Evaluating Netflix's Environmental Threats

When a firm is trying to gain a competitive advantage, they will indure environmental threats. According to Jay B. Barney, an environmental threat is any individual, group, or organization that could potentially threaten the firm's performance. The most famous model used to evaluate environmental threats is the five forces framework, developed by Professor Michael Porter of the Harvard Business School. The five forces are the threat of entry, the threat of rivalry, the threat of substitutes, the threat of powerful suppliers, and the threat of powerful buyers.

The Five Forces Framework for Netflix:

The Threat of Entry - Hulu seems to be the most recent entrant into the movie industry. Hulu competes with Netflix because it also offers movies and television shows via internet access. Despite this new entrant, customers seem to be loyal to the brand they already know.

The Threat of Rivalry - Netflix's rivals include Hulu, Redbox, On Demand, and others. This is due to the fact that the industry growth was slow. This is why we saw video stores rapidly closing. There are cheaper, quicker, and easier ways to access television shows and movies.

The Threat of Substitutes - The firms aforementioned offer products that meet customer needs in a different way thatn Netflix. Hulu offers television shows the day after they air. Redbox offers movies and video games in a vending machine style. On Demand offers the option to order movies through your television.

The Threat of Powerful Suppliers - This does not appear to be an issue.

The Threat of Powerful Buyers - There is a threat of powerful buyers when they don't watch many movies or television shows in a given month. To some, payment a low monthly fee is worth it because they watch several movies and television shows. If they do not watch much in a month, Redbox may be a better option because they are only paying $1.00 per rental. On the other hand, buyers recognize the name Netflix and probably have many friend who are buyers.

You can find a five force analysis for Netflix here.

Source: Jay B. Barney's Gaining and Sustaining Competitive Advantage