Research Paper on "Movie Rental Industry and Competition"

Research Paper 3 pages (1097 words) Sources: 3

[EXCERPT] . . . .

Porter's Five Forces

movie rental industry and competition

Porter's Five Forces: The movie rental industry

The threat of new entrants

The movie rental industry as a whole has relatively low overhead, particularly in these post-Blockbuster times. Movie rental companies such as Netflix occupy virtual space rather than exist as brick and mortar stores. This would seem to make the risk of new entrants fairly high. But Netflix must pay postage to support its business model of unlimited shipped-to-consumer movies, and Redbox must maintain kiosks in prominent areas to encourage consumers to rent from its vending machines. Hidden entry costs to challenge the main industry competitors are higher than they might seem, given the size of Netflix and its few main rivals, which allow them to operate on economies of scale. But new entrants can gain entry, either selling illegal, bootlegged copies of films, which are growing increasingly sophisticated, or simply diversifying their brand offerings, such as Facebook and Amazon, who are making encroachments into the rental market (Bond 2011).

Rivalry

Rivalry is considerable, given the frequent similarity between the two products being sold: many existing movie rental companies offer the same films, with little distinction between their services other than price and method of delivery. Netflix offers unlimited rentals by mail; cable companies offer Movies on Demand to subscribers who pay fees only for the films they want, and Redbox offers a pay-as-you-go model through rental kiosks.

Buyer power

Buyer power is considerable given that no one 'needs' to order a film, and there are many available substitutes on the market. Buyers can rent movies for free at the library or watch television. The availability of new technology means that the venues to see films may grow even more diverse, giving buyers increased leverage. The day after Warner Brothers. announced an agreement with the online social media website Facebook to allow Facebook users to stream the Dark Knight for $3, Netflix's stock dropped 6% (Bond 2011). Netflix stock had already dropped 17% when Amazon.com announced "it was giving away streaming movies to its subscribers of Prime, Amazon's discount shipping initiative" (Bond 2011). Buyers seem to have an infinitely expansive array of was to see films. Even YouTube made a deal with Lionsgate films in 2010 to stream many popular movies for free (Salter 2010).

Supplier power

The example of Warner Brothers and Facebook also illustrates the tremendous power that companies have in deciding how to distribute their movies. Netflix cannot afford to refuse to disseminate Warner Brothers films as leverage with the company, given that this will only drive consumers away from Netflix services, and cause them to explore other rental venues. Movie suppliers have a strong interest in finding as many new and innovative ways to release their product and create buzz and excitement about films. Netflix and other companies cannot demand many restrictions and exclusive arrangements from suppliers because so many other distribution venues exist.

Redbox is even more restricted in its supplier relationships -- it does not charge a subscriber fee and disseminates films via kiosks, which allows for low-commitment consumer impulse purchases. It stocks far fewer films than its rivals and depends upon convenience and other store locations to promote its product (Red Box, 2009, NY Times).

As suppliers themselves, one way in which… READ MORE

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