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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?

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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.

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Perform a STEEP analysis to understand the general environment facing Blockbuster; Use Porter's Five Forces Model to analyze the industry

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4. Who are Blockbuster's main competitors and how does Blockbuster measure up against these competitors? (It may be helpful to chart competitors and product offerings) What advantages does Blockbuster have and what advantages do competitors hold?
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6. Create a SWOT analysis to understand Blockbuster's strengths and weaknesses. Does Blockbuster have a sustainable competitive advantage in the mail rental and video-on-demand industries? If so, what is the source? What about Blockbuster's evolution and current business strategy may pose problems going forward?
7. What is Blockbuster's business-level strategy? Is the strategy appropriate to offset the forces in the industries? How has Blockbuster attempted to overcome obstacles posed by being a late player in a rapidly changing marketplace? Do you recommend any changes and/or foresee any challenges?

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