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analysis of the firm’s standing with regards to the five competitive forces will likely demonstrate that there are some reasons for its leaders to be concerned.Threat of entry. According to Rothaermel (2013), “Entry barriers are obstacles that determine how easily a firm can enter an industry” (p. 65). Although Netflix is well-established domestically, the firm faces several significant barriers to entry in foreign markets. As previously noted, the firm faces significant tax hurdles as it expands into European markets (Napoli, 2014). In comparison, competitors such as Amazon already possess an international presence (Jopson, 2012). This fact poses a threat to Netflix as Amazon’s Amazon Prime service continues to grow.Power of suppliers. Rothaermel (2013) writes, “The bargaining power of suppliers captures pressures that industry suppliers can exert on an industry’s, and therefore a company’s, profitability” (p. 66). This poses a problem for Netflix due to the fact that the firm relies heavily upon licensing contracts with content distributors. As previously noted, Netflix has recently lost contracts with distribution firms such as Epix, Sony, and Starz (Pepitone, 2012). According to Pepitone (2012), “The days of cheap contracts are gone; studios are demanding more money for their content as streaming video has become more popular, and they have a bargaining chip in the form of Netflix’s rivals.”Power of buyers. Buyers are able to place pressure on the margins of producers in an industry by demanding a lower price or higher product quality (Rothaermel, 2013). Netflix’s subscribers exerted this power when they caused trouble for the firm after subscription rates increased in 2011. Pepitone (2011) notes that Netflix’s announcement of the price hike “sparked an immediate and loud backlash from customers.” Many customers informed Netflix that they intended to cancel their plans and take advantage of rival streaming offers from Hulu and
Amazon (Pepitone, 2011). Although Netflix decided not to alter their decision, the incident did not generate favorable media coverage for the firm.Threat of substitutes. Redbox is an example of a substitute threat to Netflix. Redbox, a service that no longer streams content online, provides consumers with the ability to rent DVDs and video games at a low cost by visiting kiosks at convenient locations in their respective communities. Although Redbox customers do not experience the convenience of enjoying streaming content, they are able to watch movies that they could otherwise view on Netflix. As previously noted, Netflix’s leaders consider services such as Redbox to be significant competitors (The Associated Press, 2009).Rivalry among existing competitors. Rothaermel (2013) writes, “Rivalry among existing competitors describes the intensity with which companies in an industry jockey for market share and profitability” (p. 67). There is a significant level of rivalry between Netflix andcompetitors such as Amazon, Redbox, and Hulu. One example of such a rivalry is the competition between the firms for licensing and exclusivity contracts.