The Movie Rental Industry 1

An Evaluation of the Movie Rental Industry

Jonathan Mackey

BSAD 420 – Management Information Systems Analysis

Nov 15, 2013

Diana Hilburn

Southwestern College Professional Studies

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Abstract

This paper evaluates the movie rental industry using Michael Porter's Five Forces for relative

attractiveness of entering the movie rental business. The paper will discuss the status of buying

power within the movie rental industry, the status of supplier power, substitute product threats,

market entrants, barriers to entry, level of rivalry, overall view, and entrance into the industry.
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An Evaluation of the Movie Rental Industry

The movie rental industry is an extremely competitive industry with many avenues to

rent movies. Porter’s Five Forces model can be used to evaluate the relative attractiveness of

entrance into the movie rental business. Porter’s Five Forces model evaluates buying power,

supplier power, threat of substitute products or services, threat of new entrants, and rivalry

among existing competitors (Hague & Cummings, 2013).

Buyer Power

Buyer power within the movie rental industry is very high. Consumers have so many

different options for renting movies. There are traditional movie rental stores such as

Blockbuster, movie rental kiosks such as Redbox, mail-in rental companies such as Netflix, pay-

per-view rental options from cable companies, download rentals from internet sources such as

ITunes, and online subscription services such as Hulu Plus. This makes the movie rental industry

competitive, therefore movie rental businesses must create competitive advantages so that

consumers will be attracted to their business (Hague & Cummings, 2013). For instance Redbox

attracts consumers with low rental prices and 24 hour availability. However some consumers are

attracted to the in home convenience offered by pay-per-view or downloading rentals from

internet sources. Other movie rental businesses rely on their accessibility and portability for their

competitive advantage such as Hulu Plus. If a company cannot create a competitive advantage

then they will become quickly irrelevant such as what has occurred with Blockbuster.

Blockbuster has failed to evolve from a traditional movie rental business into a business that can

offer competitive prices or convenience.

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Supplier Power

The supplier power is low in the movie rental industry because there are so many

different options for consumers. However, some businesses are attempting to create a

competitive advantage by making agreements with movie studios on when and what content the

movie rental businesses can offer. For instance Netflix has done by signing numerous licensing

contract deals with large movie studios such as Warner Bros. Studios and MTV (Pepitone,

2011). Netflix has also begun to make their own movies and series so that this content will be

exclusive to their company (Luckerson, 2013).

Threat of Substitute Products or Services

The threats of substitute products and/or services exist for the rental movie industry. As

the price to own digital content decreases, file sharing site become more popular, and movie

studios begin to enter the movie rental industry the movie rental industry will be threatened.

Therefore rental movie companies must remain vigilant in ensuring there is a switching cost of

convenience. For example Apple has created an ecosystem with ITunes. Apple has done a

superior job of ensuring there ecosystem remains extremely convenient to consumers thus

creating a loyal consumer base.

Threat of New Entrants

The threat of new entrants is a realistic possibility. However to enter the industry there

are several obstacles such as website ability, content contracts, etc that keep new entrants out.

But for established IT companies such as Amazon or Google entry into the movie rental industry

is a possibility. For example, recently Amazon has entered the movie rental business by making

many television series (Solsman, 2103). This will create a consumer base for these products as
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the television series gain more viewers and allow Amazon to grow their streaming rental

business.

Rivalry among Existing Competitors

Rivalry among existing competitors is high in the movie rental industry. There is fierce

competition between all the businesses as they all maneuver for a competitive advantage. The

trend lately is for movie rental businesses to create their own series in order to build a fan base

that will increase a consumers switching cost. However, in order for movie rental businesses to

create their own television series or movies they must invest considerably into this strategy.

Conclusion

The overall view of the industry is that it is a highly competitive market that must

continue to change strategy as technology advances. The demand for video on demand has never

been higher as the smartphone and other portable devices that can access the internet are more

available. As movie rental businesses rely more on streaming services and create their own

movies and series they will increase their market share as they begin to challenge Television

networks and cable companies for viewership. The movie rental industry is a good industry to

enter because the future of television and movie watching trends to shift to portable devices

creating more of a demand for video on demand.

References

Hague, S., & Cummings, M. (2013). Manegement Information Systems. New york: McGraw-
Hill/ Irwin.
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Luckerson, V. (2013, October 1). Netflix Is Coming After Your Cable Box. Retrieved November
16, 2013, from Time Business and Money: http://business.time.com/2013/10/01/netflix-is-
coming-after-your-cable-box/
Pepitone, J. (2011, July 11). Netflix's Vanished Sony Films are an Ominous Sign. Retrieved
November 16, 2013, from CNN Money:
http://money.cnn.com/2011/07/08/technology/netflix_starz_contract/index.htm
Solsman, J. E. (2103, November 14). How Amazon Studios went from grassroots idealist to
Hollywood threat. Retrieved November 16, 2013, from CNET: http://news.cnet.com/8301-
1023_3-57612150-93/how-amazon-studios-went-from-grassroots-idealist-to-hollywood-
threat/?part=rss&subj=news&tag=title