Porter’s Five Forces of Netflix 

Netflix is an over-the-top streaming and video-on-demand service providing US Company. Reed Hastings and Marc Randolph founded the video streaming company in 1997 and launched the online platform in 2007. Today, we’ll discuss Porter’s five forces of Netflix; it will focus on the bargaining power of suppliers and buyers; the threat of new entrants and substitute services; and competitive rivalry to the company.

• Film product & distribution
• Streaming media
• TV product & distribution
• Video on demand
• Digital distribution

Substitutes of Netflix

• Play Station
• HBO
• YouTube
• Disney +
• Hulu
• Apple TV
• Sony Crackle
• HBO Go
• Sling TV
• Vue

Porter’s five forces of Netflix would focus on the bargaining of suppliers and buyers of Netflix; threat of new entrants and substitute products to Netflix; competitive rivalry to Netflix. Here’s Netflix Porter’s five forces analysis as follows;

Porter’s Five Forces of Netflix 

Let’s discuss Porter’s Five Forces of Netflix and the elements involved in it as follows;

Bargaining Power of Suppliers of Netflix

The bargaining power of suppliers in Netflix Porter’s five forces analysis is as follows;

I-Digital Infrastructure

Netflix has established a digital infrastructure for streaming videos. The stable internet connection helps you to access the video content through Fire TV sticks, Smart TVs, and various other mobile devices.

II-Innovative & Original

According to an estimate, Netflix has launched more than 1500 original TV shows, movies, and other video content since 2013. Roundabout 58% of Netflix users claim that the reason they’re keeping the Netflix subscription is because of its original content.

III-Video Content

Speaking of digital streaming content, it plays a key role in the growth and success of the platform. Along with self-production, Netflix also procures content like TV shows and movies from various sources like content creators, receiving a license for the old content, or getting exclusive rights from 3rd party content creators for distribution.

IV-Supplier’s Influence

There are various suppliers in the market and they require multiple resources for developing the digital video content as the final product. The quality of the content and its availability in the market impact the pricing. The bargaining power of suppliers would be a threat if they develop forward integration. Netflix’s production house and sufficient content suppliers in the market help the company to smoothly run its operations.

Bargaining Power of Buyers of Netflix

The bargaining power of buyers in Netflix Porter’s five forces analysis is as follows;

I-Original Content

Netflix won 7 awards in 2021 for production and distribution of the original content. According to an estimate by Antenna, the churn rate (number of people leaving the platform) of Netflix is roundabout 2.4% and it is lower than Hulu’s 4.1% along with limited subscription. The new and re-subscription rate of Netflix is higher, which means that the customer satisfaction level with the platform is higher.

II-Pricing

The subscription pricing of Netflix varies from 9.99 to 19.99 USD. According to an estimate, 49% of the subscribers said that they make the subscription decision based on the pricing; whether they should keep it or not.

III-Subscription

The revenue and profitability of Netflix are heavily reliant on the monthly subscription fees from the subscribers. They have the freedom to keep the subscription or switch to another platform without any difficulty. Higher numbers of digital streaming platforms would give sufficient power to buyers.

IV-Buyer’s Switching Cost

It is significant to keep in mind the worth of the buyer’s switching cost. Netflix should have a portfolio of a large number of small and non-influencing buyers in order to maintain its profitability. The bargaining power of buyers puts great pressure on the platform to develop and launch original content to retain existing customers and attract new ones.

Threat of New Entrants to Netflix

The threat of new entrants in Netflix Porter’s five forces analysis is as follows;

I-Local Service Providers

The local service providers in the specific region pose a great to the platform Netflix. For instance, Crave TV is a Canadian telecommunication company and it started offering video streaming services at a much lower price in 2014. Crave TV offers an annual plan with 2 months free subscription, and Netflix offers no annual plan.

II-Tech Brands

Tech giant companies like Microsoft, Google, and Apple have sufficient capital resources and technical capabilities to enter the market. They pose a great threat to the digital streaming platform because the industry’s growth rate is much higher.

III-High Capital Investment

The entrance into the digital streaming industry is a bit difficult because it requires a plethora of capital investment and tech expertise. It also needs distribution network availability, a large database of customers, and allocation of significant resources.

IV-Originality is Key

There is no doubt new entrance poses a great threat to the platform. In order to neutralize the new entrance threat and retain the customers, original content is the key. Originality has allowed the company Netflix to earn the trust and confidence of customers and make them brand loyal.

Threat of Substitute to Netflix

The threat of substitute brands in Netflix Porter’s five forces analysis is as follows;

I-Other Media Channels

Various leisure activities and substitute media channels are available to the customers like online gaming and social media platforms. In fact, all the digital leisure activities and entertainment media channels are the direct competitors of Netflix. Instead of watching Netflix, they spend their time involved in those activities.

II-YouTube

YouTube is the most prominent alternative to the paid streaming platform Netflix. It offers both live streaming and content viewing services to customers without any fee.

III-Substitute Product

It has become an old trend to watch movies while using social media; the new trend is to listen to music while playing video games. Spotify has got almost equal number of subscribers and users as Netflix; the new emerging trends are highly significant to the company.

Competitive Rivalry of Netflix

The competitive rivalry in Netflix Porter’s five forces analysis is as follows;

I-Competitors

The digital streaming industry has become highly competitive in recent years. YouTube, Apple TV, HBO Max, Disney +, Hulu, and Amazon Prime videos are the top competitors of Netflix. Their market presence has made it difficult for the company to maintain its position in the industry.

II-Thorough Planning

In order to deal with competitors, Netflix should analyze the needs and demands of customers and be aware of the future expectations of customers. The platform should recognize new customer segments and redesign the price subscription strategies. Merger and acquisition helps the company to maintain its position in the long term.

Conclusion: Netflix Porter’s Five Forces Analysis 

After an in-depth study of Porter’s five forces of Netflix; we have realized that Netflix is the world’s leading digital streaming platform. If you are learning about Netflix five forces analysis; then you should keep in mind bargaining power of suppliers and buyers; the threat of new entrants and substitute products; and competitive rivalry.