4 PORTER 5 FORCES

Michael E Porter of Harvard Business School created Porter's Five Forces of

Competitive Position Analysis in 1979 to assess an industry's attractiveness and
future profitability. He identified five variables that shape the competitive landscape
and may disintegrate your profits. Porter defined the key factors and questions that
the user needs answer in order to produce conclusions customized to a certain
sector and firm by utilizing a framework rather than a formal statistical model. The
forces are as the following: “Threat of Entry”, “Power of Suppliers”, “Power of
Buyers”, “Development of Substitute Products or Services” and “Rivalry among
Competitors” what are going to be analysed and discussed in further detail in the
next sections.

4.1 Threat of Entry

As Netflix is considered the lead of the segment, it has its own market
consolidated for years now. It began developing its own productions and shows in
2013, based on an examination of their own user data which made their service
unique (About Netflix, 2021). Due to the highly large investments required in either
generating new content or obtaining material from big players, the barriers to entry
are significant for a new entrant who does not already generate their own video
content. The obstacles to entry for established entertainment companies (Amazon
Prime, HBOmax, Disney+) are quite low, as they will be able to begin the service
with their own material right once (Bean, 2020). For that, the threat of entry can be
considered high.

4.2 Power of Suppliers

Regarding to the suppliers, Netflix has been changing it and moving towards
own production. In 2018 the company spent a whopping $13 billion on programming,
with original series accounting for around 85% of that (Morgan, 2019). It means the
business is not focused on movies and series launched on cinema and tv channels
anymore, also not having to wait for it to be available for online streaming. At the
same time, the company bears possible responsibility for negligence, copyright and
trademark infringement, and other claims depending on the type and content of
items acquired, produced, licensed, and/or disseminated as a content creator and
distributor.
An example of high power of suppliers can be seen when in order to keep the
license of famous show ‘Friends’ from its owner, Warner Media, the firm had to pay
about $100 million instead of the usual $40 million (Lee, 2018). If Netflix had not paid
the amount, the rival HBO would get the tv show and bring the fans to the other
stream. Overall, the power of suppliers can be considered as moderate.

4.3 Power of Buyers

For being such a competitive market that has been grown in recent times, the
power of buyers is high for Netflix. All its profit comes from one source –
subscriptions and relies on customer satisfaction to maintain its ‘clients’. As stated in
Netflix’s annual report (2021) the ability to retain members will be based in part on
the ability to continually deliver interesting content options, advertise the service
successfully, and provide a high-quality experience for picking and viewing TV
series, documentaries, and feature films. If the company does not attract consumers,
they will probably switch to another streamer. For consumers, the prices are similar:
an average of $8,99 a month for Amazon prime and Netflix and $14,99 for HBO,
which enforce the idea of the power that buyers have.

4.4 Development of Substitute Products or Services

Not only online sources can be considered as substitute services for Netflix.
Also, people still spend a considerable time watching tv – news, soap opera, tv
shows and etc. A study made in the UK showed people spend an average of
4hs34min on video (being tv or not) which of those 83min on live TV being the
highest number and second comes YouTube with 64min a day. Both can be
observed as substitute services as well, the first having a target age among adults
and elderly people and the second between teenagers and young adults. With that
said, it can represent a moderate to high threat to Netflix.
4.5 Rivalry among Competitors

For Netflix, the rivalry between its competitors is high and has been increasing
withing the years. Despite being on top of the list with the most subscriptions, the
American company has seen its opponents occupy a considerable place in the
streaming market. In order to keep on the lead, the company has been investing in
original production. It is clear the company understands that customers may have
numerous relationships with different entertainment providers at the same time, but
Netflix want consumers to select its services when they have spare time. It has been
described as the "winning moments of truth" goal, and as stated in the Annual
Report (2021) “we are constantly upgrading our service, including both our
technology and our content, which is becoming increasingly exclusive and curated,
and includes our original programming, in order to win these moments of truth with
our members”. With that, the company aims to gain consumers attention and keep
its power among the competitors.

References

Bean, T., 2020. Yes, Netflix Is The #1 Streaming Platform—But That Is Changing

Quickly Thanks To This New Player. [online] Forbes. Available at:
<https://www.forbes.com/sites/travisbean/2020/10/16/yes-netflix-is-the-1-streaming-
platform-but-that-is-changing-quickly-thanks-to-this-new-player/?sh=6581217b6a7b>
[Accessed 21 June 2021].

Lee, E., 2018. Netflix Will Keep ‘Friends’ Through Next Year in a $100 Million
Agreement. [online] Nytimes.com. Available at:
<https://www.nytimes.com/2018/12/04/business/media/netflix-friends.html>
[Accessed 21 June 2021].

Morgan, B., 2019. What Is The Netflix Effect?. [online] Forbes. Available at:
<https://www.forbes.com/sites/blakemorgan/2019/02/19/what-is-the-netflix-effect/?
sh=11b00d455640> [Accessed 22 June 2021].

Netflix. 2021. About Netflix. [online] Available at: <https://about.netflix.com/en>

[Accessed 20 June 2021]
ANNUAL REPORT
PESQUISA UK