1. Analyzing Netflix's Bargaining Buyers Power (NFLX)
  2. Analyzing Netflix's Bargaining Supplier Power (NFLX)
  3. Analyzing Netflix's Degree of Rivalry Among Competitors
  4. Analyzing Netflix's Threat of New Entrants (NFLX)
  5. Analyzing Netflix's Threat of Substitutes

Netflix Inc. (NASDAQ: NFLX) is the king of streaming video. A 2014 Nielsen report showed that 90% of homes in the United States with streaming video service choose Netflix. However, almost one-third of these households subscribe to more than one video streaming service, such as Amazon Prime or rival Hulu. With subscription prices being available for less than $10 per month on either service, buyers do not actually have to choose. Most people can afford to have all the video streaming service subscriptions they want, so what keeps Netflix at the top? This is the bargaining power of buyers, one of the five forces of competition identified in 1979 by Michael E. Porter, a Harvard Business School professor. The Five Forces analysis framework he developed is still used in 2015. It also includes the threat of substitutes, the rivalry between competitors, the bargaining power of suppliers and the threat of new entrants. Consider the bargaining power of Netflix’s buyers or subscribers.

Switching Costs

One of the biggest issues Netflix faces is the cost of switching services is so easy. There is no annual contract, and the cost of signing up for service is minimal. Also, most video streaming service providers offer a free trial. It is easy for customers to subscribe to one streaming video service one month, and then switch the next. They can go from Netflix to Hulu, and then HBO Now or Showtime Anywhere. Netflix has to make sure its selection is compelling enough for subscribers to justify keeping the service year-round.

Video Preferences

Netflix also has to address video preferences. The company already charges a premium for its HD service. A standard definition subscription to Netflix is $7.99 per month, but if you want HD, it costs $9.99 per month as of December 2015. According to Consumer Reports, the company offers over 7,500 HD videos, which is about twice as many as rival Amazon Prime offers and roughly 75% of its video catalog. However, Netflix has to continue to build that number if it is going to compete against some of the newer entrants.

Viewer Preferences

In addition to format preferences, Netflix also has to keep viewer preferences in mind. This includes securing the ability to stream the content viewers want in addition to some of the added viewing features, such as closed captioning and foreign languages. Netflix offers closed captioning and some foreign language options, but the usefulness of these features is limited by the streaming device the viewer uses.

Movie and TV Show Selection

Netflix subscribers also have bargaining power concerning movie and television show title selection. As video streaming has become more popular, the number of new entrants has also increased. However, instead of taking Netflix head on, new entrants are taking on genres. For example, streaming video service Fandor has more cinematic films. It specializes in foreign movies, independent films and documentaries, as well as cinema classics such as movies from the Criterion Collection. Netflix has to offer films that appeal to these viewers if it is going to compete in these niche spaces. Otherwise, some subscribers may jump ship.

Refining the Brand

Netflix customers can bargain on the brand. New entrants may have a novelty factor or be considered “cool” in certain circles. To compete, Netflix has to refine its brand to appeal to a broad range of consumers. Similarly, Netflix has to ensure its brand works. Part of this is making sure the technology behind its streaming service works well, but the company also has to make sure people can relate to the brand in other ways, like how they search for titles to watch.


Analyzing Netflix's Bargaining Supplier Power (NFLX)
Related Articles
  1. Trading

    Netflix Threatened By New Video Streaming Technology

    Netflix has overcome competition and a changing technological landscape, but investors should be concerned with new competitive dynamics.
  2. Insights

    Netflix Price Hike to Bring in $520M (NFLX, AMZN)

    Netflix's price hike might cause 480,000 subscribers to leave, but the company will still pocket $520M.
  3. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA? (NFLX)

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  4. Investing

    6 Interesting Facts From Netflix's Earnings

    The streaming service's shareholder letter and earnings call provide a glimpse into its future growth trajectory.
  5. Investing

    Is It Time to Cash Out On Netflix?

    Understand the Netflix business model and what makes Netflix such a good company. Learn three key reasons why it might be time to cash out.
  6. Investing

    The Rise of Netflix (NFLX)

    Video streaming giant Netflix has certainly come a long way since starting as a mail-order movie rental service in 1997. The company went public in May 2002 and has shot up an overwhelming 4,1 ...
Frequently Asked Questions
  1. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center