Use clear headings and titles and use spacing well..don’t give us huge unbroken blocks of text.
- Perform a five forces model of competition analysis on the Movie Rental Industry today
- For this industry (not Netflix as a company), rate the power of each force as strong (high), medium, or weak (low) Create one graph or chart that lists the name of each force and your rating.
Rivalry among competing firms – Strong; Bargaining power of buyers – Strong; Threat of new entrants – Moderate Strong; Bargaining power of suppliers – medium; threat of substitute products – medium;
- For each force, explain in a clear paragraph of several sentences why you rated it that way. (separate paragraph for each of the 5 forces)
Rivalry among competing firms is strong because there are major players in this industry, such as Netflix, Hulu, I-Tunes, Amazon or HBO. Although Netflix is the leader of this market, the other rival companies have a strong potential of threatening its leading position.
Bargaining power of the buyers is also strong, considering the fact that the nowadays video on demand (VOD) industry includes various options, such as the movie rental stores, pay-per-view, free online movies, the available cable TV or cinemas, not to mention the possibility of hacking or piracy, which represents a threat for the players in this industry.
The threat of new entrants is moderate strong because, although entering in this industry requires legal rights to distribute movies, which is an entry barrier, a focused attention should be given to the potential new entrants. Google, Microsoft, Samsung are giant media players that have the potential of breaking the entrance barriers and threaten the existent competing firms in this industry.
Bargaining power of suppliers is medium. There are too many video content providers, but not enough strong players on providing video on demand. The nowadays movie demand is highly reliable on VOD, which forces the suppliers to work with the movie rental companies.
The threat of substitute products is classified as medium considering the price-quality alternative. VOD and especially Netflix offer high quality for a moderate price of $7.99/monthly submission. However, consumers can choose from downloading movies for free, although the quality is lower or standing in line at the video borrowing stores.
- Summarize your results. Based on this 5-forces analysis, how attractive is this industry from the standpoint of making profits? Explain
With a growing consumer interest in home-entertainment, the movie rental industry is attractive from the standpoint of making profits. Companies activating in this industry currently activate in a rather niche market and consumers appeal to the top performers in this industry. The threat of new entrants would position companies as Microsoft, Google or Samsung against the leading Netflix, I-Tunes, Amazon or HBO, which are already strongly positioned as VOD players, which is a significant entry barrier. This situation allows a profitable activity for the existent firms in this industry, however they need to build new strategies in case new rivals threaten their market shares.
- The movie rental industry changing. What is changing about where and how we get our movie rentals? What are the movie rental industry’s driving forces of change and how are they changing the industry. (read about driving forces in chapter 3). Explain and discuss what is going on here. Describe 3-4 and be as specific as you can about what you mean.
Renting movies from video renting stores is no longer the single option. Nowadays the internet streaming is a growing trend that allows consumers to view movies on TVs connected to internet, computers, tablets and other internet-connected devices. Using the internet or the remote control to order movies from companies such as Netflix, Amazon (Instant Video), Apple (iTunes) is a current trend in home entertainment. Several driving forces of change in movie rental that transform industry are:
- Customer sophistication – the consumer demand of user friendly, easy access and accessibility impose new technical adjustments for the players in this industry;
- The increased consumption and demand for internet based devices and applications created increased opportunities for movie rental industry to deliver internet content to users;
- Market’s dynamic that marked the decline of Blockbuster and Movie Gallery, but also the entrance of Amazon, Netflix or Apple represent a driving force that indicates the significant potential of this industry.
- What do you think the movie rental industry of the future of will be like? How will it be different than today? How will this affect how companies compete and try and make profits renting movies?
Given the rapid evolving technology and the integrated media content on various channels and mediums, the future of movie rental industry will move towards being available through apps, allowing consumers to watch their favorite movies from their smartphones, tablets and so on for an affordable price added to their monthly internet subscription. This aspect will increase the technical demands for the existent companies and will drive new mobile or internet players into the market, increasing the competition. Fewer customers will be going to video stores to rent movies, considering the fact that it is much easier to do this from home or from anywhere else, without staying in line – this trend has already commenced. Following the iTV strategy, movie rental companies will integrate in their services music, games and other media products customized on the consumers’ preferences – initially for free as trials and later for an extra fee. This aspect will also require increased adaptability, consumer studies and product diversification for the competing companies, in order to continue to be profitable.
- What do you think will be the keys to competing successfully in this industry in the future (what will companies have to be able to do in order to compete?) (read about Key Success Factors in chapter 3; list 3-5 KSFs for the movie rental industry specifically)
For competing in the future, the companies in movie rental industry will need to shape up these KSFs: develop their technologies, align supply with distribution and to provide something extra to attract more customers.
- Companies in this industry need to develop their technology, maintaining their services updated to the latest technological trends (apps, cookies installation for offering customized content to consumers), making their offers more attractive and user friendly;
- For efficiency and for assuring that the purchased titles will be fairly required by customers, companies in video renting need to align the supply with distribution. Identifying cheaper distribution solutions for the hard copies distributed via mail is also required and a KSF.
- Customers are always attracted by novelty. Introducing additional services (unlimited movie streaming plus an online book for free, customized on the customers preferences) could be a significant KSF and a competitive advantage.
- Look at exhibit 2. Make one graph like the one below (or one style of that works well) for Netflix showing for each of the years 2007, 2009, 2010 and 2011:
- $ Revenue (also called Sales)
- $ Net Income/Net Loss (also called Profit or Loss)
- Net Profit Margin % (Net Income divided by Revenue x 100. This measures how many cents they keep in profit for every dollar they collect in revenue)
* Be certain you tell us if your numbers are in dollars or Euros in thousands or millions or billions or what? If you are having trouble with creating the chart, Google “Adding a second Y axis in Excel chart” and you will find some helpful resources.
- Summarize the strategic change that Netflix made when they changed how customers rent and pay for DVDs vs. Streaming. What changes did Netflix make, and what was the result? Why?
- Think about your answer to questions #2/3/4. Looking at the movie rental industry moving forward towards the future, does Netflix need a new strategy or can they modify what they are doing? Explain.
Netflix maintained its competitive position precisely because of rapidly adjusting its business to the latest technological trends. Continuing to do so will allow the company to increase its user-friendly and accessibility attributes. However, for providing customized content to customers based on their identified likelihood of movies and TV programs, Netflix needs to develop its sociological abilities and to match them with additional media content (books, video games, etc.) for offering a complete media package to its consumers. Moreover, in order to align supply with demand, the company needs to increase its collaboration with movie producers and as a strategy in this sense, it needs to take advantage of its leading position for requesting preferential deals with the movie making companies.
- What are some things that Netflix should do differently to continue to compete successfully and earn profits in the “new” movie rental industry of today and the future?
Netflix’ DVD via mail service keeps the company in an off-line environment, while the world is moving towards the online. Changing some of the existent regional distribution centers and shipping points into research and development centers will reduce the offline, postal services and bring the company more into the new moving rental industry of today and the future. Considering the fact that the company announced its plans to pursue global extension, Netflix should carefully analyze and monitor the targeted international market for testing the preparedness of those market to receive its services.
- If management agrees with your plan described in question #8, what would be the top 3-4 action steps to implement your recommended plan and turn it into reality? Be clear on what you mean.
If Netflix agrees with the proposed plans, it should:
- Announce the reduction of the shipment and distribution centers, informing which centers will be still available;
- Develop a strategy for further research and development with clear objectives and measurable results;
- Start to work with the local internet distributors from the targeted international markets for testing the internet speed required for easy access on its website.
- Align the content and copyrights for TV shows from the American movie studios with the existent legislation in the countries targeted for international expansion.
- Prepare a 150-200 word message that you could leave on a voicemail to Netflix top management:
“Dear Netflix Management, I have evaluated your company and situation, and I would like meet with you to give you a summary of my ideas on how you can keep your company competitive in the future: Here is a summary of my recommendations:
- Develop an application for easy and rapid access from smartphones, tablets and other mobile devices for increasing your market share on emerging technologies;
- Customize and reward (create brand loyalty for) your customers’ experience by providing them with additional media content such as books or video games, suited with their tastes in movies;
- Consider later introducing an extra fee for the additional media services;
- Reduce your shipping and distribution centers while focusing on increasing your research and development for adjusting your business strategy and your services to the future needs of the consumers;
- Align your supply with demand, enriching your available content by requiring new deals with the movie making companies, based on your leading position;
- Prepare your international/global expansion by carefully analyzing the preparedness and the need of targeted markets to receive your services;
- Promote your modernized and pioneering services for gaining increased brand awareness and market share;
- Stream! Stream! Stream!
(put your 200-250 words here).
Thank you and I look forward to discussing these ideas in more detail in person.”
General Points for all cases: Put all of these answers in clear, easy to read formats. Use paragraph titles, bullet points, white space, numbering etc., to make your answers more readable where appropriate. (don’t just write big paragraphs with the answers hard to find, buried in the text. Make it easy for the reader. Be careful with reading the charts in the case, some show numbers in millions, some in thousands, etc.) Good luck and please contact me with any questions or confusion.
