Netflix Case Analysis

1205 Words Nov 23rd, 2009 5 Pages
Competition in the Movie Rental Industry

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This paper will analyze Arthur Thompson’s case study titled “Competition in the Movie Rental Industry in 2008: Netflix and Blockbuster Battle for Market Leadership.” I will address trends affecting the movie rental industry, analyze the competitive industry environment, and discuss the use of both the SWOT and balanced scorecard to assess Netflix’s overall strategy.

Trends Affecting The Movie Rental Industry

I chose the following areas as relevant in my analysis of the attractiveness of the industry:
1) Market Features( The movie rental industry was in a mature market stage prior to the utilization of the Internet as a distribution medium. Netflix utilized the Internet to gain
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3) Bargaining Power of Suppliers (+)( Netflix’s movie inventory is supplied by movie studios through direct purchases, revenue sharing agreements, and licensing (C-104). Studios appear to have a fair degree of bargaining power as they are selling a unique product not a commodity. Therefore, suppliers are seen as having a moderate threat. If a studio produced a successful movie, the subscribers of Netflix will expect to have the ability to rent that particular title. Netflix may attempt to form collaborative partnerships with more successful studios that produce a lot of new release “hits.”
4) Bargaining Power of Buyers (-)( Buyers are very limited in negotiating prices for the movie rental industry as prices are commonly fixed for certain services and rental options. Therefore, buyers are viewed as having a low threat. However, the customer may compare prices of other companies and switch if costs appear to be set too high.
5) Threat of substitute products of services (+)( Netflix has a ceiling on the amount it can charge because of competition in its market. If Netflix charges too much customers will switch providers. Different providers have the ability to carry the same movie titles if agreements are made with other studios. It is difficult to substitute movies that customers would like to view with other movie titles. Switching costs appear to be low, as customers would merely

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