Team 4
Brandon
Erinn
Matt
Kunal
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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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Customers can easily switch rental suppliers
Technology reshaping industry
Piracy: An Industry-Wide Concern
Mom &
Pop
Rental
Emerging industry –
many local and regional
competitors
Blockbuster dominated
industry in 1990’s
Slow to change: 2007
Bankruptcy
On-line store & Mail
Delivery
Kiosk - $1 Rental
VOD?
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Physical distribution: DVD or Blu-ray disc
◦ In-store rental
◦ On-line selection and mail delivery,
◦ Kiosk rental
Share of Rental Turns (2009)
Kiosks
19%
45%
36%
Online
services
Source: NPD Group
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Digital distribution (VOD)
Video
stores
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Market is significant but declining rapidly
Higher cost:
◦ Operation costs for retail outlets.
◦ High # of employees
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Movie Gallery depended on In-store rental
◦ Bankruptcy in 2007
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Blockbuster closing some stores.
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On-line and mail order delivery
◦ Introduced by Netflix in 1997
◦ Adopted by Blockbuster in 2004.
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Lower cost than In-store
Access to large number titles
◦ Netflix over 100,000 titles available
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Subscription Plans: Consistent Revenue
Source of revenue
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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
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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
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Opens market to consumers of the world.
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Convenience:
◦ Large selection
◦ Fast and easy access
◦ Selection and Recommendation Software
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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.
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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.
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Bargaining power of providers
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Bargaining power of the consumer
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Business changes executed by existing
competitors
◦ Redbox struggling to purchase movies from the
studios
◦ Consumer can quickly change their rental
supplier.
◦ Blockbuster diversifying into the kiosk delivery
method
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Threat of new companies entering the
rental market
◦ Significant threat for VOD segment: Amazon and
Apple
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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.
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Blockbuster
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Redbox
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Netflix:
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Apple
◦ Closing additional retail locations
◦ Entering kiosk delivery method.
◦ Partner with more retail locations to subsidize
rental cost
◦ No VOD plan
◦ Continue mail delivery segment
◦ Strengthen VOD offering
◦ Expand their success with iTunes further into the
movie rental market.
• 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
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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.
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Blockbuster performance from 06’-08’
◦ Very minimal growth
◦ Gross profit has been dropping since 2006
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Netflix performance from 06’-08’
◦ Have been very profitable
◦ Revenue has been skyrocketing
◦ COGS, Gross profit, and net income have all made
drastic increases
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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
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Good to Great
◦ Getting the right people on the bus
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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
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Values are what drives the entire company
Netflix works to find employees whose values
coincide with the company
◦ Keep it simple
◦ Empowerment
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Values are not just nice sounding statements
◦ Central to recruitment
◦ Performance Mgt
◦ Development
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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?
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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
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Intellectual properties are also very important
intangible assets
◦ They help keep competition at bay
◦ Gives them a competitive advantage
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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
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No matter what a company does there will
always be unsatisfied customers
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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
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Strengths:
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Weaknesses:
◦ 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
◦ Must have an Internet capable device in order to stream
movies to TV (Xbox 360, PS3, TiVo, Internet-connected BluRay 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
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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
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Threats:
◦ Blockbuster, Inc. – online rentals, plus purchases, and
kiosks
◦ Movie Gallery, Inc. – online movie purchases
◦ Redbox Automated Retail, LLC – kiosks at convenient
and well-known stores (Wal-Mart, T&C/Stripes,
◦ Apple iTunes – online rentals and purchases
Strengths
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Opportunities
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Threats
Weaknesses
Netflix could use their
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strong brand name and
image to market overseas
and globally expand their
company.
Because Netflix has so many
subscribers who rent DVDs,
they could appeal to another
area of interest and offer
game rentals for game
consoles as well.
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If Netflix continues to
compete with
Blockbuster, Movie
Gallery, and Redbox
without making any
changes, they are going
to find themselves in a
red ocean.
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Netflix could implement a
better customer service
program in order to
better assist customers
who are dissatisfied with
the service they are
receiving.
Although Netflix does not
have an overhead cost due to
stores, they are missing out
on a big part of the
population who rent movies
on the same night they want
to watch them and don’t have
Internet access hooked up to
their TVs.
Netflix is also not reaching
out to those who don’t have
Internet access at all.
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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
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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
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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.
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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
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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.
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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
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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.