The Competitive Forces Confronting Netflix - Case Study Example

Netflix provides home entertainment solutions, and the number of substitutes available to the customers is very large, starting from alternative sources of movie rentals and ending up reading books or playing games instead. So the substitutes force is rather negative for Netflix.

The threat of new entrants is quite strong since, with the development of new technologies, more and more companies are moving online. In addition, the Netflix industry is not too expensive to enter. Furthermore, the competition is already rather strong. So, in general, the five-forces analysis leads to the conclusion that the competitive forces confronting Netflix in the DVD rental marketplace are, in most cases, strong.

2. How is the online movie rental business changing? What are the underlying forces that are driving industry change and are their impacts favorable or unfavorable in terms of their impact on competitive intensity and future industry profitability?
The online movie rental business changing due to the appearance of new technologies that allow for different ways of movie distribution. Technological advancements, therefore, are the underlying forces that are driving industry change – more and more people have access to the Internet, and more companies use new technologies to distribute their goods or services. The impact of such changes on Netlix is quite controversial: on one hand, they provide Netlix with more opportunities for development, diversification, and enlarging the customer base; on the other hand, however, the same changes lead to more intense competition in the industry, thus making Netflix less profitable as more players come to the market.

3. What does your strategic group map of this industry look like? Is Netflix well-positioned?
Though currently, the company is relatively well-positioned, the situation may change if Netflix stops investing in introducing new technologies. In addition, it might be said that the business lacks diversification – one of its competitors, Blockbuster, offers a wider range of services to its clients. However, the whole movie rental industry is moving away from renting DVDs physically – today many prefer to just download the content from the Internet (Wilkison, 2011). Therefore, Netflix is losing its position in the mail-renting sector. So Netflix may lose its strategic position in the industry if the company does not input more into the growth and development of its online services.

4. What key factors will determine a company’s success in the online movie rental industry in the next 3-5 years?
Among the factors that will determine Netflix’s success in the online movie rental industry is the number of alternative online movie providers, first of all. Secondly, the quality of Netflix’s service should remain better than that of its rivals. Though Netflix provides a huge number of movies to download, the company needs to price its service effectively. Furthermore, it might be a good idea for Netflix to widen the range of products they offer to customers. Downloading a movie online does not require a technology different from that for downloading something else. For that reason, it will not be too difficult and costly for the company to sell other content together with movies. This will, however, greatly help to compete with such online content providers as Amazon.com or Apple. Read More