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. 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.
  2. Investing

    Who Are Netflix's Main Competitors?

    Netflix has many competitors, but is that really what current and potential shareholders should be worried about?
  3. Investing

    Netflix's Future Growth: Greater Than You Think?

    The potential for Netflix could be considerably greater than you think.
  4. Insights

    The Pros And Cons Of Hulu, Netflix, And Amazon Instant Video

    A full comparison of Netflix, Hulu, and Amazon Instant Video.
  5. Investing

    Making Sense of Netflix's Balance Sheet

    Understand how to assess Netflix's performance based on the major components of its balance sheet.
  6. Investing

    Netflix's 3 Key Financial Ratios (NFLX)

    Understand the important financial ratios used to analyze growth companies such as Netflix, and what any ratio changes may say about the company's business.
  7. Investing

    Is Netflix a Good or Bad Long-Term Play? (NFLX)

    Netflix subscriber growth has waned. What does this mean for long-term investors?
  8. Investing

    Netflix Earnings: What to Expect (NFLX)

    Video-streaming service Netflix Inc. (NFLX), which reports earnings Monday after market close, has been a Wall Street darling for some time now, returning 360% over the past three years.
  9. Investing

    Netflix's Growth Will Surge In Amazon's Shadow

    Netflix can keep growing rapidly amid rivals Amazon and Time Warner's HBO
Frequently Asked Questions
  1. Why Do Most of My Mortgage Payments Start Out as Interest?

    Fear not: Over the life of the mortgage, the portions of interest to principal will change.
  2. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  3. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  4. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
Trading Center