Netflix has grown to dominate the entertainment streaming industry since 1997 through innovative distribution methods and intuiting changing consumer preferences. It faces moderate threats from new entrants and substitute products, and high bargaining power from both buyers and content suppliers. Rivalry among existing competitors is also moderate as many cooperate to share audiences. To remain competitive, Netflix will need strategies to mitigate the effects of future price increases, continue global expansion, create additional revenue streams, and maintain good relationships with suppliers and competitors through collaboration.

1. A Porter’s Five Forces Analysis of Netflix
By: Shannon Szabo-Pickering
Throughit innovative distributionmethodsfordeliveringmoviesandtelevisionshowsandintuition
regardingchangingconsumerpreferencesforviewingthese mediaforms, Netflixhas grownintoa
dominantforce inthe entertainmentindustry. Startedin1997 as a via mail DVDrental service, Netflix
capitalizedonthe emergence of DVDsasa replacementtovideotapes.Fora monthly subscription fee,
consumerscouldrentDVDs,have deliveredtotheirhome,andreturnthem anytime withoutlate fees.
In 2008, it became first-tomarketin offeringdigital on-demandservices, offeringanyonewithinternet
access the opportunitytowatchmovies andtelevisionshowsfromthe Netflixcatalogue attheir
convenienceandwithoutcommercial interruptions.
Digital streaminggave Netflixacompetitive advantage overtraditionalentertainmentdistributors,
allowingittosimultaneouslyimplementacost leadershipanddifferentiationstrategy. Itprovedto be
an efficientdistributionmethod,allowingNetflix toofferitsservicesataconsiderablylowerprice than
cable and satellite,while simultaneouslyprovidingitsaudiencewithanimproved andunique viewing
experience comparedtotraditionaltelevisionand movie viewing.Viewerscould towatchTV and movies
at theirconvenience, andNetflixadditionallyprovided personalized viewingrecommendations though
the use of data miningtechniques.
Netflix iswidelyseenasrevolutionizingtelevisionandmovie viewing,andiswidelyconsideredamajor
threatto traditional viewingplatforms. InJuly2014, Netflix surpassed50millionglobal subscribers,with
36 millionof thembeinginthe UnitedStates (Netflix,2015) and duringpeakhours, it accountsfor more
than thirtypercent of all Internetdown-streamingtrafficinNorthAmerica (Auletta,2013).Recently,
Netflix hasfocusedonaggressive internationalgrowth, andisnow available inover40countries (Netflix,
2015).
Despite beinghighlypopularwithcustomers,the Netflixbusinessmodel doeshave some areasof
concern. It isentirely dependenton outside suppliersforcontent,and faceshighexpectationsforboth
price and quality,aswell asa multitude of new entrantsinthe marketplace.Furthermore,ithascome
underscrutinyforprice increases, itspotentiallyunsustainable businessmodelandoverregulatory
concernssuch as the amountof Canadiancontentitoffers. The followingdiscussionassessesNetflix
usingPorter’sFive ForcesModel todeterminehow marketforcesmayaffectNetflix now andinthe
future.
Threat of new entrants (Moderate)
As a well-recognizedgrowthsectorinthe movie andtelevisionindustry, competition inonline streaming
islikelytointensifyinthe future. Manynew onlinestreaming entrantsare likelytobe currentindirect
competitorsenteringthe on-demandstreamingmarkettomaintainmarketshare andremain relevant
and competitiveinachanging mediaenvironment.Traditionalproviders of movie andtelevision
imitatingNetflixbusinessmodel have become,andare likelytoremain, widespread entrantsintothe
digital streamingservices. Inlate 2014, Rogersand Bell Media respectively introducedShomi andCrave
TV to the Canadianmarketplace;arecognition of markettrendsfavouringdigitalondemand.Bothof
these serviceshave builtareputationfor soundtelevision content,while Netflixisstill widelyseenas

2. the top providerof movie content. Bothservices alsoofferpersonalizedrecommendations,similar to
the Netflix model.Additionally,Crave TV isavailable tocustomersfor$4.00 permonth,comparedto
$8.99 forNetflix andShomi.However,ShomiandCrave TV are bothonlyavailable tocustomersof
certaintelevision providers, while Netflixisavailable toanyone withinternetaccess. Due toits vast
amountof content, ease-of-accessandpredominantmarketshare,Netflix still currentlyenjoysa
competitiveadvantage overthesenewlyintroduceddigital on-demandservices.
Netflix isalsofacingthe threatof newentrantsinthe UnitedStates. InOctober2014, HBO andCBS both
announcedthe launchingof digital steamingservices in2015. These new entrantstodigital streaming
bothhave a competitiveadvantage inthe amountof contenttheyalready own.However,asfirstto
marketNetflix hasanestablishedreputation,brandequityandmarketdomination inthe digital
streamingrealm.Additionally,aconsensus amongstreamingcompetitorsexiststhat,althoughoffering
similarservices,the contentofferedbyvariousstreamingservicescreatesalarge enoughpointof
difference where numerousproviderscancompete effectivelyinthe marketplace.WhileNetflix may
face many new entrantswithin itssector,itremainsunclearwhetherthesenew entrantstrulyrepresent
a threat.
Bargaining Power of Buyers (High)
The current businessmodelimplementedbyNetflix gives itscustomersalarge amountof bargaining
power. Consumersface minimalconsequencesforcancellingNetflix subscriptions.Customersmay
cancel at any time withoutterminationfees,andhave theirprofile informationsavedbyNetflix forone
year(How doI cancel Netflix?,2015). The price sensitivityof Netflix consumers furtherincreases their
bargainingpower. At$8.99 permonth,Netflix isrelativelyinexpensivecomparedtotraditional media
outlets. The lowprice andhighamountof contentavailable throughNetflixcreates competitive
advantage comparedtotraditional mediaoutlets.However,italsocreateshighconsumerexpectations
regardingbothprice and content,andmay have inadvertentlyincreasedthe bargainingpowerof
consumers. Because of these expectations, consumersare extremelyprice sensitive andatriskof
abandoningNetflix overrelativelyincremental price increases.In2011, whenNetflix divideditsDVDby
mail and streamingservices, charging$7.99 per monthforeach service insteadof $10 access to both
distributionmethods (Shankland,2011),resultinginaloss of 800 000 subscriberswithinthreemonths
of the announcement. In2014, it againraiseditspricesfrom$7.99 permonthto $8.99 per month.It
mitigatedthe riskof losingviewershipby givingexistingcustomersatwo-yearreprieve fromprice
increases.Althoughthisstrategy appearssuccessful inpreventingthe lossof customers, the amountof
mediacoverage regardingthe announcement illustratesthe price sensitivityof Netflix customers,andits
needtomaintaina cost leadershipstrategy.
Bargainingpowerof buyersisaugmentedthroughthe large numberof alternativesavailable,withpiracy
sitesprovidingfreestreamingservicesbeingespeciallyconcerning forNetflix. Althoughthese sites
violate copyrightlaws,Netflixhasindicated itbelievesthese sites representthe mostpervasive threatto
the organization. In2012, Netflix filedwiththe Federal ElectionCommission toforma political action
committee (PAC) calledFLIXPAC (Netflix,2015),a U.S.political actioncommittee,withananti-privacy
agenda(Savitz,2012). Recently, Netflix CEOReedHastingsexpressedconcernoverthe increasing
popularitypiracysite PopcornTime,citingitasa top competitor (O'Rourke,2015).
Netflix mitigatesthe bargainingpowerof buyersbyofferingcustomersoriginal contentonlyavailable
throughNetflix..In March 2011, Netflix beganacquiringoriginal contentforitspopularsubscription

3. streamingservice,beginningwiththe hour-longpolitical dramaHouse of Cards,whichdebutedonthe
streamingservice inFebruary2013 (Netflix,2015). Since thenithas addedmore original content,which
has popularwithcustomers,includingOrange andnew episodesof ArrestedDevelopment.Forfansof
these programs,lossof access to these programs createsa consequence forcancellingtheirsubscription
and increasesthe difficultyandlikelihoodof switching providers.Accesstothisoriginal contentthereby
decreasesthe bargainingpowerof these customers. However,the availabilityof alternativesandthe
price sensitivityof customersultimately givebargainingpowertobuyers.
Threat of substitute products or services (moderate)
Althoughoftenperceivedasindustriesindecline,numeroussubstitutesfordigitalstreamingremainin
the marketplace.Substitute productsmyincludesatelliteandcable television,DVDsand DVDrentals,
and movie theatres. InCanada, according to regulatory figures, total cable and satellite subscribers
declined for the first time in the year ending Aug. 31, 2013 (Bradshaw, 2014). Asthe latest
technological advance intelevisionandmovie viewing,growthof on-demandvideostreaminghas
become a popularmeansforaccessingcontentanda pervasive treattotraditional waysof viewing
televisionandmovies.The simultaneousrise inpopularityfordigitalstreamingand decline inpopularity
of traditional mediaoutletslowersthe threatof substitute products.
However,some viewersmaybe reluctanttoadoptnew technologies.Althoughtraditional substitutes
for digital streamingservicesare higherinprice andlessuser-friendly,theyare deeplyengrainedinthe
consumerpsyche,andthose uncomfortablewithnew technologies mayelecttoutilize traditional
methodsof movie andtelevisionviewing.Thisconsiderationisespeciallyimportant withregardto the
agingpopulationinmanyof Netflix’skeymarkets,includingCanadaandthe UnitedStates;a
demographicwhichhasspentmostof theirlivesviewingtelevisionandmoviesthroughtraditional
means.
Additionally,manyof these substitute productsofferbenefitsnotyetofferedthroughNetflix.Cable and
satellite bothofferappointmentviewing,where viewerswill watch liveevents,onlyshownoncertain
televisionandsatellitenetworks. Movie theatresprovideviewerswiththe opportunitytoview movies
immediatelyuponrelease,andprovide amore immersive viewingexperience.
Althoughmanysubstitute productsforon-demandvideostreamingare indecline,theyremain
ubiquitous inthe entertainmentindustry andremainathreatto Netflix.However,ason-demand
streamingcontinuestogrowinpopularity,the threat of substituteproductsmaybe diminished.With
the rapidrate of change in technology,Netflix will likelyface the threatof new andinnovative
substitutesinthe future.
Bargaining power of suppliers (high)
As Netflix obtains the majority of itscontentthrough licensingagreements withcontentproprietors, its
suppliershave considerable bargainingpower. Whenlicensingagreementsexpire, contentsuppliers
may electtoterminate theirrelationshipwithNetflix,therebydiminishingthe amountof contentNetflix
can offeritsconsumers. In2013, for example, aNetflix agreementwithViacomlapsed,causingNetflixto
lose the rightto air any Viacomprograms,includingitslibraryNickelodeonchildren’sprograming. The
prevalence of digitalstreamingservicesfurtherenhancesthe bargainingpowerof suppliers. Once the

4. Netflix agreementlapsed, Viacomcontractedwith Amazon,illustratingthatsuppliershave avarietyof
digital streamingcompetitorswithwhomtoformlicensingagreements.
Potential suppliersare alsoofferingtheirowndigital downloadstreamingservices,atrendlikelyto
continue inthe future.Hulu,forexample,isadigital on-demandserviceownedby 21stCenturyFox NBC
Universal andThe Walt DisneyCompany. Itoffershundredsof TV showsfromABC,BET, CBS,Comedy
Central,CW,FOX,NBC,and othernetworksthroughitsstreaminginternetvideoservice (Fontinelle,
2014). Althoughcommercialsare includedinitsprograming,thisbusinessmodel couldbe perceivedas
mitigatingthe riskof consumerprice sensitivitybycreatinganadditional revenuestreamandmaking
Hululessreliantonsubscriptionvolume toremainprofitable.
Furthermore, Netflix doesnotownthe rightstoitsoriginal content. Itowns the right to stream
programssuch as BreakingBad firstandexclusivelyforalimitedtime,butthe licensingrightsmaybe
soldto a competitoronce the contract has expired (Auletta,2013).
WithNetflix beinghighlyreliantonsupplierstoprovide the contentitrequirestoacquire andmaintain
viewership,the bargainingpowerof the suppliersNetflix contractswith isextremelyhigh,and
ultimatelyposesathreatto the long-termviabilityof itscurrentbusinessmodel.
Rivalry amongst existing competitors (moderate)
Withthe increasingnumberof newentrants tothe digital-ondemandmarketsegment,acasual industry
observermayexpectthe rivalryamongstcompetitorsinthismarketsegmenttobe high. Numerous
digital streamingservices,includingHulu,GooglePlay, YouTube andAmazonInstant,aswell asShomi
and Crave TV inCanada have emerged,andthe prevalence of digital streamingproviders maybe seenas
increasingrivalrywithinthe industry. However,perhapscounterintuitively,acollaborative competitive
environmentappearstobe emergingamongdigital on-demandcompetitors.In2014, Amazon
introducedthe AmazonFire TV Stick, a USB port that providescustomerswithaccessto itsInstantVideo
streamingservice, aswell asotherdigital streamingservicesincludingNetflix. Although the user
interface stronglyfavorsAmazonInstantcontentoverotherservices,andthe searchfeature doesn't
comb throughNetflixormostothernon-Amazonapps (AmazonFire TV Stickreview:A streaminghot
bargain,2014). Google Chromecastisa similarproductthatoffersthe same aggregationof streaming
services. The inclusionof third-partyapplications forthese products indicatesarecognitionof the value
addedbyofferingeasyaccesstocompetingproducts,aswell asthe abilityof consumerstoselect
multiple on-demandservices.
Rival organizationshave indicatedthatthey believe the digital on-demandmarketisevolvinginina
directionwhere consumerswillsubscribe tomultiple digital on-demandservices.Ina2014 Globe and
Mail interview, RogersMediapresidentKeithPelleyexpressedthattheirmarketresearchasindicated
that “consumerscan supporttwo,three,evenfour[subscriptionvideo-on-demand] services”,allowing
for multipleorganizationsto achieve marketshare despitethe increasingnumberof directcompetitors
inthe digital streamingarena.Credence tothisargumentisprovidedinthe pointsof differenceamong
competingorganizations whoofferavarietyof content,whichmayact as an incentive forconsumersto
subscribe tomultiple services. Due tothe low cost of these services,consumerscouldpurchase multiple
subscriptions,andstill payalesseramountthenthe costof a traditional cable orsatellite package.
Additionally, Netflix is perceived asa meansof increasingrevenuestreamswhile simultaneously
increasingviewershipfortraditional content providers.LicensingagreementswithNetflix create

5. additional revenue forthese organizations,andpermittingNetflixto airprior seasonsof popular
televisionshowsincreasesviewershipof new episodes, whichremainunavailablethroughNetflix and
are available onlythroughthe original contentprovider.The AMCseriesBreakingBadsaw ratings
double uponthe availabilityof priorseasonsthroughNetflix. AMCCEOJoshSapan creditedthisrise in
viewershiptothe program’savailabilityonNetflix,through whichconsumers “became
engaged”(Auletta,2013). AlthoughNetflixfacesmanydirectcompetitors,these competitorsonlypose
a moderate threatbasedonthe currentcompetitiveenvironment.However,rivalrymayintensifyas
more competitorsenterthe marketorconsumerselectnottosubscribe tomultiple streamingservices.
Netflix hasestablisheditself asanindustryleaderindigital streamingservices.However,certainaspects
of itscurrentbusinessmodel,includingrelianceonsuppliersanda cost structure whichmakesNetflix
highly dependentonvolume toremainprofitable andconsumerssensitivetoprice increase,have
createda situationwhere Netflix ishighlyvulnerable tocompetitiveforces. Ininaconstantlychanging
technological environment,currentmarketdominancedoesnot guarantee continued orfuture
dominance,andorganizationsneedtoremainflexibleenoughtoadapttochangingconsumertaste and
to integrate newtechnological advancesintotheirbusinessmodels. The followingisalistof
recommendationsforNetflix toremaincompetitive andprofitableinthe future:
 In orderto continue toprovide original content,aswell astomaintaina profitable businessmodel,
future price increasesare aninevitability.Inordertomaintainalarge customerbase,Netflix will
needtofindwaysto mitigate the effectsof these price increases, byprovidingaddedvalue
customers,beingtransparentregardingincreasesandbyprovidingample noticeof price increases
to allow customers time toadjusttheirexpectations.
 Create a product similartoAmazonInstant Google Chromecast. Future marketdominancemaygo
to the providerwhomosteffectivelyaggregatesvariousdigitaldownloadservices.These products
provide ameansof doingso, while stillfavouringproducercontent.Netflixmaywantto consider
developingawayto include thirdpartyservicesonline,insteadof throughaUSB port.
 Continue to concentrate onglobal expansion.Salesvolumeisimportanttothe economicviabilityof
the Netflix businessmodel.Additionally,beingfirsttomarket new regions providesNetflix witha
competitiveadvantage.
 Finda meansof creatinganadditional revenue stream, througheitheradvertisingoranother
source,to provide high-qualitycontentandfordecreasedreliance onsales volume toremain
profitable.
 Maintaingoodrelationshipswithsuppliers.Netflix maywanttoconsiderprovidingaddedvalue
incentivestoitssuppliers,suchasincreasedbrandawarenessbyincludingsupplierlogosinits
televisionandmovie listings.
 Buildandmaintainpositiverelationshipswithcompetitors.Seekstrategicalliances,andremain
opento collaboration.
 In a constantlychangingtechnological environment,innovationiskey.Netflix needstoremainin
touch withchangingconsumerpreferences andofferinnovativeproductstomeettheirneedsin
orderto maintainmarketdominance.

6. Netflix hasobtainedmarketdominance throughitsinnovationindeliveringtelevisionandmovie
content,intuitive abilitiestopredictchangingconsumertastesincontentviewing; however, whetherit
has builta sustainablebusinessmodel throughthesecompetitive advantagesremainstobe seen.

7. Works Cited
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