In simplest terms an environmental threat is anyone or anything from the
outside that tries to reduce your competitive advantage.
Examining Porters five competitive forces as how they apply to Netflix,
it is very obvious that they are in a very favorable position.
Porters Five Competitive Forces
Industry competition
The movie and entertainment industry has many established companies.
There is a lot of competition for the entertainment dollar. There are many ways
for customers to get their choice of movies. They can go to the theater, rent
DVDs (whether by mail, store, online, or kiosk), watch TV, and streaming on
demand. There is very little to differential the products offered by the above services.
It is strictly a method of delivery.
Threat of new entrants
There is a very small threat of new entrants of entering this market
place. The cost is too high and financial requirements are too great to have
all the products needed to provide this service. This industry is already populated
with companies that have very high brand awareness. The main players in this
industry are Amazon instant video, Hulu Plus, Redbox, iTunes, and Netflix. On
top of high costs of getting available content, it would also be very expensive
to make their service well known.
Power of Suppliers
Suppliers have all the power in theory. They are not required to sell
their content to anyone. Every content provider still has a responsibility to
maximize all available avenues of revenue from their library.
Power of Buyers
Buyers have a very high position of bargaining power. The more
price-sensitive a customer is the more power they have. Customers require very
little inconvenience or cost to switch from one service to another. This has
caused price points across most services to be very similar. The only
differential is content and technology.
Threat of substitutes
This is after all an entertainment industry. The threat of substitute
products is very high. This can range from types of entertainment such as video
games, web surfing, or mobile applications. Within the industry there are other
potential substitutes such as turning to cable TV, free over the air TV and/or
going out to a movie theater.
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