Netflix is a leader in the entertainment industry. Since 2007, the company has been considered an Internet TV provider and has more than 93 million users in approximately 190 countries (United States Securities and Exchange Commission [SEC], 2017). Its segments include domestic and international streaming and internal DVD. Netflix has a lot of content, including original video and a strong subscriber base (SEC, 2017). This industry is highly competitive and in order to have a competitive advantage, the company has been constantly trying to increase the quantity and quality of delivered content. Nevertheless, many factors can negatively affect the activity of Netflix. It is advisable to conduct an analysis of the company using Porter's five forces in order to determine competition, understand what impact it may have on the business, and assess the profitability potential of the industry.

The degree of competition facing Netflix is high. Since this industry is characterized by fierce competition, each supplier struggles for more quantity and customer loyalty. Netflix has the largest players as its rivals, namely Amazon, Wal-Mart, Hulu, Red Box, and others. Most of these companies are constantly increasing their content offering a wide range of online videos. Some of them have more experience, greater client base, brand strength, and powerful financial resources that allow them taking more aggressive price strategies and providing better conditions for consumers (SEC, 2017). In addition, Netflix faces the threat of competition from such a player as Popcorn Time, which uses illegal means to provide free video viewing on the Internet that is readily available to customers (Idland, Overby, & Audestad, 2015). Therefore, Netflix operates in a very competitive environment, which can affect its work adversely.

Despite the fact that new participants can enter the market, the degree of such an opportunity is low, because it will include a large cost of providing a necessary variety of choice and the quality of content. Moreover, there are marketing and promotional activities needed in order to promote the company properly. In addition, new players will be adversely affected by greater competition and the image of major players in the industry.

The power of suppliers in the industry is average. It is because Netflix uses a complex client-server delivery model that includes the purchase of content (Idland et al., 2015). The company has long-term and fixed obligations to various studios and content providers (SEC, 2017). Such terms of cooperation are not very profitable for Netflix since they are of long-term nature and not subject to changes in case of dissatisfaction with company's expectations. Therefore, depending on the situation, the flexibility of the business may be limited, which as a result will affect its revenues.

The strength of Netflix customers is high. Despite the fact that the company has a strong subscriber base and confident positions in the market, yet buyers have a lot of power given multiple competitors. They are offered many different streams, among which they can choose a more convenient or affordable service. It is often associated with a price policy, and there are many cases when consumers subscribe to several suppliers (SEC, 2017). Therefore, buyers reserve the choice of the content provider, which in turn can harm Netflix and lead to the fact that the company will have to reduce prices more.

The threat of substitutes in the industry is high. Since the streaming media industry has frequent volatility and includes numerous different products and suppliers, consumers are inclined to change needs and demand lower prices. However, even with a moderate pricing policy of Netflix, a significant threat to the company may come from pirated video delivery services, which currently have the potential to capture a large market share through free access to content while viewing advertising.

Summarizing, the analysis of the Netflix industry shows that the company has a high degree of competition. However, in turn, this is one of the reasons for a low threat from the entry of new participants. Nevertheless, Netflix may undergo some influence from suppliers, threat of substitute products, and the power of buyers. Accordingly, it turns out that the profit potential of the industry in which Netflix operates is small, and despite its success now, in the future, many factors can have a negative impact on the company.

References

Idland, E., Overby, H., & Audestad, A.J. (2015). Economic markets for video streaming services: A case study of Netflix and Popcorn Time. Retrieved from https://ojs.bibsys.no/index.php/NIK/article/view/244

United States Securities and Exchange Commission. (2017, January 27). 10-K (NETFLIX INC). Retrieved from https://ir.netflix.com/static-files/0c9603f3-33f7-4b16-8ca5-ac4333eb976f