Electronic Commerce and Its Effects

Electronic Commerce and its Effects on the Online Video Rental Industry

Agenda

Industry Overview & Structure Blockbuster vs. Netflix Netflix

Overview Distribution Process Long tail Virtual Inventory Customer Relationship Management Cinematch Revenue Sharing

Future of online movie rentals

2

Video Rental Industry

Industry Overview:

Initial Market: Traditional rental stores using VHS media DVDs: Higher quality, compact and easy to mail Increasing demand for HD, Blu-ray technology Increasing popularity of VOD

3

Video Rental Industry Structure

Reasons for Competitive Pressure

Static demand:

o Price wars are helping fuel demand o Size of the market: Not expanding stagnant growth o Movie rentals: Undifferentiated product

Only real alternative for growth is to increase market share intensifies competition No switching costs Exit Barriers (Blockbuster)

4

Consequence of Competitive Pressures

Threat from technological breakthroughs: Online rentals, VODs, Blu-ray technology Change of industry structure from consolidated to fragmented due to changes in technology / innovation (Porter’s Punctuated equilibrium concept)

5

Punctuated Equilibrium and Competitive Structure: Movie rental Industry, from Consolidated (90s’) to Fragmented (Present)

6

The Players

In-Store Rentals & Sales Blockbuster Wal-Mart Stores Amazon.com

Online Rentals Netflix Blockbuster Apple (iTunes)

Online Viewing Netflix Blockbuster Amazon.com

7

Market Share of Major Players

Online Rental Industry - Market Share

2% 1% 25% Netflix Blockbuster Walmart 72% Other

48% 14% 20% 18%

Movie Rental Industry - Market Share

Netflix Blockbuster Movie Gallery Other

8

Rental Price Comparison

Rental Price Comparison Netflix 2 week Free Trial YES YES Blockbuster Price/month (Total Access Plan) $17.99 + 5 instore exchanges $14.99 + 3 instore exchanges $9.99 + 1 instore exchange 2 week Free Trial YES YES

Plan

Rentals/ month

Price/ month $16.99...