Team 4 Brandon Erinn Matt Kunal

Rental Revenue flat over last two years Competitors continue to shift as new companies innovate and enter the market. Recession Impact: DVD Purchases DVD Rentals Customers can easily switch rental suppliers Technology reshaping industry Piracy: An Industry-Wide Concern

Mom & Pop Rental Blockbuster dominated industry in 1990s Emerging industry – many local and regional competitors Slow to change: 2007 Bankruptcy On-line store & Mail Delivery Kiosk - $1 Rental VOD?

Physical distribution: DVD or Blu-ray disc In-store rental On-line selection and mail delivery, Kiosk rental Digital distribution (VOD) 36% 45% 19%

Market is significant but declining rapidly Higher cost: Operation costs for retail outlets. High # of employees Movie Gallery depended on In-store rental Bankruptcy in 2007 Blockbuster closing some stores.

On-line and mail order delivery Introduced by Netflix in 1997 Adopted by Blockbuster in Lower cost than In-store Access to large number titles Netflix over 100,000 titles available Subscription Plans: Consistent Revenue Source of revenue

Low Cost Rental: Redbox $1 per night Fewer employees than In-store Located outside retail locations (i.e. Walgreens). Redbox will have 22,000 Kiosks by end of 2009 Blockbuster rolling out 3,000 by end of 2009

Enabled by technology advances in internet bandwidth internet devices. Lowest cost delivery method. Customer has immediate access to large list of titles. Slow to develop Depends on technology advances Customers not comfortable Opens market to consumers of the world.

Convenience: Large selection Fast and easy access Selection and Recommendation Software Cost Cost favors Mail Delivery over In-Store rental Mail:$9/month unlimited vs. In-Store $4/rental. Kiosk Rental gaining market share with $1 nightly rental cost VOD expected to continue cost reduction pressures.

Technology Companies are positioning themselves to take advantage of new technologies. Blu-Ray Broadband access Partnering with TIVO, Xbox, and Samsung Internet TV Redbox and Blockbuster investing in memory card download technology Internet and Wireless broadband technology is enabling non-traditional competitors into the market.

Bargaining power of providers Redbox struggling to purchase movies from the studios Bargaining power of the consumer Consumer can quickly change their rental supplier. Business changes executed by existing competitors Blockbuster diversifying into the kiosk delivery method Threat of new companies entering the rental market Significant threat for VOD segment: Amazon and Apple

Blockbuster diversifying but operating costs high. Netflix has strong mail delivery position and is well positioned for VOD business. Redbox's kiosk approach has made them a major player but no plan for VOD. Apple, Amazon and other VOD providers are in a position to take significant market share from the traditional rental suppliers.

Blockbuster Closing additional retail locations Entering kiosk delivery method. Redbox Partner with more retail locations to subsidize rental cost No VOD plan Netflix: Continue mail delivery segment Strengthen VOD offering Apple Expand their success with iTunes further into the movie rental market.

Manage costs to compete with declining rental costs. Provide convenience to the consumer that distinguishes themselves from competitors. Utilize technology advances. Grow revenue by expanding monthly service plans

High risk in the rental industry but also high rewards. VOD has high growth potential. May reshape market leaders. Piracy is an additional risk that will need to be considered.

Blockbuster performance from Very minimal growth Gross profit has been dropping since 2006 Netflix performance from Have been very profitable Revenue has been skyrocketing COGS, Gross profit, and net income have all made drastic increases

Netflix seems to be immune from the financial crisis Their financial numbers show no real drop off unlike other movie rental stores People still want to be entertained even during tough times Netflixs prices are low and no late fees are accumulated which makes it easier for customers to afford

Good to Great Getting the right people on the bus They expect performance to resemble what the company and customers expect Forbes magazine In this article they discuss how Netflix tries not to create a problem of hiring the wrong people, and then laying them off because they werent cutting it

Values are what drives the entire company Netflix works to find employees whose values coincide with the company Keep it simple Empowerment Values are not just nice sounding statements Central to recruitment Performance Mgt Development

Recent up rises have become a problem for Netflix Examples include Video on Demand, YouTube and iTunes just to name a few Critics are beginning to say that Netflix needs to overhaul their business model. Netflix needs to think about a few questions Are they safe or under siege? Do they need an overhaul or just hedge it up?

Current, fixed and intangible Netflixs intangible assets are what gives them a distinctive competency Intangible assets consist of brand name and image, goodwill, training Intellectual properties are also very important intangible assets They help keep competition at bay Gives them a competitive advantage

All businesses have their own struggles to deal with The majority of Netflixs issues are dealing with costumer complaints Scratched DVDs Memberships being suspended No matter what a company does there will always be unsatisfied customers

Netflix offers potential customers a free 2 week trial offer They are offering this to establish some sort of brand image Netflix is doing a good job of creating an appealing image, but they are starting to struggle with loyalty and retaining customers They need to work towards a continuous improvement of customer satisfaction

Strengths: Strong brand name and company image Movies by mail or straight to PC/TV Largest online library of DVD titles to rent (over 100,000 by mail; 17,000 VOD) Cheap monthly plans Weaknesses: Must have an Internet capable device in order to stream movies to TV (Xbox 360, PS3, TiVo, Internet-connected Blu- Ray players, Internet-connected HD TVs, Blu-Ray Home Theater Systems) PCs must meet certain system requirements in order to stream movies Online only Customer service is spread too thin

Opportunities: Venture globally to provide online rentals to Europe and China, to name a few Add video games to the rental choices Provide more satisfying customer service Threats: Blockbuster, Inc. – online rentals, plus purchases, and kiosks Movie Gallery, Inc. – online movie purchases Redbox Automated Retail, LLC – kiosks at convenient and well-known stores (Wal-Mart, T&C/Stripes, Apple iTunes – online rentals and purchases

StrengthsWeaknesses Opportunities Netflix could use their strong brand name and image to market overseas and globally expand their company. Because Netflix has so many subscribers who rent DVDs, they could appeal to another area of interest and offer game rentals for game consoles as well. Netflix could implement a better customer service program in order to better assist customers who are dissatisfied with the service they are receiving. Threats If Netflix continues to compete with Blockbuster, Movie Gallery, and Redbox without making any changes, they are going to find themselves in a red ocean. Although Netflix does not have an overhead cost due to stores, they are missing out on a big part of the population who rent movies on the same night they want to watch them and dont have Internet access hooked up to their TVs. Netflix is also not reaching out to those who dont have Internet access at all.

Core capabilities: Providing the consumers with a convenient and easy way to rent movies or their favorite TV show without ever having to set foot outside of their homes. Providing unlimited movie streaming (VOD) access Cheapest prices when broken down into cost per night -- $0.30 per night on lowest plan; $0.56 per night on highest plan (this does not include extra Blu-Ray charges) Keeping overall operating costs low, therefore producing greater profit margin compared to competition

Key success factors: Provide ease and convenience to rent DVDs People turn to entertainment industry in time of recession Able to maintain low costs while keeping up with the lowering prices of DVD rentals Cost position: Largest profit margin out of competition, but costs are being undercut due to the latest implementation of Redbox and Blockbuster kiosks. However, still have lower costs than Blockbuster because Blockbuster has overhead costs from their stores that Netflix doesnt have.

Netflixs Core Competitive Strategy: Easy to use and intuitive website Personalized movie recommendations based on more than two billion ratings from our subscribers Relentless focus on continuously improving the customer experience Proven competence in making unlimited subscription a profitable business model

Netflix Growth Strategy: Leverage our online DVD rental leadership to grow both subscribers and net income. Make the best product – and the best consumer experience even better. Lead the expansion of Internet delivery of content by offering our subscribers both mail delivery and a continuously improving Internet delivery option.

Adding Physical Locations and Products Buildings/Kiosks Capture both target markets Alternative to shipping Video/Computer Games Increasing DVD database Blu-ray Genres Quantity of a New Releases Keep up with technology VOD…in HD Dont forget about sound Make a contract with International Airlines

How can Netflix gain so much Capital to finance all these adjustments? Reinvest any excess profits back into company. Increase Marketing Finance Adjustments to strategies If New strategy is a success, we should see Netflix turn into a Blue Ocean.