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Netlix's Business Model and Strategy in Renting Movies and TV Episodes
Transcript of Netlix's Business Model and Strategy in Renting Movies and TV Episodes
Internet movie providers like Netflix, Hulu, and iTunes are attractive to consumers because they are a cheaper alternative to paying monthly cable fees for premium movie channels, and they offer the convenience of not having to leave your home to access a multitude of movie titles.
Local movie rental stores like Blockbuster and Movie Gallery are rapidly losing market ground because they are just not price sensitive or convenient.
Redbox is attractive to consumers because of its extremely low cost ($0.99 per night) and convenience.
Video on demand (VOD)–streaming movies directly to in-home devices–has the potential to become the fastest-growing movie rental segment.
Companies like Netflix try not only to meet consumers’ expectations, but also exceed them. This makes the industry highly competitive but also highly profitable. Strategic Group Map of Movie Rental Industry Netflix's Key Success Factors and Strategy Competitive Advantage Strengths Threats Opportunities Weaknesses http://www.youtube.com/watch?v=ameJIsF4Mfs Issues Management Need to Address Rivalry Among Competing Sellers Very high
Low switching costs for consumers.
All sellers offer similar products, giving buyers fewer reasons to be brand loyal.
Offerings of rival firms are weakly differentiated, giving buyers fewer reasons to be brand loyal. Threat of New Entrants High
Low barriers to entry.
Many different movie providers available to consumers.
Internet providers, premium movie channels, local movie stores.
Industry has growing market demand and high potential profits, motivating potential new entrants to enter the marketplace. Competition from Sellers of Substitute Products High
Many similarly priced substitutes readily available to buyers.
Buyers have low costs in switching to substitutes. Competition from Buyer Bargaining Power and Price Sensitivity High
Buyers look for convenience with the lowest cost.
Buyers are price-sensitive.
Buyers are well informed about the quality, prices, and costs of sellers. Competition from Supplier Bargaining Power Low
Products & services readily available from many suppliers.
Low switching costs. One month free trial to lure the consumers into ordering a subscription.
Eight different subscriptions all ranging from $8.99 to $47.99 per month.
Consumer can decide to terminate the agreement at any time which leaves them with the option of an out.
It is pretty low-cost to rent a movie
Created its own proprietary software which gives them a competitive advantage.
Movies can be streamed and have accounts on four separate devices
Many distributions centers all over the US which allows for quick transitions time between and speedy delivery.
A weakness of Netflix is that in order for a consumer to use the product, they have to subscribe.
Some people will have a major issue with this due to the fact that they do not want to be subscribed to another program. All new TV’s have to be broadband capable and are not able to hook up to an antenna anymore. This opens up to a wider market that the company can reach out to.
Netflix can also look more into advertising and how to reach new demographics, overall expanding the revenue.
Another opportunity is generating more resources, such as gaining more than the 20,000 movie titles that already exist New entrants. This is very high because many will want to piggyback on the success of Netflix.
Along with new entrants, other pre-existing companies such as HBO, Showtime, Pay-per-view and Video on Demand all can be threats to take consumers away from Netflix especially if they expand on their current enterprises, simulating that of Netflix. Suggestions Netflix management:
How to deter new entrants
How to retain their market share and the steps that need to be taken in order to do so.
Devise a stronger acquisition method over other companies for continuing growth
All the store closings which is resulting in billions of dollars’ worth of net loss
Downgrade of Standard and Poor’s credit rating to CC from a B minus.
Expansion of kiosk and online content in order to keep up with the new entrants and maintain a strong place in the industry. Netflix CEO •Reed Hastings single handedly designed a simple subscription-based business model that has revolutionized the way many people have rented movies.
•Members of Netflix can purchase a plan that is designed to cost and reflect how many movies members plan on watching on a monthly basis. This differential allows for families with low incomes or high incomes to participate in the company’s market share, which appeals to all sectors of income levels. Netflix also offers a huge movie selection, extensive information about each movie, simplified selection processes, convenience, and prepaid return postage.
•It is hard to determine what is the best strategy for improving Netflix. With the low prices of Netflix packages and the simplistic processes involved in renting, it is extremely hard to compete with. Develop new relationships with video providers to improve content breadth and selection possibilities. Need to increase marketing attempts to attract new subscribers and build a broader spectrum of brand awareness. The threats of Hulu and other movie software being developed needs to be taken seriously. He could also look at attempts for joint ventures with emerging competitors to maintain his overall competitive advantage by working with his nearest competition. Blockbuster CEO •James F. Keyes was appointed the CEO of Blockbuster in 2007. Since he has been appointed, Blockbuster has tried to redesign it’s entire corporate strategy. They began by selling of stores that weren’t located inside the U.S. They soon began store closings in the US (586 stored owned and 299 franchise owned in 2009) along with 470 in 2010.
•Blockbuster has a huge library of movies, TV episodes, and Video game titles. Continued emphasis on increasing these libraries is an integral part of any future success Blockbuster may have. They also decided to expand current efforts for vending machine kiosk to compete with the current movie industry trends that put them in bad economic standings to begin with. Introducing more Kiosk and improving online subscriber usage is on the top of Blockbusters priorities for having any hope of future success.
•Blockbuster must continue to reduce its huge amount of debt while striving to conserve what cash it is able to generate. It also must begin trying to redesign its marketing strategy to be more appealing to the consumers along with reducing costs. The increasing competitiveness of the movie industry is driving Blockbuster to significantly reduce store occupancy costs along with selling, general, and administrative expenses.
•Blockbuster must also sell or divest its international endeavors to try and cut its loses even further. Works Cited Uneasysilence. "Nightline on Netflix." Nightline on Netflix. ABC. N.d. Nightline on Netflix. NBC, 04 Apr. 2009. Web. 24 Oct. 2012. <http://www.youtube.com/watch?v=ameJIsF4Mfs>. "NFLX: Summary for Netflix, Inc.- Yahoo! Finance." Yahoo! Finance. N.p., n.d. Web. 21 Oct. 2012. <http://finance.yahoo.com/q?s=NFLX>. Thompson, Arthur A., Jr. "Case 6: Netflix's Business Model and Strategy in Renting Movies and TV Episodes." Crafting & Executing Strategy. 18th ed. New York: McGraw-Hill Irwin, 2012. C92. Print. What key factors will determine a company’s success in the movie rental industry in the next 3-5 years? -Convenience
-More Product Offerings Convenience Low Cost and More Product Offerings Strategy -“The goals of Reed Hastings, founder and CEO of Netflix, were to build the world’s best Internet movie service and to deliver a growing subscriber base and earnings per share every year.” (C92)
-Mainly Broad Differentiation -Blockbuster, Movie Gallery, or Redbox- one must go to a specific location to rent
-Blockbuster, Movie Gallery, or Redbox- VOD, and ITunes, one must pay each time
-Blockbuster, Movie Gallery, or Redbox- can run out of a particular section
-VOD- can only watch in one house
-Hulu- Free, but very limited choices. No DVD option, only streaming online
-Hulu Plus- No DVD option, only streaming online (Road Trip) -Customers are always considering cost when deciding which service to choose
-Is more difficult depending on the type of customer
-Netflix is very cost effective for people that like to watch a lot of movies and tv
-Netflix is not very cost effective for people who only view a movie every once in a while
-Redbox is more convenient in this aspect (One movie every two weeks)
-More price options -More movies, more tv shows -A comprehensive Library of Movies and TV Episodes
-New Content Acquisition
-Netflix’s Convenient, Easy-to-Use Movie Selection Software
-A Choice of Mail Delivery versus Streaming
-Marketing and Advertising
-Transitioning to Internet Delivery of Content