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Running Head: NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES 
OF ANALYSIS 1 
Netflix: Changing Strategies and the...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
Netflix: Changing Strategies and the Porter Five For...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
Threat of New Entry 
3 
The threat of new entrants i...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
power of buyers does not exceed the terms and condit...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
Recommendations 
Perhaps Netflix should phase out it...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
6 
Figure 1. Michael Porter’s “Five Forces” Model fo...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
References 
Wingfield, Nick and Stelter, Bryan. (Oct...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
APPENDIX A. 
Competitors of Netflix 
8
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
APPENDIX A (page 2) 
Insight on Netflix and Its Top ...
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
APPENDIX B 
Key Issues: 
10
NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF 
ANALYSIS 
APPENDIX B (page 2) 
“The Netflix monopoly is starti...
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Netflix-Case Study-- When a Pioneer Has to Reinvent Itself

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Netflix: A critical analysis of an industry leader trying to reinvent its business model to remain relevant; includes Porters Five Forces.

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Netflix-Case Study-- When a Pioneer Has to Reinvent Itself

  1. 1. Running Head: NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS 1 Netflix: Changing Strategies and the Porter Five Forces of Analysis James Rothaar MBA 8800 Wilmington University August 23, 2014
  2. 2. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS Netflix: Changing Strategies and the Porter Five Forces of Analysis Introduction Cofounders Marc Randolph and Reed Hastings started Netflix in 1997. The firm, which is located in Gatos, California, began its subscription-based service in 1999. The revolutionary company forever changed the business model of the home-entertainment industry delivering programs directly to the homes of consumers via mail and then video streaming online. Netflix has more than 10 million subscribers and more than 100,000 programs, ranging from TV shows to films to special programming. Reed Hastings is the CEO of the company. (Netflix n.d.) Strategy Reformation Being among the pioneers in an industry that is heavily influenced by advancements in technology could be a challenging proposition, as competitive forces are formulating and evolving at the speed of reality. Netflix established its effectiveness in a market prior to the industry operating at optimal efficiency. Mailing DVDs to subscribers was the early focus of the industry. However, when online streaming also became popular, two modes of delivering the same products became available. A firm had to determine whether it wanted to deliver products by mail, online streaming, or both. Netflix wanted to be a major player in both markets, announced that it was splitting its original model into two businesses models, and, in the process irked customers and investors alike. However, after the company split up its original business platform and morphed it into two separate business models, consumers felt that the company was charging them twice for a similar service. While each business model actually was unique, the perception of consumers toward Netflix put the firm in a difficult position. It created a public-relations dilemma to go along with its new business models (The New York Times, 2011). 2
  3. 3. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS Threat of New Entry 3 The threat of new entrants into this business sector is low to medium due to the high-cost of acquiring the rights to distribute programs produced by the various entertainment companies, which range from major film and TV studios to midsize production studios to videogame suppliers. It would take billions to obtain sufficient programming to compete directly with Netflix. Additionally, the financial commitment required for state-of-the-art information technology and regional distribution centers would be substantial as well. A niche or a specialty program producer may be able to compete on certain types of programming. However, doing so across-the-board would be at this mature stage of the industry could be a real money-pit for a newcomer entering the business (Cable News Network, 2011). Bargaining Power of Suppliers The bargaining power of program suppliers would be high, as the only way to compete directly with a firm the stature Netflix would be for a company to have the same or similar programs that are available through Netflix. If any of mainstream program suppliers, such as a Disney, or an NBC-Universal, opted not to allow a competitor to offer their programming, that firm would be at a measureable disadvantage trying to go head-to-head with Netflix. Since the pipeline of high-quality programming is limited, having relevant programs is a key issue that leverages the bargaining power of program suppliers in the home-entertainment industry (Forbes, 2012). Bargaining Power of Buyers The bargaining power of buyers, as a competitive threat, is low, as no single subscriber (i.e., customer) rents enough products to directly influence the prices charged by Netflix. Individual subscribers have little power to negotiate terms and conditions of sale. The bargaining
  4. 4. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS power of buyers does not exceed the terms and conditions of their membership. While this does not circumvent subscribers from tapping another service provider to buy the same programs or canceling their subscriptions, the bargaining power of buyers is not significant (The New York Times, 2011). Competitive Rivalry The competitive rivalry for Netflix is medium to high, as the key variables that 4 differentiate competitors are quality of programs available, quantity of programs available, associated costs, and timeliness of delivery. All competitors pretty much tap in to the same mix of programs and convenience of delivery to attract new subscribers and to retain existing patronage. It is relatively easy for households to either switch their subscriptions from one source to another or to have a subscription to more than one service. Additionally, the differentiation from one competitor’s product-line to another is minimal (Forbes, 2012). Threat of Substitution The threat of substitution via alternative product is low, as the cost to buy an individual DVD versus renting it or having it streamed online is significantly higher. A buyer’s demand for purchasing a DVD is not practical for casual-interest consumers. The practicality of owning physical DVDs versus having online access to those on an as-needed basis is considered. What could be better than having a real product that takes up no space except for computer memory? Why drive to a store when you can instead click and save time and money (Cable News Network, 2011)?
  5. 5. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS Recommendations Perhaps Netflix should phase out its by-mail service from its current offerings. Taking on an extensive DVD to fill orders by mail could require the firm to maintain a cost-prohibitive inventory. Netflix may want to restructure and re-price its current subscription packages. Separate fees for each service is workable, but if a subscriber wants to utilize both the mail and the online streaming services, a discounted price point, such as $10.99 for both services, instead of charging full price for each service. It may be more palatable to consumers. 5
  6. 6. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS 6 Figure 1. Michael Porter’s “Five Forces” Model for Netflix. This figure illustrates Porter’s “Five Forces” as these apply to Netflix.
  7. 7. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS References Wingfield, Nick and Stelter, Bryan. (October 24, 2011). How Netflix Lost 800,000 Members and Goodwill. The New York Times. Retrieved from http://www.nytimes.com/2011/10/25/technology/netflix-lost-800000-members-with-price-rise-and- split-plan.html?pagewanted=all&_r=0 Gross, Douglas. (September 20, 2011). Customers Fume Over Netflix Changes. Cable News Network. Retrieved from http://www.cnn.com/2011/09/20/tech/web/netflix-reaction/ Hardtung, Adam. (January 29, 2013). Netflix: The Turnaround Story of 2012. Forbes.com. Retrieved from http://www.forbes.com/sites/adamhartung/2013/01/29/netflix-the-turnaround-story-of- 2012/ Hastings, Reed. (September 18, 2011). An Explanation and Some Reflection. Netflix U.S. and Canada Blog. Retrieved from http://blog.netflix.com/2011/09/explanation-and-some-reflections.html Porter, M. E. (1979). The Five Competitive Forces that Shape Strategy. Harvard Business Review. Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 7
  8. 8. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS APPENDIX A. Competitors of Netflix 8
  9. 9. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS APPENDIX A (page 2) Insight on Netflix and Its Top 3 Competitors References Paramesh, Santhosh. (June 5, 2013) The Beginning of the Movies Rental and Streaming Wars. ISanthosh.com. Retrieved from http://isanthosh.com/netflix-the-beginning-of-the-movies-rental-and-streaming-war/ 9
  10. 10. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS APPENDIX B Key Issues: 10
  11. 11. NETFLIX: CHANGING STRATEGIES AND THE PORTER FIVE FORCES OF ANALYSIS APPENDIX B (page 2) “The Netflix monopoly is starting to erode. Given the news coming out of both Amazon and Hulu recently, competition is about to get even more fierce.” References Protalinkski, Emil. (June 4, 2013) Netflix accounted for dominant 89% of TV show streaming in Q1 2013, but lost share to Hulu and Amazon Prime. TheNextWeb.com. Retrieved http://thenextweb.com/insider/2013/06/04/npd-netflix-accounted-for-dominant-89-of-tv-show- streaming-in-q1-2013-but-lost-share-to-hulu-and-amazon-prime/ 11

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