Competition in the Movie Rental Industry in 2008

Competition in the Movie term of a contract Industry in 2008 Netflix and megahit Battle for Market Leadership Although the incorporated strategies go fored by Netflix and smash hit put one across al belittleded them to puzzle leaders of free-enterprise(a) advantage in the word picture letting industry, they both(prenominal)times encounter strategic issues that slow down their product and dishs process. My research of Netflix and smash hit testament enable me to present a devise analysis and recommendations for severally company.Netflix, founded in 1997 by Reed Hastings, has achieved its goal of becoming the largest online painting letting service in the world. By the end of 2007, Netflix recorded revenues of $1. 2 billion. With a program library of 100,000 image titles and a subscriber ignorant of over seven million, they had perform the leaders of the photographic film rental industry (Gamble & Thompson, 2011). Netflixs business manikin of internet subscripti on enabled them to compete in the film industry. Consumers love going to the movies, yet with increasing theatre prices found it too expensive to attend humankind viewings.Netflix tolerated an inexpensive way to view movies which could be done from the comforts of nucleotide. check to the text, (Essentials of Strategic Management, 2010), Netflixs success is out-of-pocket to its six-pronged strategy of providing comprehensive choice of DVDs, informal way to choose movies, fast deli really, no return due dates, and convenient drop in mail movie returns (Gamble & Thompson, 2010). In an online reexamine by Nielsen Online, Netflix was rated number one for three years and for nine concomitant periods by Forsee/FGI Research (Netflix, 2009). Netflix Strategic Issuesmegahit, Netflixs fiercest competitor, experience many rental issues until 2007 when they regained market sh atomic number 18s forcing Netflix to reduce subscription prices. Not only if did megahit gain presence, v aried competitors like Redbox also gained presence in the market due to unexampled technologies (VOD & DVR) that are influencing the business environment. The business model used by Netflix caused a stir in the market industry. However, the damage control strategies of competitors and competitor feel of market shares is threatening Netflixs competitive advantage.Netflix has to change with the times. Competitive Forces Netflix and blockbuster are affected by the five forces of competition which are emf saucy entrants, bargaining creator of buyers, bargaining power of suppliers, threat of substitutes, and disputation among existing competitors (Gamble & Thompson, 2010). The companies must understand how these forces work and affect their operation. Threats of New Entrants -In the home impression recording/ post industries, sunrise(prenominal) entrants must own large amounts of movies/games for rental or sale to fulfill customers demands.Meanwhile they throw away to build up various distribution channels for products to reach customers in a very quick way (Xie & Lin, 2008). Bargaining Power of Suppliers -The inputs of suppliers in the home video/game industries are very important and since there are only a few qualified suppliers in the industry, their bargaining power is high. Netflix acquires its movies from movie studios and distributors, buying DVDs on a fee-per-DVD footing, paying license content fees, and sign revenue sharing agreements.Blockbuster also has revenue sharing agreements with its suppliers. To some extent, these agreements reduce the bargaining power of suppliers. In terms of the computer system, Blockbuster is using Provias Viaware warehouse management system (packaging, sorting, and distributing rental products) in its tack chain management to keep costs down (Xie & Lin, 2008). Threats of substitutes -Substitutes include movie theaters, satellite TV, and cable TV. Customers can go to movie theaters and enjoy the graphic atmosp here.Alternatively, they can grade pay-per-view or subscribe on-demand from satellite TV and/or cable TV providers to watch movies at home. Users can watch anytime they want. broadcast and cable TV offer sufficient selections of new releases and are is well-heeled to watch with just click on remote. Netflix and Blockbuster compete for customers by offering various kinds of movies and internet glide path (Xie & Lin, 2008). Rivalry among industry competitors Netflix and Blockbuster are in a highly competitive industry.Competitors include merchandiser retailers, such as Wal-Mart, Best Buy, and Target video and game stick in like Hollywood Video, Movie Gallery, and Game Stop supermarkets, convenient stores such as Publix, and McDonalds. The significant rival is Hollywood Video which offers movie and game rentals (Xie & Lin, 2008). Bargaining power of buyers -Buyers are not in concentrated groups and do not buy in large amounts. However, within the entertainment industry, custome rs have a lot of alternatives and have no switching cost.However the entranceway of DVDs, rund customers to purchase DVDs since the cost is almost the same cost of rentals. This makes buyer power moderate (Xie & Lin, 2008). The five forces of competition of the movie rental industry presents miniscule force against a competitors market position ground on buyer power, supplier power, and new entrant threats. However, threat of substitutes and controversy among competitors can affect the amount of profits a company will gain and retain. Netflix SWOT AnalysisThe presence of Netflix and Blockbuster in the movie rental industry has assisted me in developing this analysis of each corporations strength, weaknesses, opportunities, and threats as followed Netflixs strengths are Good story, unconditioned movie rental subscription, no due dates or late fees, easy website access, and large movie selection. Netflixs weaknesses are Limited to internet rental access, and long waiting period for new releases. Netflixs opportunities are To provide Video on Demand media access, medicine and movie download, and acquire fusion with gaming industry.Netflixs threats are Low DVD rentals, government ruler of rental distribution, high take of competition, and new movie media technology. Blockbuster SWOT Analysis Blockbusters strengths are national and international lore provides movie and game rentals, various vices for rental access (i. e. stores, kiosk, and internet), offers snacks and beverages for purchase in stores, and accommodates all customer types. Blockbusters weaknesses are Poor distribution process, increased operating expense, decreased reputation, limited new released video games, uneffective to compete with game distributors (i. e.GameStop), and constant rental policy changes. Blockbuster opportunities are Unlimited access to downloadable media libraries, increased production of brand movie rentals, and fusion with gaming system industry. Blockbusters thre ats are New video formats, decreased DVD movie rentals, increased competition, and government regulation of movie rentals. The SWOT analysis shows that Netflix and Blockbuster have strong strengths and opportunities, however in order to Netflix to maintain its competitive advantage there needs to be an upgrade in innovation and technology that will strengthen their reputation and reliability.Blockbusters loss in reputation will continually plague their ability to remain competitive and maintain the customer base that they have. Blockbuster will continually face challenges until they upgrade their innovation and technology to level where they will enter into recovery mode. As I analyse the financial information presented in the text, it appears that Netflix has been able to offer customers the get ahead of low rental fees because they have been able to maintain a low level of expenses. The benefits offered to customers have increased the amounts of net income and movie rentals.Netf lix prides itself on promoting customer gratification and meeting demands of its internet base. According to the numbers presented by Internet foundation Stats, the percentageage of internet penetration by the North American tribe was 74. 2 percent in 2009, which was a 134 percent increase from 2000. At this rate, Netflix could secure an internet rental customer base of 74. 2 percent which would strengthen its success (Miniwatts Marketing Group, 2009) Blockbusters biggest challenge is maturement of a viable strategic approach to price setting.When Netflix entered the game, Blockbuster began to put up profits. In an attempt to recoup some of its losses, Blockbuster presented campaign where the rental policy constantly changed leaving customers confused and unsure of the rental process. Although Blockbuster has a large selection of movie titles and global presence, its reputation of dissatisfied customers and inefficient distribution has caused its overall cost to rise significan tly. Blockbusters competitive advantage is that it offers various channels by which customers can access entertainment media.According to Blockbuster, The same customer can choose different ways to access media entertainment on different nights (Blockbuster, 2010). Recommendations In order for Netflix to maintain its competitive advantage there must be an revision of their strategy. Customer satisfaction should be a key factor of its strategy. I recommend that they base their marketing promotions on increasing customer cognizance of the variety of accessible content offered. They should also implement the availability of music content and digital media to their library.The development of an award program for customers with lengthy memberships would influence word of mouth recommendations. Most of all, Netflix must continue to offer their customers the benefit of more titles at modest cost subscription memberships. In order for Blockbuster to regain its competitive advantage and re putation there must be the development of a strategy that will increase their profit. They have to become more innovation in internet and in-store rental process.There should be monitoring devices placed on scanner registers and mailed movie rentals to wagerer track returns in order to keep their cost at a minimum. Staff should be trained and monitored on a constant basis to ensure that customer satisfaction is the key priority. Blockbuster must implement policies that will be enforced and understood by customers. They should also squad up with gaming system producers to ensure that they will be supplied with up-to-date games and possibly offer gaming system rentals.Most of all they should catch their own niche market which will provide them with a specialised competitive advantage. The information researched on Netflix and Blockbuster has enabled me to conclude that competition in the movie rental industry is highly competitive. There are new companies entering the market that have a competitive advantage whether it rest of internet rental, vending machine rental access, or in-store rental access. Netflix and Blockbuster have taken the lead in providing thousands of movie title to be viewed in the comfort of our own homes without the expense of movie theatres.Although both companies have a competitive advantage, they each have a following of apply customers who will stay with them because of familiarity. Through my research I have intimate that consumers are the controllers in the movie rental industry. If consumers dislike the way they are serviced or the cost of movie rentals they will most certainly trigger off on to a company which will cater to their movie wants and needs. However, the movie rental industry must stay up on new innovations and technologies in order to remain competitive, profitable, and maintain modest levels of overall costs.