Netflix Business Model and Strategy Case

Luke Swenson

Netflix

9/25/2012

Section 003

Case: Netflix’s Business Model and Strategy in Renting Movies and TV Episodes

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

Substitutes: There is a strong force of substitutes. Consumers can buy DVDs at retail stores, rent movies via vending machine like Redbox, rent online, watch movies via TV packages and premium movie channels, pay-per-view movie rental, watch movies on the internet via youtube and amazon.com, and consumers can obtain pirated DVD.

Buyers: There is a strong force by the buyers, there are a lot of substitutes and companies have to fight with rivals for a competitive price and customer service. Pleasing the consumer is huge in this industry.

Suppliers: There is a mediocre or low force by the supplier because there are a lot of different companies that offer the same goods. The DVD rental industry has a lot of substitutes with the same product just a different way of obtaining the movies.

Potential for new entrants: The potential for new entrants is weaker because existing companies like Blockbuster are struggling to earn healthy profits. The convenience of movies online and through TV companies are over powering the in store business models that Blockbuster and Movie Gallery had.

Rivalry: The force of Rivalry is very fierce because companies are coming out with new ways of obtaining movie rentals. The internet based companies are making it hard for other companies to rent their DVDs through storefront business models. Netflix leads the pack with the ability to obtain the rental through the mail or over internet streaming.

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 force of substitutes is driving the change in...