Competition in the Movie Rental Industry - Research Paper Example

? Competition in the Movie Rental Industry Competition in the Movie Rental Industry The movie rental industry has attracted many business organizations in the last few years. These organizations continuously adopt new techniques and ideas to maintain a competitive advantage. The main competitors in the movie rental industry are Blockbuster and Netflix. Porter’s competition model has five forces behind the competition in every market. These forces are supplier power, buyer power, new entrants, substitute products, and competitive rivalry (Haag & Cummings, 2009). Suppliers adopt strategies such as patents in order to acquire supremacy within the industry. Companies provide attractive movie prices and services in order to control the buying power of their customers. Buyers have several companies to choose from, and these companies must strive to keep their customers. Competition is high in the movie rental industry due to easy entry by new companies. There are several companies with similar products at reduced prices, which increase competition. Some of the new entrants provide substitute products such as cable services. Customers subscribe to cable providers, and they gain access to several movies at a reduced monthly price. Competitive rivalry between companies creates the need for new strategies and businesses enjoy a competitive advantage only for a short time. One of the five forces of competition is supplier power. Companies in the rental business acquire their content from studios and movie distributors. The movie industry has several studios such as Walt Disney, Pixar, and Warner Bros and other distributors from which rental companies can choose from. The number of suppliers and the uniqueness of their products determine the supply prices. Blockbuster purchased Movielink which is a leading movie downlink service and reduced the need for DVD’s and plastic cases (Blockbuster Corporate, 2009). Suppliers and distributors who deal with DVD movies will experience reduced purchase power. Blockbuster customers can purchase and download movies from Movielink which reduces the need for DVDs. Netflix acquires its content by buying DVDs from studios and distributors, paying on a fee-per-DVD basis (Thompson, Strickland, & Gamble, 2009). Some suppliers offer unique products, which reduces the chances of substitution. Movie studios and distributors generate revenue by selling movies to rental companies and a large number of viewers. This creates a symbiotic relationship between suppliers and rental companies, which controls supply prices. Buyer power in the movie rental business is usually high due to the wide range of movies present in the market. There is no legal substitute for movies in the market, which makes rental companies dictate the market prices. The industry has few operators who have similar product prices and deal in almost similar products. This enables the companies maintain high prices affordable by several buyers since they do not buy large volumes of movies. Netflix has over 8.4 million subscribers who prefer online browsing and mailbox delivery of movies. There is no cost of cancelling subscriptions and switching to other companies; therefore, there is little migration of customers. Blockbuster utilizes total access sealed envelopes that can be traded for movies at no extra cost. Buyers can utilize these envelopes to purchase movies of their choice from the local stores without incurring any shipping charges. Movie rental companies offer downloadable movies to increase the buying power of their customers. Competitors may offer different prices to attract more buyers. Redbox offers its customers reduced prices in order to have a competitive advantage over Netflix and Blockbuster. The high demand for entertainment across the world provides rental companies with large numbers of customers. The presence of substitute products in the market creates competition between different businesses in the industry. Customers have a wide range of entertainment products to choose from and different companies to purchase from. Continued battles between Blockbuster and Netflix have provided an expansion ground for substitute entertainment products. Cable television and digital cable subscriber have increased the number of customers over the past few years. Cable services provide viewers with movies and television programs at a reduced price. Video on demand has recorded double growth over the last two years, and it is taking over from movie rental companies. It is more convenient to watch movies from cable providers than purchasing DVDs from movie stores or rental services. There are several movie streaming sites on the Internet from which individuals can watch online movies. Movie theaters give viewers an opportunity to watch several movies at reduced prices. Fox theaters have opened branches in several countries around the world. Entertainment seekers have several sources to choose from, which reduces market for movie rental companies. Availability of several substitute products increases the threat from substitution. This requires innovation of unique products and offering customer friendly prices for products. There is a high threat of new entrants in the movie rental industry. The new entrant can be an existing company branching into a new market. Existing companies, though experienced, have to venture into other business model in order to keep up with the competition. Blockbuster held the highest market share before the entry of Netflix into the industry. Netflix began offering downloadable movies and increased its market share much faster than anticipated. Blockbuster and Netflix expanded their market through online sales, which forced Movie Gallery Inc. to close about 1,000 video stores. Redbox chain provides cheaper movies and has set up online stores and home delivery services. The cable TV and subscriber line companies have continued to expand their network around the world. Easy entry within the movie industry increases competition for existing companies. This forces them to close brick and mortar movie stores and venture into online movie sales. Redbox has set up distribution kiosks in retail shops such as Wal-Mart in order to counter competition from other companies within the industry. Setting up distribution kiosks and online store requires hardware, personnel, and software which increases the entry cost into the industry. In a fierce market, there exists rivalry between competitors especially in the movie rental business. Competitors employ different strategies to counter competitors, but they enjoy a competitive advantage for a short period (Haag, Cummings, & Phillips, 2007). Netflix launched a website through which customers could order movies or download them after making payments. Customers could make personalized movie orders, which could also be delivered to their door step. Within a short time, Blockbuster started their download services and purchased Movielink which offers download services. Movie kiosks rent out movies at a fee of four dollars per night, but they have reduced their charges due to competition from Redbox. This company set up vending machines outside local grocery stores which supply DVD rental services. These machines are cheaper to set up and rent out movies at a charge of one dollar per night. These machines have forced other rental companies to reduce their charges and close some of their kiosks. Netflix customers can exchange return movies by mail, and the company provides mail delivery for movie orders. Blockbuster started Total Access through which movies are shipped to customers in sealed envelopes. Customers can then use these envelopes to trade for other movies without incurring additional charges. Rental companies engage in massive advertising and provide group rentals as a way of edging out their competitors. Movie rental businesses utilize the five models of competition in order to gain competitive advantage against rivals. Movie rental businesses have to provide attractive services and prices in order to attract more buyers. Rental companies purchase their content from movie studios and distributors. Supplier power is determined by the number of suppliers available in the market to choose from. The movie industry has several studios, which reduces the supplier power within the industry. Easy entry into the market has led to an increase in rental stores, streaming companies, and cable companies. These companies provide similar products at reduced prices in order to gain a competitive advantage. The entry of these companies provides substitute products available to customers. Rental businesses are forced to venture into online services and reduce their prices in order to keep their customers. Competitive advantage is usually short lived due to competitive rivalry within the market. Rival companies incorporate strategies similar to those of their competitors. This makes competing companies have a short lived competitive advantage. References Blockbuster Corporate. (2009, December). Company overview. Retrieved June 28, 2012 from http://www.blockbuster.com/corporate/news. Haag, P. S., & Cummings, M. (2009).Management information systems for the information age. New York: McGraw-Hill Higher Education. Haag, S., Cummings, M., & Phillips, A. (2007). Management information systems for the information age. Boston: McGraw-Hill/Irwin. Thompson, A. Jr., Strickland, A., & Gamble, J. E. (2009). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases. New York: McGraw-Hill. Read More