VRIN Netflix [PDF]

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The VRIN framework explains why Netflix will not keep their market share and position TJ Johnson- MIS WMBA 509 Movie theaters no longer hold the monopoly on the movie watching experience it once did, either due to prohibitive ticket costs, lack of convenience, poor content, or technological advances in personalize entertainment, such as DVD-by-mail or Online digital streaming services. Many companies, including Netflix, Inc., have successfully attempted to exploit this market opportunity. Through its Longtail business model Netflix has been able to establish a strong position in the DVD-by-Mail and Online Digital Streaming entertainment industry over the past decade, however Barney’s (1991) VRIN framework explains why Netflix will not keep their market share and position. The “LongTailed” content alone that once helped Netflix create a brand name for itself will not alone be able to fend off market competition. Jay Barney (1991) advanced the VRIN model which identifies the characteristics of a firm’s resource(s) must possess to create a competitive advantage. According to Barney (1991) a firm resource must have four attributes: first it must be Valuable, in the sense that it reduces a firms own weaknesses or exploits industry opportunities, secondly it must be Rare among the existing and potential marketplace, third it must be imperfectly imitable, meaning the competition cannot easily duplicate the resource in question, and lastly the resource needs to be non- substitutable enough to be a source of sustainable competitive advantage in the marketplace. Unlike the old movie-rental giant, Blockbuster, Netflix has extremely low overhead because of its lack of “brick-and-mortar” stores which enables its existing longtail business model to leverage the prolific Home media entertainment growth, either through the online/digital or DVD-by-Mail platforms.



Over the last decade Netflix, Inc.



has grown from primarily a home DVD-by-mail company to the world’s leading Internet television network which includes Netflix own original series (Netflix 10-K, 2013, p. 6). The collapsing brick-and-mortar store rental business has enabled Netflix to garner a strong 1/3 share of the North American online/digital media streaming entertainment market (Protalinski, 2013). And though the online/digital media streaming segment of the company has grown, the original DVD-by-mail segment of the business has waned. Consumer’s immediate gratification expectation of entertainment has exposed a market that Netflix help establish. For example a competitor like Redbox, which is in the beginning stages of establishing an online stream presence, was first able to disrupt the market dominance Netflix had because its kiosks provide more recent DVD content as the consumer demands.



According to the four characteristics of Barney’s VRIN framework required to sustain a competitive advantage, it appears that Netflix may no longer be able to sustain its lead position in the DVD-by-Mail and Online Digital Streaming entertainment industry. When analyzing Netflix using the VRIN model, it seems clear the firm has a valuable resource in the size and rarity of its rental catalog, specifically in the obscure, biographic, and less marketed movies/films.



In addition to rental catalog scale advantage, Netflix online



interface or DVD-by-Mail platform also provides value to its customer base that appears to no longer have the time to drive to the neighborhood store to rent at a Brick-andMortar location. By primarily interacting with its customer base through the online Netflix portal, Netflix significantly reduces their overhead costs of traditional brick-and-mortar locations. Additionally consumer’s immediate gratification expectation of entertainment enabled the original DVD-by-Mail Netflix rental product to be relatively rare. For the time strapped consumer, on top of the convenience of receiving your rentals by mail, the DVD catalog provided by Netflix was rare. In addition to the resource of the unique rental catalog, Netflix was eventually able to provide most of it content through online streaming. Netflix essentially was the pioneer in Internet Delivery of TV Shows and movies (Netflix 10-K, 2013, p. 6).



The Domestic DVD-by-mail business originally created by Netflix



back in 1999, allowed them to syphon off a portion of the home movie market customer base that was too busy to make it to a brick and mortar location, such as Blockbuster or Hollywood video. And by strengthening their online download capabilities Netflix has been able to continue to strengthen its overall market position. Though the uniqueness of its rental catalog that continue to provide its subscribers with obscure, biographic, and less marketed movies/films may be inimitable for the time being due to licensing agreements with its varies content providers, the sustainability of that resource is uncertain. Due to this uncertainty, the valuable and rare content that once provided Netflix is strong position in the DVD-by-Mail and Online Digital Streaming entertainment industry may not last much longer. Competition from large and small companies may create pricing wars over the licensing agreements for the obscure and biographic titles that Netflix is currently known for. Therefore the convenience of renting home movie entertainment online that once drove Netflix to its strong market position today may also end up being its downfall. Unfortunately, though DVD-by-mail or an Online Streaming business model may have been revolutionary at one time, today as the online/digital capabilities of home or mobile entertainment increase the barriers to entry for the digital media entertainment diminishes, thereby weakening Netflix long term sustainability. The value proposition of being the only firm to offer the Home entertainment convenience of DVD-by-Mail or Online Streaming put forward by Netflix is no longer unique due to technological advances of online content distribution. Because of technology advances Netflix product is becoming less and less non- substitutable enough



to be a source of sustainable competitive advantage in the marketplace. This substitutability opens the flood gates for the movie rental or other home entertainment substitute companies such as Redbox, Blockbuster Kiosks, YouTube, Amazon Prime, HULU Plus, HBO GO, Showtime, Apple ITunes, Google Play, etc.