Netflix V Blockbuster

2477 Words Jun 14th, 2011 10 Pages
Competition in the Movie Rental Industry in 2008:
Netflix and Blockbuster battle for Market Leadership

Strategic Issues
Netflix has limited streaming via online downloading. They also have limited market segment. Blockbuster does not maintain enough inventories of new releases, and also needs to expand into online downloading.

Analysis
Industry’s Dominant Economic Features
The movie rental industry’s market size is relatively large with $24.9 billion in 2007, which is up from $22 million in 2004. The growth rate will continue to rise with the demand for movie entertainment. There are a few numbers of rivals, but the industry is consolidating to an even smaller number of competitors. Today the scope of competitive rivalry
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The threat of new entry is relatively high. The start up costs are low to enter this industry for all that’s required are DVDs and a website but to be considered profitable you need to attract 2 to 4 million subscribers. Another high barrier for entry would be regulation policies in which you need a license to sell copyrighted movies. The threat of substitute products is high. “Cable and satellite TV customers with DVRs could readily substitute VOD movie offerings from their cable/satellite TV provider for purchasing or renting movie DVDs.” (pg. C-100) Individuals can easily switch with little to no cost involved. Illegal downloading and pirating are another substitute products in which has no cost factor. The supplier bargaining power is moderate to low. There are only a few suppliers in this industry in which they get their products from movie studios and other movie distributors that create the films. Since movies are considered a commodity, it doesn’t matter which seller you purchase from. Suppliers have more control over setting prices but at the same time the movie studios and companies like Netflix need each other to survive. Since there are few suppliers the switching cost are low. The buyer bargaining power is weak. When a new movie is released, the buyer is in high demand to get it as soon as possible, which creates a sellers market. A seller’s brand reputation
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