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Movie Rental Business: Using Porter's Five Forces Model


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Porter's Five Forces Model
One hotly contested and highly competitive industry is the movie rental business. You can rent videos from local video rental stores, you can order pay-per-view from the comfort of your own home, and you can rent videos from the Web at such sites as NetFlix.

Using Porter's Five Forces Model, evaluate the relative attractiveness of entering the movie rental business. Is buyer power low or high? Is supplier power low or high? Which substitute products and services are perceived as threats? Can new entrants easily enter the market? What are the barriers to entry? What is the level of rivalry among existing competitors? What is your overall view of the movie rental industry? Is it a good or bad industry to enter?

Solution Preview

Step 1
In the movie rental business, the buyer power is high. The buyers are price sensitive and there are substitutes available. For example, Netflix changed its baseline pricing structure. Netflix was allowing unlimited streaming for its $9.99 one DVD at a time plan. This plan was changed to two separate plans $7.99 per month for one DVD at a time and $7.99 per month for unlimited streaming with no discount for bundling the two together. This was a 60 percent price hike and the result was that in 2012 Netflix reported an 88% fall in third quarter profits.

Step 2
Supplier power is moderate. There is no supplier concentration and volume is of importance to suppliers. The switching costs are not very high. However, there is differentiation of inputs. The vendor for particular content has sole rights. The costs relative to the total purchase in the industry are ...

Solution Summary

The market forces in the movie rental business are discussed step-by-step in this solution. The response also has the sources used.