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Team 4 Brandon Erinn Matt Kunal. Video Rental Industry Analysis. NETFLIX. Business and Economics Characteristics. Rental Revenue flat over last two years Competitors continue to shift as new companies innovate and enter the market.   Recession Impact: DVD Purchases DVD Rentals

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Team 4





Business and economics characteristics
Business and Economics Characteristics

  • Rental Revenue flat over last two years

  • Competitors continue to shift as new companies innovate and enter the market.  

  • Recession Impact:

    • DVD Purchases

    • DVD Rentals

  • Customers can easily switch rental suppliers

  • Technology reshaping industry

  • Piracy: An Industry-Wide Concern


Shifting market leaders
Shifting Market Leaders

Mom & Pop Rental

Emerging industry – many local and regional competitors

Blockbuster dominated industry in 1990’s

On-line store & Mail Delivery

Slow to change: 2007 Bankruptcy

Kiosk - $1 Rental




Distribution model market segments
Distribution Model - Market Segments

  • Physical distribution: DVD or Blu-ray disc

    • In-store rental

    • On-line selection and mail delivery,

    • Kiosk rental

  • Digital distribution (VOD)





In store rental
In-Store Rental

  • Market is significant but declining rapidly

  • Higher cost:

    • Operation costs for retail outlets.

    • High # of employees

  • Movie Gallery depended on In-store rental

    • Bankruptcy in 2007

  • Blockbuster closing some stores.


On line selection and mail delivery
On-line Selection and Mail Delivery

  • On-line and mail order delivery

    • Introduced by Netflix in 1997

    • Adopted by Blockbuster in 2004.

  • Lower cost than In-store

  • Access to large number titles

    • Netflix over 100,000 titles available

  • Subscription Plans: Consistent Revenue Source of revenue


Kiosk rental
Kiosk Rental

  • Low Cost Rental: Redbox $1 per night

  • Fewer employees than In-store

  • Located outside retail locations (i.e. Walgreens).

  • Redbox will have 22,000 Kiosks by end of 2009

  • Blockbuster rolling out 3,000 by end of 2009


Video on demand vod
Video On Demand (VOD)

  • Enabled by technology advances in internet bandwidth internet devices.

  • Lowest cost delivery method.

  • Customer has immediate access to large list of titles.

  • Slow to develop

    • Depends on technology advances

    • Customers not comfortable

  • Opens market to consumers of the world. 


Forces driving change
Forces Driving Change

  • Convenience:

    • Large selection

    • Fast and easy access

    • Selection and Recommendation Software

  • Cost

    • Cost favors Mail Delivery over In-Store rental

      • Mail:$9/month unlimited vs. In-Store $4/rental.

    • Kiosk Rental gaining market share with $1 nightly rental cost

    • VOD expected to continue cost reduction pressures.


Forces driving change continued
Forces Driving Change (Continued)

  • Technology

    • Companies are positioning themselves to take advantage of new technologies.

      • Blu-Ray

      • Broadband access

    • Partnering with TIVO, Xbox, and Samsung Internet TV 

    • Redbox and Blockbuster investing in memory card download technology

    • Internet and Wireless broadband technology is enabling non-traditional competitors into the market. 


Strength of competitive f orces
Strength of Competitive Forces

  • Bargaining power of providers

    • Redbox struggling to purchase movies from the studios

  • Bargaining power of the consumer

    • Consumer can quickly change their rental supplier. 

  • Business changes executed by existing competitors

    • Blockbuster diversifying into the kiosk delivery method

  • Threat of new companies entering the rental market

    • Significant threat for VOD segment: Amazon and Apple


C ompetitive p ositions of companies
Competitive Positions of Companies

  • Blockbuster diversifying but operating costs high.

  • Netflix has strong mail delivery position and is well positioned for VOD business.

  • Redbox's kiosk approach has made them a major player but no plan for VOD.

  • Apple, Amazon and other VOD providers are in a position to take significant market share from the traditional rental suppliers.


Expected competitive moves
Expected Competitive Moves

  • Blockbuster

    • Closing additional retail locations

    • Entering kiosk delivery method. 

  • Redbox

    • Partner with more retail locations to subsidize rental cost

    • No VOD plan

  • Netflix:

    • Continue mail delivery segment

    • Strengthen VOD offering

  • Apple

    • Expand their success with iTunes further into the movie rental market. 


Key s uccess f actors
Key Success Factors

  • Manage costs to compete with declining rental costs.

  • Provide convenience to the consumer that distinguishes themselves from competitors.

  • Utilize technology advances.

  • Grow revenue by expanding monthly service plans


Industry a ttractiveness
Industry Attractiveness

  • High risk in the rental industry but also high rewards.

  • VOD has high growth potential. May reshape market leaders.

  • Piracy is an additional risk that will need to be considered.


Netflix vs blockbuster
Netflix vs. Blockbuster

  • Blockbuster performance from 06’-08’

    • Very minimal growth

    • Gross profit has been dropping since 2006

  • Netflix performance from 06’-08’

    • Have been very profitable

    • Revenue has been skyrocketing

    • COGS, Gross profit, and net income have all made drastic increases


Netflix and the economic crisis
Netflix and the Economic Crisis

  • Netflix seems to be immune from the financial crisis

  • Their financial numbers show no real drop off unlike other movie rental stores

    • People still want to be entertained even during tough times

    • Netflix’s prices are low and no late fees are accumulated which makes it easier for customers to afford


Netflix s management
Netflix’s Management

  • Good to Great

    • Getting the right people on the bus

  • They expect performance to resemble what the company and customers expect

  • Forbes magazine

    • In this article they discuss how Netflix tries not to create a problem of hiring the wrong people, and then laying them off because they weren’t cutting it



  • Values are what drives the entire company

  • Netflix works to find employees whose values coincide with the company

    • Keep it simple

    • Empowerment

  • Values are not just nice sounding statements

    • Central to recruitment

    • Performance Mgt

    • Development



  • Recent up rises have become a problem for Netflix

  • Examples include Video on Demand, YouTube and iTunes just to name a few

  • Critics are beginning to say that Netflix needs to overhaul their business model.

  • Netflix needs to think about a few questions

    • Are they safe or under siege?

    • Do they need an overhaul or just hedge it up?


Netflix assets
Netflix assets

  • Current, fixed and intangible

  • Netflix’s intangible assets are what gives them a distinctive competency

  • Intangible assets consist of

    • brand name and image, goodwill, training

  • Intellectual properties are also very important intangible assets

    • They help keep competition at bay

    • Gives them a competitive advantage


No such thing as perfect
No such thing as perfect

  • All businesses have their own struggles to deal with

  • The majority of Netflix’s issues are dealing with costumer complaints

    • Scratched DVD’s

    • Memberships being suspended

  • No matter what a company does there will always be unsatisfied customers


Long term objectives
Long-term objectives

  • Netflix offers potential customers a free 2 week trial offer

  • They are offering this to establish some sort of brand image

  • Netflix is doing a good job of creating an appealing image, but they are starting to struggle with loyalty and retaining customers

  • They need to work towards a continuous improvement of customer satisfaction


Swot analysis
SWOT Analysis

  • Strengths:

    • Strong brand name and company image

    • Movies by mail or straight to PC/TV

    • Largest online library of DVD titles to rent (over 100,000 by mail; 17,000 VOD)

    • Cheap monthly plans

  • Weaknesses:

    • Must have an Internet capable device in order to stream movies to TV (Xbox 360, PS3, TiVo, Internet-connected Blu-Ray players, Internet-connected HD TVs, Blu-Ray Home Theater Systems)

    • PCs must meet certain system requirements in order to stream movies

    • Online only

    • Customer service is spread too thin


Swot analysis cont
SWOT Analysis, cont.

  • Opportunities:

    • Venture globally to provide online rentals to Europe and China, to name a few

    • Add video games to the rental choices

    • Provide more satisfying customer service

  • Threats:

    • Blockbuster, Inc. – online rentals, plus purchases, and kiosks

    • Movie Gallery, Inc. – online movie purchases

    • RedboxAutomated Retail, LLC – kiosks at convenient and well-known stores (Wal-Mart, T&C/Stripes,

    • Apple iTunes – online rentals and purchases


  • Core capabilities:

    • Providing the consumers with a convenient and easy way to rent movies or their favorite TV show without ever having to set foot outside of their homes.

    • Providing unlimited movie streaming (VOD) access

    • Cheapest prices when broken down into cost per night -- $0.30 per night on lowest plan; $0.56 per night on highest plan (this does not include extra Blu-Ray charges)

    • Keeping overall operating costs low, therefore producing greater profit margin compared to competition


  • Key success factors:

    • Provide ease and convenience to rent DVDs

    • People turn to entertainment industry in time of recession

    • Able to maintain low costs while keeping up with the lowering prices of DVD rentals

  • Cost position:

    • Largest profit margin out of competition, but costs are being undercut due to the latest implementation of Redbox and Blockbuster kiosks.

      However, still have lower costs than Blockbuster because Blockbuster has overhead costs from their stores that Netflix doesn’t have.


Netflix strategy1
Netflix Strategy

  • Netflix’s Core Competitive Strategy:

    • Easy to use and intuitive website

    • Personalized movie recommendations based on more than two billion ratings from our subscribers

    • Relentless focus on continuously improving the customer experience

    • Proven competence in making unlimited subscription a profitable business model


Netflix strategy2
Netflix Strategy

  • Netflix Growth Strategy:

    • Leverage our online DVD rental leadership to grow both subscribers and net income.

    • Make the best product – and the best consumer experience even better.

    • Lead the expansion of Internet delivery of content by offering our subscribers both mail delivery and a continuously improving Internet delivery option.


Strategy adjustments and options
Strategy Adjustments and Options

  • Adding Physical Locations and Products

    • Buildings/Kiosks

      • Capture both target markets

      • Alternative to shipping

    • Video/Computer Games

  • Increasing DVD database

    • Blu-ray

    • Genres

    • Quantity of a New Releases

  • Keep up with technology

    • VOD…in HD

    • Don’t forget about sound

    • Make a contract with International Airlines


    Strategy adjustments and options1
    Strategy Adjustments and Options

    • How can Netflix gain so much Capital to finance all these adjustments?

      • Reinvest any excess profits back into company.

        • Increase Marketing

        • Finance Adjustments to strategies

      • If New strategy is a success, we should see Netflix turn into a Blue Ocean.