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 $5.5 billion bricks- and-mortar movie rental
business, decided to enter the mail-in delivery and online-DVD
rental business. Blockbuster drove prices down to $1499, 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.
Use Porter❝s Five Forces model to answer the following
1. Does easy access to distribution channels at grocery stores for
Redbox❝s 22,000 vending machines indicate high or low entry threat
in the movie rental business? Why? Why might McDonalds be an even
better distribution channel that grocery stores?
2. What economies of scale were available to serve as a barrier to
entry in Blockbuster bricks-and-mortar movie rental business? Did
Netflix face a cost advantage of disadvantage?
3. Who are Blockbuster❝s suppliers? Are they in a position to
appropriate much of the value in the value chain? Why or Why
4. What factors determine the intensity of rivalry in any industry?
Is the intensity of rivalry in thr movie rental industry high or
5. Porter❝s Five Forces model is sometimes extended to Six Forces
of Competition to include the threat to profitability imposed by
disruptive technology. What disruptive technology has threatened
the bricks-and-mortar and mail ❝in movie rental