Netflix 2004 Case Study

Netflix 2004: What Strategic Move to Make Next

1) What are the dominant economic characteristics of the online movie rental business?

Market Size- The online movie rental business is in the rapid growth and take off stage. Netflix was able to gain two million subscribers in their first four years, with a 74% boost in subscribers in 3 quarters of 2003, and a 73% subscriber growth third quarter 2004. In Blockbuster’s first six weeks of online movie renting, the retail giant was able to gain as many customers as Netflix had in its first year and a half.

The online movie rental business was part of the $65 billion a year film and TV market, with $8.5 billion of that in the DVD rental market. The DVD/video game market was expected to expand to $30 billion by 2006. Wal-Mart, Blockbuster and Amazon were expected to enter the market. Netflix had sales of $363,365,000 sales as of September 30, 2004 for the fiscal year. (Maddox, 2005)

Number of Rivals- In 2004, the market was fragmented into many smaller companies. These included Wal-Mart, Blockbuster, Amazon, Walt-Disney on Demand, Movie-Link on Downloadable Movies, and Netflix. However, the industry was going through a transition to a few dominant companies. (Maddox, 2005)

Scope of competitive rivalry- After Netflix halted expansion into Britain and Canada, the online movie rental industry became strictly national. (Maddox, 2005)

Number of Buyers- Market demand is fragmented among many buyers. As DVDs entered mainstream society, the demographics of the movie rental business expanded, reaching more women and people of all socio-economic status. (Maddox, 2005)

Degree of product differentiation- Products as far as movies available to rent are not differentiated. Every company rented out the same movies. However, Netflix differentiated itself through CineMatch, price scheme, online streaming of movies\, and a vast distribution system. (Maddox, 2005)

Product Innovation- Rapid innovation is crucial to the...