MOVIE RENTAL INDUSTRY LIFE CYCLES

Movie Rentals: The Boom Years : During the 1980s and 1990s, retail video rental stores boomed. In 1995, the Blockbuster video rental chain had more than 4,500 stores

Movie Rentals: The Internet :Increased access to the World Wide Web created new retail opportunities

Movie Rentals: The New Millennium where the growth of broadband internet access in the early 2000s allowed media providers to transition from selling physical objects to offering digital formats.

Movie Rentals: Today

NETFLIXSTRATEGY MANAGEMENT & INNOVATION

TIMELINE

The company was established in 1997 and is headquartered in Los Gatos, California by Marc Randolph & Reed Hasting

In 2000, Netflix reached Blockbuster to become strategic partners and investors, however Blockbuster declined the offer

In 2007, It began to move away from its original core business model of mailing DVDs by introducing Video on Demand via the Internet

Netflix introduced the monthly subscription concept in September 1999

By 2010, Netflix's streaming business had grown so quickly that within months the company had shifted from the fastest-growing customer of the United States Postal Service to the biggest source of Internet traffic in North America in the evening.

On September 18, 2011, Netflix announced its intentions to rebrand and restructure its DVD home media rental service as an independent subsidiary company called Qwikster, totally separating the DVD rental and streaming service

In April 2014, Netflix approached 50 million global subscribers with a 32.3% video streaming market share in the United States. Netflix operates in a total of 41 countries around the world

Rapid growing DVD rental service wherethey gained 3 million subscribers in early2005.

EXTERNAL ENVIRONMENT ANALYSIS (MOVIE INDUSTRY)

• Situational Analysis (PESTEL) • Environment (OPP-THREATS)• Industry Analysis (5 Forces)

PESTEL

- Political System: 1) Banking System (Latin America Case)2) Internet Services Provider Policy that affects streaming

options3) Regulations in government through intervening in any piracy

or illegal movie previewing

- Legal : 1) Firms could be affected by changing laws regarding

copyrights of certain types of content, such as movies and television shows that firms rely on to provide to consumers

CONT.

- Economic:1) The economic growth of a country where we can understand the income capability of it’s citizen2) Reducing costs of physical resources after any crises (Brick & Mortar Products)3) Costs of new consoles ( VHS to DVD, then Blue ray)

- Social/Cultural1) Lifestyle trends where people adapt to a more convenient way like Online rather then go and

find a DVD disk at a rental store2) Population of the young generation and their increase interest in technology products (Ex:

Watch movies on Iphone)

CONT.Technology:- Internet Speed: This improvement in technology has allowed movie rentals online become

easier and much more comfortable- Technology devices: movies can be streamed on many devices online ( Xbox, Playstation,

Tv, Phone)Moreover, the Redbox (Kiosk) invention in the rental services

THINKING STRATEGICALLY ABOUT A COMPANY’S EXT. ENVIRONMENT

Opportunity ThreatInternational Presence: It may lead to financial stability in other countries (Canada compared to Latin America)

Studio’s offering online streaming on their own (Warner Bro.)

Video Game Rental Service: It will be the next mover of competition against Blockbuster & Redox

Competitors who may offer better service at lower cost of getting License( Hulu) or better services ( Amazon)

Expanding Partnership Customers declining interest in movie discs which may effect a huge profit margin for Netflix

PORTER 5 FORCES

Bargaining Power of Buyer: HighCustomers are depending on costs for watching (Too many options) Customers are highly sensitive to the prices and they can determine the price that they might go for

Rivalry: It is intense Customers costs to switch brands are lowCustomers have options of Online Streaming, Mail Delivery, Rental PlaceLow Product Differentiation

Bargaining Power of Supplier: HighSuppliers are studios like Warner, Universal, Fox) who are few and may implement high costs for acquisition of their movie titles especially on online steaming.

Threat of New Entrants: Moderate The companies that are already there who created a brand and image toward customerThe high costs of stocking inventory (Dvd)

Threat of Substitutes: ModerateDoing any activity regarding watching a movie at theatre, playing sports or listening to music may affect Technology has helped video games to switch directly to movies

DIRECT VS INDIRECT COMPETITORS

Direct IndirectAmazon Prime YoutubeHulu The Pirate bayComcast BittorrentCoinstar Dailymotion

VALUABLE- RARE- IMITATABLE- ORGANIZED

DVD & Blue Ray discs The majority of their business model is in their distribution of their movies. Its strategy for DVD distribution is

through mail, instead of having physical stores Title variety is one of the main points of Netflix’s current strategic move Customer service is important to Netflix and is evident through their website. (Queue Model, Recommendation list) The capability of online streaming through any device so they will be able to cut costs of shipping

VRIO

Capability Is Valuable Is it Rare? Is it Imitable?

Organized to capture value

DVD & BlueRay RentalPhysical DistributionOnline Stream Title VarietyConvenience

Capability Is Valuable Is it Rare? Is it Imitable?

Organized to capture value

DVD & BlueRay Rental

X O O O

Physical Distribution(by Mail)

X X X X

Online Stream (Devices)

X X X X

Title Variety X X O XConvenience (Website)

X X X X

NETFLIX VS BLOCKBUSTER

• NETFLIX used the Offensive Strategy since it: • Offered a better service (No late fees) at lower price (DVD by Mail)

(2002)• Pursued the Online Streaming as a first mover advantage and held it’s

cost low due to only having warehouses instead of stores. (2007)• NETFLIX used the Defensive Strategy since it: • It sued Blockbuster for initiating their online service feature since it

had a patent about it

• Blockbuster faced Netflix in a price war in early 2004 but it then failed and went out of online business in 2008 and went to bankruptcy in 2010 (4500 store to an aim of having 500 store in 2015)

• Acquisition by: Dish Network

FIRST MOVER ADVANTAGES (NOW)• The first model leverages an existing subscriber base in an adjacent market to increase the

likelihood of success in the video streaming content. • Example: Amazon who is leverage its existing internet customer base and driving streaming

adoption by subsidizing the service by offering free shipping on all Amazon purchased products to those who subscribe to the streaming service.

• The second model is from the content creators themselves. Services such as HBO GO and Hulu(a joint venture by Disney, Fox and NBC Universal) have lower risk given their reduced contentacquisition costs and are just newfound distribution channels for their valuable content.

So is it still an advantage?

NETFLIX VS AMAZON

Jefferies Equity Research Report, Growth Story Offset by Rising Costs and Competition, 4 Sept 2012

ACQUISITION FOR A HORIZONTAL SCOPE ( AMAZON)

Feb 05 2014 

March 11-2015

BACKWARD INTEGRATION STRATEGYNetflix has tried to lessen the power of suppliers by creating their own series like “The House of Cards” “ Orange is the new Black” in order to lower the cost and the bargain power of the suppliers for offering their own seriesDifferentiation-based Competitive advantage when performing activities internally contributes to a better quality or service offering.

“MRC approached different networks about the series, including HBO, Showtime but Netflix, hoping to launch its own original programming, outbid the other networks”

RECOMMENDATION1) Strategic Choice: Acquisition of Hulu Plus which is a joint venture in order to combine a competitor

to the scope of work, a) Eliminate a Rival b) Hulu, LLC currently counts 40 million unique visitors to their website each month as their consumer base c) Netflix will maintain their goal of building their streaming content library by acquiring content from leading content providers, such as News Corp., NBC Universal and Disney

2) Long run: Strategic Alliance will multi national Television Provider in order to stream their content, for example HBO which has one of the top series (Game of Thrones)

3) Emergence of Netflix in offering Video Games rental service through offering revenue agreements with company’s like EA Sports, Rock star Games in order to expand to a new market which is needed such as Xbox, PlayStation, Nintendo will continue to happen unlike DVD rental service which may decline due to streaming.

4) Long Run: Forming Alliance with Airlines in order to enhance Netflix Service on planes since the technological advances in aerospace are happening and such services are needed.

5) Expansion Middle East would be hard with all the barriers of internet speed in some countries (Lebanon) or the Saudi Arabia which doesn’t even have cinema showings even though they have good economic growth. Also, Egypt who have huge amount of population but lacks stability like many other countries. (Latin America already showed slow progress) so the target may be United Emirates and acquisition of Startyp: Cinemoz in order to enter the Arab world industry

On the other hand, the Chinese Market is difficult to enter , but companies like Alibaba who are online retail may use acquire Netflix in using its structure for China ( Population over 1 billion) and the cost is affordable for Chinese Citizens