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Rivalry
Case Study: Netflix
Group 3:
Bayu Eka Putra
Lia Anggraini Setiawan
Noviko
Ricca
Waila Fitri Sudharyanto
by 40% and 39% in 2009 and 2010 respectively. The company took $200
million long term debt financing in 2009 and resulted in much higher debt
ratios relative to its industry median. However, the strong position of Netflix
in the industry is maintained by the outperforming performance of its
profitability and operation ratios compared to the industry median. Netflix as
a company carry high cash balance and has been primarily used to finance
its stock repurchase program, content acquisition, delivery expenses, and
capital expenditures related to information technology and automated
equipment for operations, marketing, and fulfillment; thus leading to an
increase on assets growth rate and a significant decrease on liability growth
rate between 2008 to 2010. In April 2010, Netflix exceeded expectations by
achieving outstanding first quarter results with grown subscriber base by
35% y-o-y as per Q1 2010.
Despite all the good signs and performance by Netflix, questions
regarding the business sustainability remains, especially since USPS, its
delivery partner, was considering stopping Saturday delivery as way to
staunch its financial losses. Another question is on the business model
sustainability, with the close to non-existent barriers of entry, the number of
worthy competitors are to be expected in the industry, especially with the
growing demand for digital movie rentals provided by Internet and cable
companies. To remain competitive in the market, Netflix has to also somehow
deal with the 28 days delay on content release in Netflix website, after the
original DVD of the movie released in the market by the major Hollywood
studios and content providers.
low barriers of entry in the industry and high threat of new entrance.
Bargaining power of suppliers is High.
Netflix suppliers are the Amazon Web Services (AWS) as a server provider,
content providers (major Hollywood studios), and US Postal Service (USPS) for delivery.
Netflix and AWS is a mutual benefit partnership between Amazon and Netflix. We think
the bargaining power is low for AWS as a supplier because when the partnership stopped
Netflix could seek another option for the server. For USPS case, USPS postage rate
increase and they cancel the delivery on Saturday, these factors will be an issue for
Netflixs price and time delivery. But we think USPS and AWS bargaining power is still
considered low to medium.
Meanwhile the bargaining power of content providers is considered high because
the main key in Netflix industry is the contents. There are some challenges regarding
content providers. In DVD rental segment we see that the content provider got revenue
stream from DVD sales, in the future companies can self-distribute their products and
Netflix.
Intensity of rivalry among existing competitors is High.
We can conclude that the intensity of rivalry among existing competitors is high,
because there are low entry barriers, and the presence of major players.
framework, we see that it is a fragile business, so Netflix have to keep maintaining their core
competencies and always innovating. The customer in this industry are loyal to content and
sensitive to price, therefore Netflix have to continue providing up to date selection of
contents and in a reasonably price.
2. What are the greatest external risks facing the company? What measures can or should
Netflix take to protect itself from these environmental threats?
Answer:
Economical
Price can become sensitive matter for many people. Market competition is very tight,
price become one of the important consideration for people. Because every company in
the market offering the same product, Netflix have to consistent giving competitive price
and services to keep customer loyal.
Technology
1. Hacker and piracy can be major threat for Netflix long-term business. Netflix have to
protect infrastructure and services from people or group of people who try to access
their services. Piracy can cut business revenue. People will not pay for video if they
can find freely in internet.
2. High Technology evolution. To keep stay in competitive, Netflix have to keep up to
date to provide streaming method for every target segment market. People not only
use Netflix services in game console, PC and video player. With the fast technology
changing, Netflix has to keep chasing the changing in people behavior.
Law
Law play important role to keep Netflix and other content provider to survive in the
business. Netflix has to push Law enforcement in hacker crime and piracy activities. Not
only company can lose the business but customer also can be the victim of this activities.
Customer put their personal information such as email, credit card number and address in
the company server.
3. Evaluate the strengths, weaknesses, and strategies of the companys primary competitors.
Based on a thorough competitor analysis, what is the expected strategic intent of Netflixs
key rivals? Is the company prepared to respond to their potential competitive moves?
Answer:
SWOT of Netflix:
Strengths
: a unique recommendation system; fast delivery; provide a lot of library
/movies; can be access instantly from Wii, PS3/Xbox 360, apple devices,
Weakness
SWOT of Blockbuster:
Strengths
: The largest video rental chain, own 6,500 company with 62% located in
America, already having a partnership with Samsung Electronics America
collaborate with Samsungs Next Generation with HD TV to rent just using
button with the high internet connection, provides VOD service partnership
Weakness
with TiVo.
: High charges for monthly price and instant viewing more than one movies; no
instant access on Wii, PS3/Xbox 360,ipad, iPhone or iPod touch, Roku,
Internet TV
Opportunity : VOD, New business development such as creating virtual built in tied with
Threats
SWOT of Redbox:
Strengths
: Placing at automated Kiosks selected McDonalds, supermarkets and
convenience stores; customer can using debit or credit card to rent movies;
can reserve movies using online; can pick up the movies at selected kiosk;
can return the movie in any kiosk; free membership
Weakness
: Delay renting movie DVDs after public release date.
Opportunity : VOD, New business development such as creating virtual built in tied with
Threats
The company already respond to their potential moves. They already aware about the
trend market goes to digital era. They make an agreement with amazon.com, if there is any
customers who wants to buy those videos.
4. Review cooperative strategies that have been used successfully by Netflix and its competitors
in the past, then identify a set of goals that future partnership agreements should achieve to
maintain the companys position of market leadership.
Answer:
To be able to sustain the competition in movie rental industry, what Netflix and its
competitors successfully did are:
- Successfully capture market needs when there is a shifting in the market behavior.
Since the era of technology is coming, Netflix was first mover who provide online movie
rental. More than that, era of technology has brought a shifting in market behavior.
-