Netflix was founded by Marc Randolph and Reed Hastings in 1997.

It started as a DVD-by-rental
company in California and after a decade it began its online streaming subscription service in the US..
Netflix allows its subscribers to stream movies, tv shows, and original Netflix content in the service. With
the advent of technology and widespread availability of fast telecommunication services, the media
consumption landscape is changing. Customers are moving away from the traditional channels of
consuming media and shifting to Subscription Video on Demand services (SVoD). The advantages of
SVoD are lack of irritating advertisements and the ability to access shows anytime anywhere. With the
rapid change in the age groups having access to the internet, millennials seem to be the most influential
segment bringing this change. It has been successful in transforming the TV experience by giving its
subscribers to watch full seasons of their shows without advertisements and also ‘binge-watch’ them if
the subscriber feels so. It has created a cause of concern for cable TV service providers who rely on live
TV watching consumers.

Porter’s Five Forces

Threat of Substitutes

There exist a many online sites which provide with a access at lower prices or are completely free to a
large library of content to which Netflix does not have the rights. Also, rampant piracy could poses
threat to its growth.

Some streaming services also provide exclusive benefits such the ability to watch shows hours after
they’ve aired which is currently not provided by Netflix. Thus, the threats of substitutes are moderately
high.

Threat of new entrants

The industry is growing as more and more people are subscribing to such services. Netflix holds a
majority market share thus posing challenges for the new entrants and it can leverage its massive in-
depth knowledge regarding customer preferences to increase the barriers to entry.

However, with a huge capital investment companies can develop similar intelligence and also create
their own original content. But licensing can be another barrier to entry for new players as Netflix
already has partnered with various production houses for exclusive licenses to their productions. Thus,
there exists a moderate threat of new entrants.

Competitive Industry

The industry is highly competitive as the cost of switching from one player to the other is low and almost
similar content is available for similar prices across all the competitors. Netflix through its advanced
algorithms for content suggestions has been able to differentiate itself from its competitors. The other
differentiating factor for the company is their original content which has become quite popular.
Buying Power

The industry has a large number of buyers and few sellers, thus consumers hold very little power. The
customers can neither purchase in bulk nor negotiate regarding the price.

Supplier Power

Netflix is heavily reliant on its suppliers for their respective content and since suppliers can start with
their own streaming services it could curb Netflix’s ability to obtain popular content. However, with
Netflix venturing into the original content space this could also diminish the supplier power.