Charging $17.99 a month for an unlimited number of movie rentals (three at one t
ID: 1207752 • Letter: C
Question
Charging $17.99 a month for an unlimited number of movie rentals (three at one time), Netflix revolutionized the movie rental business with a one-day mailing service for DVDs and acquired 12 million subscribers and $1.5 billion in revenue. However, Blockbuster, the video rental giant from the earlier $5.5 billion bricks-and-mortar movie rental business, decided to enter the mail-in delivery and online-DVD rental businesses. Blockbuster (now a division of Dish Network) drove prices down to t14.99, attracting 2 million subscribers. Netflix responded with a cut-rate service of one movie at a time for $9.99 per month, which drove the net profit right out of the business. Movie studios like Viacom and Time Warner also entered the market with direction - the-customer video on demand delivered over the web. Following two months of theatre-only releases, the studios asked 20 to $25 per showing. This fee is five times what it costs to rent a second-run or classic movie from the cable companies and 10 times Netflix's or Redbox's $1.99 or $1 fees for overnight rentals. At such exorbitant prices, the studios earn a 70 percent margin, but studies of price elasticity in home entertainment experiments suggest an eight-fold increase in volume for half-price promotions. On-demand movie rentals and Blu-ray retail sales are the only two growing segments of consumer demand for video (see Figure). FIGURE Consumer Spending on Video Use Porter's Five Forces model to answer the following questions: What disruptive technology has threatened the bricks-and-mortar and mail-in movie rental business?Explanation / Answer
Answer:
Porter's five forces are
The disruptive technology is nothing but new entrants. New firms entered into the industry which were strong rival. the had better bargaining power than Blockbuster and Netflix. New rival gave service direct-to-the-costomer video on demand over the web. they had better quality of sound and video. they charged higher for his video.
Netflix and blocbuster which was providing mailling service of DVDs and Brick and mortar respectively. they started price war buy cutting the rate. industry got maximum revenue in 2004 and after that revenue went down . some firms like time warner and viacom earned a hundsome ammount of profit. Blockbuster's and netflix's profit margin goes down.
Video on demnad and Blu-ray retails the only two growing segment. these were substitute of mailing DVDs and brick and mortar. threat of substitute was there.
Thus we can se porter's moldel of five forces explain easily the threat of industry. it deals with all its major componets. although it has some criticism but it si an important model to deal problem within an industry. All its forces played a role to threaten the bricks and mortar and mail in movie rental business.