Netflix Porter’s Five Forces Analysis

Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape an overall extent of competition in the industry. These forces are illustrated in Figure 1 below:

Figure 1. Porter’s Five Forces

Threat of new entrants in Netflix Porter’s Five Forces

Threat of new entrants into the on-demand media streaming is low. Setting up a video steaming website is not difficult from a technical point of view. However, adding an adequate amount of content with the permission of copyright holders and gaining market share is highly difficult. The following are the most noteworthy challenges for new market entrants.

Market saturation

The market of on-demand media streaming is highly saturated with the streaming giants such as Netflix, Amazon Prime Video, Disney+, Hulu, Apple TV+, HBO Max and others dominating the global market. The majority of representatives of the target customer segment i.e. people with phones, tablets or TVs with internet connection are already subscribed to one or more of the leading streaming services mentioned above. It will be challenging for new market entrants to attract enough subscribers to make a break-even in this sector

High entry costs

Major market players such as Netflix focus on original content in general and its quality in particular to differentiate themselves in the market. As illustrated in Figure 4 below, the titles of original content produced by the largest streaming service in the world, as well as the hours watched by its customers have been consistently increasing for the past 10 years with the exception of a decline in 2021.

Figure 2 Netflix original content by years of transmission[2]

Netflix original content spending exceeded USD 5,8 billion in 2022[3] and its main competitors also spend billions of dollars annually for creating new films and programs. Accordingly, the need for massive financial investment for original content creation is one of the main entry barriers for potential new entrants.

Expected retaliation from existing businesses

Despite the market saturation and high entry costs as discussed above, new players in the streaming sphere may emerge if they can find a technology-based unique selling proposition (UPS). In other words, start-ups may try to enter the industry with innovative ideas to challenge the established market players and disrupt the status quo. In such a scenario major players such as Netflix, Amazon Prime and Disney+ are expected to be quick to retaliate with their deep pockets and advanced technical capabilities replicating innovative features of new market entrants.

Bargaining power of buyers in Netflix Porter’s Five Forces

The buyer bargaining power in on-demand media sector is substantial. There are many factors increasing buyer bargaining power such as abundance of offer and the lack of the switching cost to the competition. The following belong to the list of long factors affecting buyer bargaining power:

Buyers ability to substitute

Netflix has popularized on-demand video streaming service with the promise of no contractual obligations with customers and the possibility for customers to cancel their subscription at any time. These are the main factors that fuelled the popularity of streaming services and due to the same factors customers can switch between the streaming services with no additional costs for them. Buyers’ ability to substitute on-demand video providers with no additional costs for them increases their bargaining power considerably.

Original content as USP

Product and service differentiation plays an important role in competition and businesses try to differentiate their offerings in order to increase their bargaining power in relation to their customers. Given that there are no real differences in technical features and capabilities offered by the main players in the streaming service sector, companies try to differentiate their offerings on the basis of originality of content they offer on their platforms.

For example, popular movies such as Toy Story (1995), Snow White and the Seven Dwarves (1937) and Ratatouille (2007) are only available at Disney+, whereas customer cannot find popular titles such as Euphoria, My Neighbor Totoro, Fresh Prince of Bel Air, the LOTR trilogy are only available on HBO Go. Original content can increase the bargaining power of a streaming service to a certain extent.

Price sensitivity

Customers in the video streaming sector tend to be price sensitive and well educated about the product i.e. the content. There is a positive correlation between buyer price sensitivity and buyer bargaining power.  In other words, on-demand video providers such as Netflix, Amazon Prime and others cannot increase their prices without risking losing some of its customers.

Netflix Inc. Report contains a full analysis of Netflix Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Netflix. Moreover, the report contains analyses of Netflix leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Netflix marketing strategy, ecosystem and addresses issues of corporate social responsibility.

[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review

[2] Source: OMDIA (2023)

[3] Westcott, T. & Evenson, M. (2023) “TBI Tech & Analysis: The where & why of Netflix’s original content spend” TBI, Available at: https://tbivision.com/2023/03/13/tbi-tech-analysis-the-where-why-of-netflixs-original-content-spend/