Netflix Porter's Five Forces Analysis

1972 Words 8 Pages
EXTERNAL ANALYSIS
General characteristics of the environment
To understand how and why Netflix operates the way it does we are going to analyze the environment of the business in which the firm operates. The performance of the company is not affected only by its particular actions but it changes depending on different factors such as:
The demographic structure: The population is rising nearly 77 million people per year, at a rate of 1.15 % per year; it is over 6.9 billion people. The five most populated countries are: China (1.3 billion), India (1.2 billion), United States (311 million), Indonesia (246 million), and Brazil (203 million). It’s essential to recognize the larger markets because they offer great opportunities for Netflix to increase
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They offered consumers an option of renting DVDs through the mail. But in the long run, mail-order rentals began to drop as consumers preferences changed, they demanded more interactivity and the ability to watch instantaneously programs through cable TV connections or streaming internet.

Porters Five Forces Analysis
The Porters Five Forces Analysis helps managers to analyze the long run profitability of the sector in which Netflix Inc. operates. Netflix is in fact one of the strongest companies in the multimedia streaming sector, which offers a service of watching movies and TV shows online with a monthly fixed rate of 8$ per month. But there are other companies battling in this sector.

1.Rivalry Among Existing Industry Firms:
There is significant competition and intense rivalry among the firms in the industry. It is very competitive due to the big number of companies in this sector, as for example Blockbuster, Amazon and Redbox. But this rivalry is emphasized by the intensity of advertising and high marketing costs incurred by every single company. So for example in a single year, in 2008, Netflix spent over $199 million in different ways of advertising, mostly online advertisements and associate marketing deals, but also radio and TV advertising. One big competitor, Redbox, spent considerably less approximately $8.2 million in
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When they started the company and worked only with the DVD format, it was quite easy to buy the license and so the movie studios could not control Netflix the way they distributed their DVD´s. But now with the new format of streaming through the internet, they are facing some difficulties. It is necessary to apply for many different kind of licenses, also the price needed to pay for it is much higher and more complicated than it was before, with the DVD´s. The amount to pay for streaming content is not fixed; the prices are fluctuating all the time, consequently creating some risk for the company. Another problem that Netflix is facing all the time is the incapacity to upload new content to their website constantly. When there are agreements between the competitors and the studios, and the content became available in other platforms it is taken away from Netflix. This obviously harms the company, because they do not offer a product that is very consistent and generates a loss of faith from their

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