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Strategy: Case Analysis on Business - Essay Example

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Movies have been a popular pastime in the United States since technology to project movies was invented at the end of the 19th century. The movie rental industry became a profitable booming business after the invention of the VHS player. In the late 1990’s the industry was fragmented with lots of mom and pops stores operating single outlets…
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Download file to see previous pages The movie producers who once had all the power in the industry had to adapt to the market changes and have become more willing to negotiate profit sharing deals with vendors such as Netflix that provide many movie producers with an mechanism that promotes and increases the demand of many small budget movies that in the past got lost in the information highway a few months after they left the theaters. One of the technological trends that have shifted the focus of the industry is the influence of the broadband age. The consumer behavioral trends have changed and the use of the internet to watch movies has risen as faster speeds and the compatibility of electronic devices have made it possible for people to plug the internet their TVs to watch programming and movies online through popular websites such as Hulu.com. Despite the movie rental industry having lower profitability than in the past and higher competition the industry still generates massive sales. Last year in the United States the movie rental industry achieved over $4.8 billion in sales. The sales of DVD rentals have been negatively impacted by rising piracy as many illegal websites have flooded the internet with knockoff copies of new movies which movie users can watch for free. The future prospects for the industry and companies such as Netflix are still positive due to the fact that the demand for box office theater movie releases is still on the rise. This means the secondary market for movies which is movie rentals will still generate lots of revenues for years to come. The hottest trend in the industry is video on demand (VOD). The number of movies available for download via the internet has increased exponentially during the past five years. VOD has arrived and for companies to succeed in the new environment they must adapt to the changes in the marketplace. Netflix has been able to succeed and become the market leader in the video rental industry by providing greater value than the competition. The firm faces hefty competition from different segments of the industry. Its main competitor used to be Blockbuster Video. Blockbuster Video has fallen on hard times and the firm in 2010 file for bankruptcy protection as it closed over 1,500 stores. A new competitor that has risen out of nowhere with a simple, yet innovative model for movie rentals is Red Box. Red Box is a firm that operates video rental vending machines. These machines rent movie for a low price of $1 per day. The customer selects the movie from the machine and then returns it to the Red Box machine. The transactions are paid for via credit card. Red Box created a model with minimum overhead, which has given the firm a competitive advantage. The thousands of independent video rental stores in the fragmented video rental industry also compete directly with Netflix. Netflix also faces competition from the retail marketplace. Major retailers such as Target, Wal-Mart, and K-Mark indirectly compete with Netflix due to the fact that these businesses sell DVD movies at their stores. Online retailers such as Amazon and EBay also compete in the movie marketplace. EBay provides a unique proposition because many movie collectors prefer to purchase movies instead of renting. Buying used DVDs is much cheaper than buying brand new releases. Netflix incorporated a grand strategy to provide greater value than its competition. The first step of the strategy was the elimination of late fees. Movie ...Download file to see next pagesRead More
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