The Driving forces in a movie rental industry are the major underlying causes of changing industry and competitive conditions. Driving-forces analysis have three steps: (1) Identifying what the driving forces are (2) Assessing driving forces which impact Netflix and Blockbuster (3) Companies making strategy judgments Technology Since 2000, the introduction of new technologies and electronics products had rapidly multiplied consumer opportunities to view movies
1. Increasingly numbers of households had combination DVD player/recorders, so they could easily record TV programs and movies and then replay them at their convenience. 2. Moreover, consumers were increasingly interested in watching movies on their big-screen high-definition TVs and were upgrading to BLu-ray DVD player or player/recorders; both Blu-ray and high definition technologies enabled more spectacular pictures and a significantly higher caliber in- home movie-viewing experience e. g.
Netflix was predicated that the DVD formats, along with high-definition successor formats such as Blu-ray, would be the vehicle for watching content in the home for the foreseeable future. 3. Prices for wide-screen, high-definition TVs had been dropping rapidly, and picture quality was exceptionally good, if not stunning, on increasing numbers of models. e. g. 4. Recent advances in video-streaming technology were rapidly improving the prospects that VOD would emerge as the dominant movie rental channel within the next 5-10 years e. g.
In January 2007, Netflix introduced an instant-watching feather for PCs that allowed subscribers to view selections from Netflix’s library of 12,000 full-enough movies and television episodes streamed over the internet directly to their PC monitors 5. LG electronics introduced a set-top box device that enabled Netflix’s instant-watching selections of movies and TV episodes to be viewed directly on subscribers’ television screens. Regulatory influences and government policy changes 1. Some customer obtained movies illicitly on the internet via ile-sharing programs
2. Starting in 2009, all TV stations in the United States were required by law to use digital technology and equipment to broadcast all their programs, a requirement that would result in far more programs being transmitted in high-definition format. Product and service innovation 1. New services for internet delivery of movies, as well as better movie watching devices, were expected to proliferate over the coming years. e. g. (1)Such as Netflix provided comprehensive selection of movie DVDs (In the first six months of 2008, Netflix spent $120. million on the acquisition of new movie DVDs and movie/TV content for online streaming) (2)An easy way to choose movies (3)Fast delivery of selections (Netflix developed software giving it one-business-day delivery capability for 95 percent of its subscribers)
(4)No due dates for return (Netflix subscribers could keep a DVD for as long as they wished, with no due dates or late fees, in Blockbuster’s 2005, decision to discontinue late fees for in-store rentals) (5)And a convenient drop-it-in-the-mail returns procedure 6)Coupled with aggressive marketing to attract subscribers and build widespread awareness of the Netflix brand and service. 2. Traditionally, movie studios allow consumers to download certain movies to their computers one or two months after the Movie’s DVD released. Recently, however, studios had experimented with allowing consumers to download certain movies to their computers on the same day that the movie’s DVD was released. Market innovation The wave of the future in viewing movies at home was widely thought to be in streaming rented movies directly to big-screen high- definition TVs.
Online rentals of movie DVDs, computer downloads of music and movie files, growing consumer interest in video-on-demand (VOD) services, and growing popularity of high-definition TV programs were cited as factors. Online rentals and VOD services were not only cutting into sales of movie DVDs but also taking business away from local video rental stores. Just as Netflix posed a competitive threat to customers patronizing local Blockbuster and Movie Gallery stores in the United States, market research in Great Britain indicated that one out of every five DVDs rented was rented online.
Netflix used multiple marketing channels to attract subscribers, including online advertising, radio stations, regional and national television, direct mail, and print ads. It also participated in a variety of cooperative advertising programs with studios through which Netflix received cash consideration in return for featuring a studio’s movies in its advertising. Advertising campaigns of one type or another were under way more or less continuously, with the lure of two-week free trials usually being a prominent feature of most ads.
Netflix management believed that its paid advertising efforts were significantly enhanced by the benefits of word-of-mouth advertising, the referrals of satisfied subscribers, and its active public relations programs. Changes in who buys the product and how they use it 1. Making recording of movies and TV programs and sometimes burning one’s own DVDs from downloaded or recorded new files were becoming common means of building a personal media viewing library. . Household members could order the movies they wanted to rent and instantly watch either online or buy using TV remotes to place orders from their cable and satellite provider. Entry or exit of major firms Entry barriers into online DVD rentals were relatively low, but the barriers to profitability were considered rather high because the need to attract 2 to 4 million subscribers in order to operate profitably.