Looking strictly at the video rental industry, Netflix faces minimal internal rivalry because the industry is dominated by only a handful of firm in Europe, namely Blockbuster. Although Netflix faces little internal rivalry in its immediate industry, the company faces an intensely competitive broader market. Since home entertainment covers a broad spectrum of technologies and channels of distribution, Netflix is in direct competition with firms in a number of other industries including cable networks, who air movies on television, satellite companies’ VOD services, and websites like Hulu, which provide video content through online streaming. Furthermore, as people transition from consumption of physical DVDs to digitally distributed media, these competitors, who can be grouped as digital distributors, will become Netflix’s greatest threat. However, in the near future, Netflix’s greatest rivals will continue to be traditional “brick-and-mortar” rental stores, like Blockbuster, and will remain a minimal threat to Netflix’s business.
Entry and Exit
Entry into the in-home video entertainment industry is unregulated but constrained by the costs of acquiring distribution rights from Studios. However, as delivery of video and television content becomes increasingly distributed through the internet, entry costs to launch a business similar to Netflix’s will decrease because capital costs are relatively lower than “brick and mortar” firms. Nevertheless, in an industry as competitive as video entertainment the viability of a new firm may not be very likely unless that firm can produce an innovative or superior format for media viewing. A firm that could create and popularize a new technology for in-home entertainment viewing could enter the industry and quickly gain significant market share.
Exit costs in the video rental industry depend on the structure of the firm. As an online DVD rental service, Netflix has minimal investments in capital because...