The dilemma which Netflix currently faces is to develop a strategy which will allow them to survive in this competitive industry. They must formulate a plan which allows them to achieve sustainable growth and protect their position in the DVD rental industry.
The DVD rental industry is extremely fierce. DVD rental revenue is expected to be $9574 million by the end of 2006 (Thompson et al, C-66). The market growth rate for the industry is steadily decreasing, expecting only 12% growth by the end of 2006 (Thompson et al, C-66).
The rivalry amongst sellers in the industry is deeply intense. Due to the innovative nature of the industry, increasing amounts of differentiation leads to greater amounts of competitors to enter the market, such as Blockbuster, Wal-Mart and Movielink. In turn, firms in other industries are offering substitute products which are taking away from Netflix’s subscription base.
Although Netflix has earned $359,947,000 revenue through subscriptions in 2004 (Thompson et al, C-69), the growth rate of DVD rental is slowly declining from 23% to an expected12% over a period of the next 2 years (Thompson et al, C-66).
As new technology develops, consumers tend to embrace it. Technological change plays a vital role developing market trends. Competitors such as Movie Gallery have introduced Movies on Demand, which allow consumers to use a service called MovieBeam to transmit a digital-quality movie to a receiver, creating revenue of $692,395,000 in 2004 (Thompson et al, C-75). Competitors in the industry have strategically been advancing their systems in order to distribute their services by any means possible which plays a huge role in the path to success.
Netflix aims at changing the way people access and view movies by setting a long term goal to acquire 5 million subscribers in the US in the next 4 to 7 years (Thompson et al, C-77). Netflix has been doing extremely well in regards to their online...