Competition in the Movie Rental Industry: Netflix and Redbox
The competitive forces in the movie rental industry are quite strong, as I will explain through the five forces model. There are a vast amount of substitutes for watching a movie. You can go to a play, sporting event, concert, out the lake/beach, go for a run, watch regular television, go shopping; I could go on and on. Also, torrenting or pirating movies is growing increasingly popular. Buyers have a strong presence in this industry mainly because they are picky about how much they will pay to rent or stream a movie.
With the amount of substitutes and their pickiness, they make this industry more competitive than what it may seem. Suppliers can make this industry very difficult because there is so much red tape in the movie industry. There are copyrights and restrictions on everything. This gives the supplier a lot of leverage and for the most part, they know that they can demand a price of just about anything. I see the potential and threat of new entrants being moderate to strong. First off; many customers have their loyalties whether it be to Netflix, Redbox or a local hometown movie rental.
Secondly; pricing, availability and quality are all key factors. Lastly you have to have a large sum of money upfront in order to get the ball rolling. As I mentioned prior, gaining rights from movie companies is not cheap. The rivalry among the competitors is rather intense as they are battling for the best prices, biggest variety, quickest accessibility for the customer, and quality movies (HD streaming, few scratches and number of blu-rays). With the growing increases in technology and home entertainment, there are major forces pushing for change in the movie rental industry.
In addition to this; we now live in a world where people want something and they want it NOW. I work in retail and this “in the now” era is changing everything and is putting a lot of pressure on almost any company. This has increased the push for expansion of online streaming and or the ease of access to movie rental kiosks. Also in this new world, there is a huge demand for entertainment. Our generation spends more time in front of the TV and now computers, tablets and smart phones than ever before.
The increase in the quality of televisions, surround sounds and filming capabilities is pushing the envelope. People are also always looking for the biggest bargain while maintaining quality. When looking at a strategic map the two variables would be price and how quickly the product can be attained. Netflix and Redbox rank high within each category. On the other hand Blockbuster and Movie gallery would be ranked much lower due to their high prices and the fact that you have to go out of your way to a brick and mortar store.
The biggest key success factor to me over the next 3-5 years will be the capability to stream HD content at home. I understand that this hinders on your internet provider due to bandwidth. But I believe that if a customer can stream HD content it will save them the cost of purchasing a blu-ray player and blu-ray videos. To stem off of this idea, it’s going to depend upon how quickly the customer can obtain the video. After those two factors, I think that price (low) will then come into play. People want things to be as simple and as user-friendly as possible.
Whether this is how it easy is to navigate a website or make purchase at a kiosk machine. Lastly I foresee the variety being a component of success; I don’t know about you but I do miss some of the movies from the 90s. After performing a SWOT analysis of Netflix, the company looks increasingly more popular. First off, lets look at Netflix’s strengths. Overall Netflix has had strong financial stability as they have grown their margins year over year. They definitely have their brand name out on the market; much of this can be attributed to their amount of advertising.
You can say that they have alliances given that their videos can be streamed on virtually any device (phone, tablet, and computer). This also allows their content to be viewed virtually anywhere. The fact that they teamed up with Oracle to work on their website was a very beneficial move as this gives them somewhat propitiatory technology. I personally enjoy their recommendations and it is obvious that with their next arrival that they have strong logistics. They have a big cost advantage too.
If I can stream a whole season of How I Met Your Mother in one day, I feel as though the $8. 9 that I spent was a good investment and yet I still have another 29 or 30 days to go. The two times that I had to deal with their customer service; they quality of service was outstanding and I’ve heard many other wonderful testimonials. When looking at weaknesses, I feel that their inability to provide new releases is a major drawback. In addition to this, they need to amp the selection for online streaming since streaming is expanding rapidly. The issue at hand with streaming is that it can potentially lead to server crashes if there are too many users on at once.
Netflix can also be very enticing to hackers since there is so much personal information stored. I would say that the biggest opportunity for Netflix would to be to make deals with the movie production companies to allow Netflix to offer new releases. To feed off of that, they need to increase their variety; particularly in the selection of indie and international films. With as big as they have become Netflix should try to gain rights to more countries. They could try to test out the video rental industry. This would help them out as gamers can stream Netflix on their consoles.
Since they have software to offer recommendations based off of likes, they could look into developing a music streaming service similar to Pandora. Lastly, they need to set up kiosks in high traffic shopping areas. Maybe they could start this by putting up kiosks in each of the 50 towns in which they have a distribution center. I see the biggest threat being the increasing amount of pirating movies and people performing illegal downloads. The supplier has a lot pulling power as they can quote big prices. If other companies began to enter the online streaming idea; Netflix will have to look for ways to distinguish itself.
Redbox’s SWOT analysis does not make it look as attractive as Netlfix, however it is still pretty strong. Again starting with strengths; Redbox has its kiosks placed in prime locations. It is much more convenient for a customer to pick up a movie as they are walking out of the grocery store or McDonald’s than it is for them to drive to a physical store location. It is good for both the store and Redbox. I feel that their prices give them a large competitive advantage especially when comparing to the price of a rental from Blockbuster or Movie Gallery.
Their smartphone app allows the customer to decide whether or not they can go out and pick up a certain film. I know that many people appreciate the fact that Redbox has many new release films. Moving on to weaknesses; the biggest issue with kiosks is the amount of variety and inventory. There are only 20 to 30 films to choose and I feel that folks enjoy more choices. The other issue with kiosks is that nobody is there to inspect the condition of the disks therefore a customer can potentially rent a scratched up disk.
The beauty of Netflix is that your movie will arrive on your doorstep or you can stream it instantly. With the increasing price in gas, it can be seen as somewhat of an inconvenience to drive out to a kiosk. On a positive note, Redbox has many opportunities available to it. They can start off by offering online streaming. Like Netflix, I suggest that they look into tapping into the video game market at their kiosks. After lifting their lawsuits from Universal and Warner bros, they should renegotiating the length of time that it takes to get their hands on new release films.
Redbox’s biggest threat would if/when other companies also begin to offer rentals via kiosk locations. The advances in technology may one day lead us away from using discs and virtually everything will be done online. They also face uncontrollable threats such as snow days. It is much easier for the customer to stream a video with Netflix than it is for them to bundle up, clear off their vehicle and risk their lives in hazardous driving conditions. Financially Netflix has been quite sound since its creation.
I am rather impressed with how well its gross profit and net income have steadily increased year over year. On the other hand, it does somewhat bother me that their stockholder’s equity has decreased each year since 2005. Recommendation: Netflix: I recommend to Netflix that they look into adding kiosk locations in attempt to drive out Redbox as much as possible. This will pull in any more customers because not everyone enjoys being on a subscription and paying monthly rates. By the time everything turns completely towards online streaming, you will be leaving Redbox in the dust with almost nothing.
To further help with pulling customers away from Redbox, Netflix needs to look into gaining access to new release films. With their powerful software, Netflix should look into a streaming service similar to Pandora and or create something like iTunes where customers can purchase and download music. Redbox: Redbox has got to get with the program and offer online content. Along with this, they should offer some sort of subscription service to ensure that they are holding onto their customer base. They could also look into having a rental service via online so that they can offer their customers more variety in movies.