Question

Please explain - using Porter's competitive forces model - how Netflix managed to enter the movie rental industry when Blockbuster had over 70% of market share. The main focus should be on use of technology but other important issues such as pricing strategy and savings in location costs should also be included. Add a paragraph on why "streaming" has replaced Netflix's original business model.

Answer 1

Moving rental industry was a highly competitive one on this time. When Netflix and Blockbuster were competing then rivalry can be said as medium one. There is less threat of new entrants as due to huge cost and setup of online rental movies only expert organizations were coming to sell or rent some media and entertainment contents. Threat of substitutes was also moderate one to this industry as Amazon prime video , Hotstar and Blockbuster like companies are offering contents and entertainment videos.

Bargaining power of supplier to Netflix and other companies can be said as higher one as Google and other software services organization will offer or charge a higher fees of hosting , creating dynamic platforms, online server based storage, security systems and other advanced technology to smooth flow of business operations.

Bargaining power of customers will be moderate one at this time previously it was low as only two or three options were available. Now a days , the growing internet penetration has created a modify demand from customer's side.

The orginal online rental services of movies and DVDs were lapsed due to technological advancement in this category of business. It was happened because the cost of serving a customer was become lesser due to direct delivery of desired videos to an online store or save options. It has replaced the whole supply chain structure into zero based distribution through internet based platform. Streaming has many other associated benefits for the Netflix company. A real time feedback and technical support can be delivered to the users.