demand is growing fast, DVD sales are declining ($7,030 million in 2006 to $5,826 million in 2008) while vending machines are increasing (up from $79 million to $388 million in 2008) and movie by mail rentals are increasing (from $1,291 million to $2023 million). Firms in other industries offering substitute products is another strong driving force in the movie rental industry. Cable networks show movies, Cable companies have VOD services, and DIRECTV offers a subscription to their movies services. End users are getting more comfortable with these ideas, and they are becoming...