Netflix Case Solution Paper
Anthony Morand Master in Business Management 1 – How is the online movie rental business changing? Map the industry’s value chain from end to end. Since the creation of Netflix in 1997, the online movie rental business has been changing constantly forcing companies to adapt their strategy. At the earliest activity of Netflix, Blockbuster dominated the market and customers were renting VHS movies and DVDs directly from retail locations, around 70% of the rental concerned new releases. Then Netflix popularized the online movie rental by offering its customers the possibility to rent a movie directly from its website to finally have the
DVD mailed to them. Afterward, Netflix has to face a growing competitor network, not only from classical retail locations but also on Internet. Customers became more and more demanding about the delay of deliveries, the availability and choice of the movies and the flexibility concerning the fees for late returns. Customers started to subscribe to prepaid plans enabling them to rent a number of DVDs relative to their plan or package. The next big step came with the development of video-? on-? demand a mix between pay-? per-? view programing and Internet downloading and the apparition of HD movies. Customer could now directly watch heir movie on specific TV channels or on Internet; they were also able to download them.
The process was and is still complicated and even if VOD is the future of online movie rental the adoption is slow. For VOD to become a mass product market it need to become easier without having some kind of transition system between a PC and a computer but it also need to have a large choice of movies which is filtrated by licencing obligations. Most of the company use a similar value chain model. After the inbound logistic process in which companies buy the DVDs to their suppliers, the customers subscribes to the service and create a profile ith information which will help the company to promote a selected range of DVDs. Customers can chose different plans such as unlimited, 3 movies per months etc. usually charge monthly. When the selection is made by the customer the movie is mailed to him and when he has finished to watch it, he send it back to the company in a provided prepaid envelope. Now, most companies let customers keep the movies as long as they want without charging any extra.
The all process could be summarized as fallow: Marketing and communication operations Aquisition of the movie, warehousing and inventory 2 -? What are the underlying forces that are riving industry change and are their impacts favourable or unfavourable? The industry change is directly linked to Internet evolution and the growing number of films, series, music etc. Indeed as explained in the case the industry growth is based for 70% on technology and 30% on art which makes the activity hard to forecast. The availability of more and more content the last years has positively impact the demand. Also the development of the cable TV, and the continuously growing content on Internet have participated to this increasing demand and contributed to change customer expectations who now want their needs to be satisfy as oon and as cheap as possible. Internet ecommerce and security of payment are also linked to these changes, peoples feel more confident to make online transaction than before.
Online piracy such as peer-? to-? peer negatively affect the industry by enabling potential customers to get their movie rapidly, for free ands sometime even before they came out on the theatre. Until now, the bad quality of Subscription of cutomers and creation of its profile Selection of the movies from the customer VOD Download or instant watching Customer send back the movie Movie is watch by the customer Classic System Shipping pirated films was a break to ts development but this is a trend that starts to disappear with the recent availability of HD films. Finally, they are still many zones that are still not properly equipped for Internet and this is big threat for Netflix who operate only on the web. 3 -? How strong are the competitive forces confronting Netflix in the DVD rental marketplace and what is their impact on competitive intensity and future industry profitability? Do a « five-? forces » analysis to support you answer.
The market for Netflex is highly competitive, indeed the company face both online and traditional competitors. In terms of existing competitors, the main nes are Blockbuster, Hollywood video, Movie gallery etc. each one has its own competitive advantage. For example Netflix is the pioneer of online movie rental, they are specialized in non famous movies and benefit from a large choice of videos comparing to classic retailers which are restricted by their store size. Netflix’s website enables a better understanding of its customers needs and thus a better advertising strategy. In the other hand comparing to Blockbuster who own a huge network of retailers they suffer from a lack of immediacy, they can only reach Internet users. The new entrants on VOD market such as Vongo or MovieBeam epresent an important threat for Netflix regarding all the ventures and agreements that have already been made. Also, these players offer essentially VOD services which are supposed to be the future of the online market.
In the other hand there is not a big risk to see many companies entering this market because of the high capital required to get access to the movies’ licences. Buyers’ power is very high because they have many stores or website available to rent their movies and they have access to the different prices. Suppliers’ power could be high for new releases but for independent productions or old movies their power trend to ecrease. This is an opportunity for Netflix which is consider as the specialist of non famous films. Supplier power is also dependent on how many they are working with the same distributor. It seems that their power is very high on the VOD market especially in the US because of the need of licence from the content owner. In terms of product of substitution, apart of video theatres, Apple is in my opinion a dangerous competitor with Itunes or the Apple TV.
They also offer portable VOD with the possibility to rent a movie and to watch directly on an Ipod, Ipad etc. Film piracy is also a huge threat for all the industry, more and more eople are now able to find what they are looking for in a few click for free at a quality very close to original DVDs. 4 – What does your strategic group map of this industry look like? Is Netflix well positioned? Why or why not? Large Choice Netflix Direct comp. Blockbuster… Internet VOD Vongo, MovieBeam… Small Slow Apple Cable TV Time for delivery Fast After years competing on the online movie market Netflix and Blockbuster both performed pretty well. Blockbuster has an important network of retailers which enable a fast service and Netflix an large stock of movies especially not well known ones. They are distributed through a nique website enabling the company to offer a biggest choice for a reduced cost.
This is a short term analysis and there is, in my opinion, a new way to see the market, in three or Five years from now we can make the hypotheses that nobody will be renting a movie in a retail store or even more from Internet where customer need to do the effort to return the DVD per mail. The key success factors in the future seems to be the rapidity to provide a movie and a large choice always available without difficulties. At the moment Cable TV have an advantage on this On-? demand emerging market by providing a movie immediately and directly the
TV screen which remain the favourite customers support. However, even if this is more convenient than transferring a movie from a computer to a TV, they suffer from a lack of choice. Internet VOD allows customers to access to a larger film selection even if this one is still restricted and inferior as traditional players. If online mail order business trend to disappear, it would be hard to say that Netflix is better positioned than Blockbuster, both company could not be able to survive. However Netflix has some advantages that can help them to succeed on the long term.
Indeed, Netflix already has an important network of customers and nformation about them, also it is the only one specialised in independent movies with the most important choice of films which involve existing agreement with suppliers. Even if in the short term Netflix is still well positioned it will not remain like that on the long term and it will depend on its next move. 5-? Does Netflix has adequate competitive strength to go head-? to-? head against Blockbuster and other key rivals? What does Netflix need to do to strengthen its competitive position and business prospects vis-? a-? vis Blockbuster and other rivals? As we have seen previously, Netflix has competitive advantages that enable the