During 2010 and the first six months of 2011, Netflix was in a rapid growth, the subscribers and stock price was doubled from before. However, after Netflix changed the strategy, the company’s stock price into a tailspin, and subscribers reaction was negatively, about 600,000 customers had canceled their subscriptions. Then the negotiation with Starz had broken down, and the licensing expired in March 2012, that was exacerbated the company’s stock price continue going down and a loss for the whole year.
1- Competitive analysis
Competition from rival sellers:
1. Redbox is Netflix’s main competitor in the physical DVD rental segment. The customers could rent DVDs for $1.20 per day, but Netflix’s price is 4.99 per day. Although, the price is lower than Netflix, but they do not have unlimited DVD plans, which Netflix has, and the price is from $7.99 to $43.99, that means if you watch more than 7 to 40 movies every month, the Netflix’s plan is worth for the customers.
2. Hulu Plus is an ad-supported online video service that offers a selection of hit TV shows, clips, movies and more (“Hulu” Wikipedia). Customers pay $7.99 per month for unlimited streaming which is the same with Netflix. The advantage for Hulu is new customers got a one-week free trail, but the disadvantage is the company only have the online streaming service, but Netflix can offer more choices for their customers, like unlimited DVD plans, unlimited streaming plan and unlimited streaming plus DVDs plan, also many limited plans.
3. Amazon Prime Instant Video is based on Amazon Prime members, at first you should become an Amazon Prime member, and then you can have the service, the price is $79 per year, for an Amazon Prime member. The advantage is based on a huge number of Amazon Prime members, this service is very competitive and there are 3.5 to 5 million Amazon Prime members in 2012.
4. VUDU was acquired by Walmart in February 2010, and VUDU was the largest home entertainment retailer in 2012, and advantage is VUDU enable people can watch movies which they bought in more than 300 different Internet-connected devices, it can help people watch movies more convenience.
Competition from potential new entrants
As the industry growing very fast, in 2012, almost every major network broadcaster multichannel TV provider, and premium movie channel was joining the industry and invest their own brands, like HBO GO and Showtime Anytime have their own website.
Competition from producers of substitute products
The Netflix physical DVD rental service is almost replaced by the internet, but for the streaming service, the competition from producers of substitute products is weak. The streaming service is based on the internet, but we can not see any substitute products can replace internet in the next several years.
Supplier bargaining power
The suppliers have a strong bargaining power, as the beginning of the case, the Netflix negotiate broken down with Starz was mainly because the price Starz asked is too high. Also, the suppliers have the copyrights of the movies and TV shows, and they give Netflix licensing to rent DVDs or streaming to customers. A very important reason is there are limit number of suppliers Netflix can choose.
Customer bargaining power
For customers, they have a weak bargaining power, because the price is decision by the company, and there are over millions customers.
2- Strategic Analysis
Since the company was established in 1999, the subscription-based business model and strategy made the company become world’s largest online entertainment subscription service company. Their business model is pretty good in the past decade. The company had a multipronged strategy to make the numbers of subscribers continually growing. The strategies are offer wide selection of DVDs, acquiring new content and building good relationship with their suppliers, easy to use the system, a choice of streaming or delivered DVDs by mail, attract subscribers