Netflix: David Becomes Goliath

Netflix is considered a classic example of innovative strategic planning. From the outset, it was designed primarily as an internet-based company, unlike its principal rival, Blockbuster. The early history of Netflix is a study in looking forward to gaining and keeping a competitive advantage. Remember Porter's Competitive Forces Model as you read this chapter. The pressures of all five forces are present as Netflix tries successfully to enter and eventually command a competitive advantage in the rental film industry. As you read the case of Netflix, consider the following question: What are the long-term threats to Netflix? (Hint: Consider changes in technology and copyright/patent/media law). How would Netflix overcome or avoid those threats and continue to have a competitive advantage?

From Atoms to Bits: Opportunity or Threat?

Questions and Exercises

  1. What do you believe are the most significant long-term threats to Netflix? How is Netflix trying to address these threats? What obstacles does the firm face in dealing with these threats?
  2. Who are the rivals to Netflix's "Watch Now" effort? Do any of these firms have advantages that Netflix lacks? What are these advantages?
  3. Why would a manufacturer of DVD players be motivated to offer the Netflix "Watch Now" feature in its products?
  4. Describe various revenue models available as video content shifts from atoms to bits. What are the advantages and disadvantages to each - for consumers, for studios, for middlemen like television networks and Netflix?
  5. Wal-Mart backed out of the DVD-by-mail industry. Why does the firm continue to have so much influence with the major film studios? What strategic asset is Wal-Mart leveraging?
  6. Investigate the firm Red Box. Do you think they are a legitimate threat to Netflix? Why or why not?