Business / Net Flix Pest Analysis

Net Flix Pest Analysis

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Autor:  anton  10 November 2010
Tags:  Analysis
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1.2 The use of PEST on Netflix

Traditional Video Rental Stores involves brick and mortar stores are normally located in strategic locations and are usually staffed by around 12 employees depending on the size of the video store. These stores usually carry about 1000 titles of VHS and DVD format and most of the time requires owning all of it VHS and DVD outright. The rentals are limited to physical inventory and some titles excess inventory may be sold at a loss depending on popularity of the titles (Video Rental Developments and the Supply Chain: Netflix, Inc 2005).

The Online DVD Rental Industry is new and growing rapidly. Online DVD rentals are very popular. Netflix is the founder of online DVD rentals. The lack of late fees or due dates has, without a doubt, quickly made these services highly desirable.

Netflix offers over 13,500 DVD movie titles for its subscribers to choose from. Selections include classics to new releases, including many independent, foreign and documentary films (Basile, Cutter, Kendall & Powell 2003).

1.2.1 Political

WTO has declared the Internet to be a tax-free environment for delivering goods and services and declaring that no new tax policies be imposed on Internet commerce in order to develop a “uniform commercial code” for electronic commerce. This tax-free environment encourages the growth of e-commerce and was advocated by The Clinton Administration (McLoughlin 2002).

Cinematch program contains 29,000 unique lines of code with a database of 180 million film critics and ratings. It adds fun to the Netflix site and adds the film community to a DVD rental site. Paramount movies is a sister company to Blockbuster Video. Cinematch never recommend movies from Paramount because it does not have an agreement with Netflix due to the conflict of interest with Blockbuster. Paramount movies are still lent out but will never appear on rental recommendation lists. This is interesting on how politics enters into what should be a pure movie selection process (Basile, Cutter, Kendall & Powell 2003).

1.2.2 Economic

Netflix possesses a lead position in the national online DVD rental market, but has seen several competitors entering the market as shown.

Operational Comparisons Total Locations Total Employees Total Titles Available Total of DVD available

Netflix 16 Distribution Centre 381 13,500 3.3 Million

Blockbuster Inc 8000+ and 1 Distribution Centre 89,000 1,000 per location, up to 8,000 Hundreds Per location 6 Distribution Center Not Available 12,000 Not available

(Video Rental Developments and the Supply Chain: Netflix, Inc 2005)

Netflix developed a nation-wide distribution process in striving to reach one to two day deliveries to most of the destinations. Netflix is partnering with DreamWorks SKG, Twentieth Century Fox, Universal Studios, Artisan Entertainment, Columbia Tri-Star Home Video, Lion’s Gate Films, USA Films and Warner Home Video in a revenue sharing agreement to allow Netflix have direct access to new DVD releases at a small or low initial purchase cost (E-Business Strategies Incorporated 2002).

1.2.3 Social

The Online DVD Rental Industry is establishing as a unique process and will need to challenge of changing typical consumer behaviour. Instead of visiting a video store or video library, consumers need to adapt to ordering movies online and then receive them via a mail, which may take a few days. The main attraction to a typical consumer is promoting better customer-friendly services compare to the typical traditional rental market. In addition, a larger selection of products, free shipping costs and elimination of late fess are able to lure customers to use this service instead.

It also expanded opportunities to people who live in remote locations that have limited access to large video stores and video libraries (Basile, Cutter, Kendall & Powell 2003).

1.2.4 Technological

Netflix offers DVDs only as of now. Netflix services include background information on DVD releases such as critic reviews, member ratings and reviews, and personalized movie recommendations. Its proprietary Cinematch technology personalizes recommendations based on a member's tastes and preferences and allows Netflix to promote smaller, high-quality films to customers who may not heard about it before (Cohen 2003).


Alan Cohen 2003, [Online], Available:,1759,1022690,00.asp, [Accessed 8th October 2005]

E-Business Strategies Incorporated 2002, Case Insight Netflix: Transforming the DVD Rental Business, E-Business Strategies Incorporated, Georgia, USA.

Glenn J McLoughlin 2002, CRS Report for Congress Electronic Commerce: An Introduction 2002, Congressional Research Service, The Library of Congress, USA

Shauna Basile, Lisa Cutter, Karen Kendall & Tammy Powell 2003, A Case Study of Online Business Strategy for and; Implications for the Online Entertainment Rental Industry [Online], Available:, [Accessed 18th October2005]

Video Rental Developments and the Supply Chain: Netflix, Inc (n.d.) [Online], Available:, [Accessed 15th September 2005]

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