Instruction for Case: Netflix’s Business Model and Strategy in Renting Movie and Tv Episode.

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Instructions for Analysis of Case 6
1. How strong are the competitive forces in the movie rental marketplace? Do a five forces analysis to support your answer.
Below is an analysis of five forces model of competition in the movie rental industry:

Rivalry among companies competing in movie rentals
Rivalry is centered on such factors as
• Price of movie rentals (rented either individually or via a subscription plan); variety of subscription plans to choose from.
• Convenience in renting movies (including returning rented DVDs).
• Breadth of selection (size and diversity of movie rental library).
• Availability of the DVD
Of course, DVD availability is not a factor when the rented movie is being streamed over the Internet by
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But while collective competitive pressures are fairly strong and likely to intensify, they are now not so strong as to prevent many movie rental companies—especially Netflix—from being profitable. Up to this point, the movie rental companies (with the exception of Blockbuster and Movie Gallery) have able to cope with rivalry, the bargaining power of the movie studios, and the competitive pressures from substitutes. It would not, however, come as a shock if the bargaining power of the movie studios begins to squeeze the profitability of VOD/Internet streaming providers as they demand bigger fees in return for granting streaming access to the libraries of movie titles.
The dismal financial performance of Blockbuster and Movie Gallery confirm that competitive conditions for earning attractive profits are pretty tough. Netflix, on the other hand, is doing very, very well from the standpoints of revenue growth and financial performance. (This is true of Redbox, as well, which is the subject of the next case)

2. What forces are driving change in the movie rental industry? Are these driving forces likely to have a favorable or unfavorable impact on competitive intensity and future industry profitability?
 Technological changes related to the Internet.
 Changes in how the product is used.
 Changes in costs
• Prices for wide-screen, high definition TVs have been

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