Business Strategy & Innovation Management Course

1. MOVIE RENTAL INDUSTRY LIFE CYCLES
 Movie Rentals: The Boom Years : During the 1980s and 1990s, retail video rental stores boomed. In 1995,
the Blockbuster video rental chain had more than 4,500 stores
 Movie Rentals: The Internet :Increased access to the World Wide Web created new retail opportunities
 Movie Rentals: The New Millennium where the growth of broadband internet access in the early 2000s
allowed media providers to transition from selling physical objects to offering digital formats.
 Movie Rentals: Today

2. NETFLIX
STRATEGY MANAGEMENT & INNOVATION

3. TIMELINE
The company was
established in 1997
and is headquartered
in Los Gatos,
California by Marc
Randolph & Reed
Hasting
In 2000, Netflix
reached Blockbuster to
become strategic partners
and investors, however
Blockbuster declined the
offer
In 2007, It began to move
away from its original core
business model of mailing
DVDs by introducing Video
on Demand via the Internet
Netflix
introduced the
monthly
subscription
concept in
September 1999
By 2010, Netflix's streaming business
had grown so quickly that within months
the company had shifted from the
fastest-growing customer of the United
States Postal Service to the biggest
source of Internet traffic in North
America in the evening.
On September 18, 2011, Netflix
announced its intentions to rebrand and
restructure its DVD home media rental
service as an independent
subsidiary company called Qwikster,
totally separating the DVD rental and
streaming service
In April 2014, Netflix
approached 50 million
global subscribers with a
32.3% video streaming
market share in the United
States. Netflix operates in
a total of 41 countries
around the world
Rapid growing DVD
rental service where
they gained 3 million
subscribers in early
2005.

4. EXTERNAL ENVIRONMENT ANALYSIS (MOVIE INDUSTRY)
• Situational Analysis (PESTEL)
• Environment (OPP-THREATS)
• Industry Analysis (5 Forces)

5. PESTEL
- Political System:
1) Banking System (Latin America Case)
2) Internet Services Provider Policy that affects streaming options
3) Regulations in government through intervening in any piracy or
illegal movie previewing
- Legal :
1) Firms could be affected by changing laws regarding copyrights of
certain types of content, such as movies and television shows that
firms rely on to provide to consumers

6. CONT.
- Economic:
1) The economic growth of a country where we can understand the income capability of it’s citizen
2) Reducing costs of physical resources after any crises (Brick & Mortar Products)
3) Costs of new consoles ( VHS to DVD, then Blue ray)
- Social/Cultural
1) Lifestyle trends where people adapt to a more convenient way like Online rather then go and find a DVD
disk at a rental store
2) Population of the young generation and their increase interest in technology products (Ex: Watch
movies on Iphone)

7. CONT.
 Technology:
- Internet Speed: This improvement in technology has allowed movie rentals online become easier and
much more comfortable
- Technology devices: movies can be streamed on many devices online ( Xbox, Playstation, Tv, Phone)
Moreover, the Redbox (Kiosk) invention in the rental services

8. THINKING STRATEGICALLY ABOUT A COMPANY’S EXT.
ENVIRONMENT
Opportunity Threat
International Presence: It may lead to
financial stability in other countries
(Canada compared to Latin America)
Studio’s offering online streaming on
their own (Warner Bro.)
Video Game Rental Service: It will be
the next mover of competition against
Blockbuster & Redox
Competitors who may offer better
service at lower cost of getting
License( Hulu) or better services (
Amazon)
Expanding Partnership Customers declining interest in movie
discs which may effect a huge profit
margin for Netflix

9. PORTER 5
FORCES
Bargaining Power of Buyer: High
Customers are depending on costs
for watching (Too many options)
Customers are highly sensitive to
the prices and they can determine
the price that they might go for
Rivalry: It is intense
Customers costs to switch brands
are low
Customers have options of Online
Streaming, Mail Delivery, Rental
Place
Low Product Differentiation
Bargaining Power of Supplier: High
Suppliers are studios like Warner,
Universal, Fox) who are few and
may implement high costs for
acquisition of their movie titles
especially on online steaming.
Threat of New Entrants: Moderate
The companies that are already there who created a
brand and image toward customer
The high costs of stocking inventory (Dvd)
Threat of Substitutes: Moderate
Doing any activity regarding watching a
movie at theatre, playing sports or
listening to music may affect
Technology has helped video games to
switch directly to movies

10. DIRECT VS INDIRECT COMPETITORS
Direct Indirect
Amazon Prime Youtube
Hulu The Pirate bay
Comcast Bittorrent
Coinstar Dailymotion

12. VALUABLE- RARE- IMITATABLE- ORGANIZED
 DVD & Blue Ray discs
 The majority of their business model is in their distribution of their movies. Its strategy for DVD distribution is
through mail, instead of having physical stores
 Title variety is one of the main points of Netflix’s current strategic move
 Customer service is important to Netflix and is evident through their website. (Queue Model, Recommendation
list)
 The capability of online streaming through any device so they will be able to cut costs of shipping

13. VRIO
Capability Is Valuable Is it Rare? Is it Imitable? Organized to
capture value
DVD & BlueRay
Rental
Physical
Distribution
Online Stream
Title Variety
Convenience

14. Capability Is Valuable Is it Rare? Is it Imitable? Organized to
capture value
DVD & BlueRay
Rental
X O O O
Physical
Distribution(by
Mail)
X X X X
Online Stream
(Devices)
X X X X
Title Variety X X O X
Convenience
(Website)
X X X X

15. NETFLIX VS BLOCKBUSTER
• NETFLIX used the Offensive Strategy since it:
• Offered a better service (No late fees) at lower price (DVD by Mail) (2002)
• Pursued the Online Streaming as a first mover advantage and held it’s cost low
due to only having warehouses instead of stores. (2007)
• NETFLIX used the Defensive Strategy since it:
• It sued Blockbuster for initiating their online service feature since it had a patent
about it
• Blockbuster faced Netflix in a price war in early 2004 but it then failed
and went out of online business in 2008 and went to bankruptcy in 2010 (4500
store to an aim of having 500 store in 2015)
• Acquisition by: Dish Network

16. FIRST MOVER ADVANTAGES (NOW)
• The first model leverages an existing subscriber base in an adjacent market to increase the likelihood of success
in the video streaming content.
• Example: Amazon who is leverage its existing internet customer base and driving streaming adoption by
subsidizing the service by offering free shipping on all Amazon purchased products to those who subscribe to
the streaming service.
• The second model is from the content creators themselves. Services such as HBO GO and Hulu
(a joint venture by Disney, Fox and NBC Universal) have lower risk given their reduced content
acquisition costs and are just newfound distribution channels for their valuable content.
So is it still an advantage?

17. NETFLIX VS AMAZON
Jefferies Equity Research
Report, Growth Story
Offset by Rising Costs
and Competition, 4 Sept
2012

18. ACQUISITION FOR A HORIZONTAL SCOPE ( AMAZON)
Feb 05 2014
March 11-2015

19. BACKWARD INTEGRATION STRATEGY
Netflix has tried to lessen the power of suppliers by creating their own series like “The House of Cards” “
Orange is the new Black” in order to lower the cost and the bargain power of the suppliers for offering
their own series
Differentiation-based Competitive advantage when performing activities internally contributes to a better
quality or service offering.
“MRC approached
different networks about
the series,
including HBO, Showtime
but Netflix, hoping to
launch its own original
programming, outbid the
other networks”

20. RECOMMENDATION
1) Strategic Choice: Acquisition of Hulu Plus which is a joint venture in order to combine a competitor to the scope of
work, a) Eliminate a Rival b) Hulu, LLC currently counts 40 million unique visitors to their website each month as
their consumer base c) Netflix will maintain their goal of building their streaming content library by acquiring
content from leading content providers, such as News Corp., NBC Universal and Disney
2) Long run: Strategic Alliance will multi national Television Provider in order to stream their content, for example
HBO which has one of the top series (Game of Thrones)
3) Emergence of Netflix in offering Video Games rental service through offering revenue agreements with company’s
like EA Sports, Rock star Games in order to expand to a new market which is needed such as Xbox, PlayStation,
Nintendo will continue to happen unlike DVD rental service which may decline due to streaming.
4) Long Run: Forming Alliance with Airlines in order to enhance Netflix Service on planes since the technological
advances in aerospace are happening and such services are needed.
5) Expansion Middle East would be hard with all the barriers of internet speed in some countries (Lebanon) or the
Saudi Arabia which doesn’t even have cinema showings even though they have good economic growth. Also,
Egypt who have huge amount of population but lacks stability like many other countries. (Latin America already
showed slow progress) so the target may be United Emirates and acquisition of Startyp: Cinemoz in order to enter
the Arab world industry
On the other hand, the Chinese Market is difficult to enter , but companies like Alibaba who are online retail may use
acquire Netflix in using its structure for China ( Population over 1 billion) and the cost is affordable for Chinese Citizens