BUYERS AND SUPPLIER POWER
Buyer Power
Netflix subscribers represent buyers to the industry, as do consumers of the competition. As individuals, the average consumer has minimal buying power or influence in regards to pricing, and content provided. This limited choice also extends to which streaming service to subscribe to, particularly in Canada, as competition isn’t particularly extensive. Even though an individual consumer has restricted control and clout, a group of consumers, or Netflix subscribers, can command significant power. This was demonstrated when Netflix attempted to execute a price increase in 2011 that faced a strong opposition from subscribers. More recent findings indicate that around 17% of Netflix subscribers would actually quit their membership with a $1 price increase. |
Supplier Power
Content providers and creators make up the primary suppliers to the online video streaming industry. These suppliers are under no obligation to create licensing agreements with Netflix, or its competitors. They are fortunate to have numerous options in terms of profit generation and Netflix is simply one avenue to garner revenue. In contract negotiations between Netflix and content provider, Netflix is the smaller fish and is often forced to succumb to costly pricing arrangements. Another major supplier and enabler of Netflix’s service offering is network and broadband providers. Netflix, YouTube, Amazon Instant Video, and the other online streaming-video providers all require a broadband connection. Presumably, cable operators will look for ways to charge more for broadband service, as discussed recently by Canadian Internet providers such as TELUS, who is considering terminating unlimited Internet usage in favour of different price premiums for set data amounts. Recent legislation by the CRTC will allow them to do this. If broadband becomes more expensive, this will likely have a positively correlated effect on online streaming services. This effect to the industry will create a serious threat to Netflix and its ability to attract and retain subscribers. |
SUBSTITUTES
Netflix is a leisure activity, competing in the dominant entertainment industry. Consumer’s drawn to this type of service are seeking to fulfill a desire to escape, relax, learn, and discover. Substitutes for Netflix include YouTube, cable TV, movie theatres, game systems, and even books. All of these potential substitutes are attempting to deliver gratification to the same consumer appeal, and present further competition to streaming service.