Business Case Analysis: Competition in Entertainment Markets

This report provides a comprehensive analysis of two business cases: the competition between Netflix and Redbox in the movie rental market and the challenges faced by Sony Music in the music industry. The report examines the impact of disruptive technologies, such as mail-in delivery services and online music sharing, on traditional business models. It applies Porter's Five Forces to assess competitive dynamics, evaluates the threat of new entrants, and discusses the importance of economies of scale. The analysis includes calculations of marginal and average product, and marginal product/price ratios to assess optimal resource allocation. Furthermore, the report explores strategic responses to market disruptions, including pricing strategies, product differentiation, and the need for companies to adapt to digital technology. The analysis highlights the importance of understanding and responding to changing market conditions to maintain a competitive edge.

Business
Chapter 7 Question 1
The filled table has been presented here-in-below:
Labour Unit (L) Total Product Marginal Product Average Product
1 3 3 3
2 6 3 3
3 16 10 5.3
4 29 13 7.3
5 43 14 8.6
6 55 12 9.2
7 58 3 8.3
8 60 2 7.5
9 59 -1 6.6
10 56 -3 5.6
Further, the table has been computed on the basis of considering machinery having 500 BHP rating
and Average Product is computed using the formula Total Product/ Labour Unit and Marginal
Product has been computed by taking changes in the total product per unit of change in labour.
Chapter 7 Question 2
The filled table has been presented here-in-below:
Variable Input (L) Total Product Marginal Product Average Product
0 0 0 0
1 8 8 8
2 28 20 14
3 54 26 18
4 80 26 20
5 100 20 20
6 108 8 18
7 98 -10 14
Further, Average Product is computed using the formula Total Product/ Labour Unit and Marginal
Product has been computed by taking changes in the total product per unit of change in labour.
Chapter 7 Question 11
On the basis of computation and analysis done in excel, it can be inferred that Lobo Lighting
Corporation is not using the lowest cost combination of workers to produce its desired level of
targeted output. Further, for cost to be lowest the MP/ P i.e. (Marginal Product/ Price) of each of
the variable shall be equal. Accordingly, in the present context since the ratio ( as defined above) is
not equal for all the variable. Thus, company shall some variables more in order to reach lowest cost
combination. Further, the table for the computation of MP/P in the existing structure has been
presented here-in-below:
Sl. No Particular Marginal Cost Marginal Product/

Product Cost
1 Unskilled Labour 400 400 1
2
Factory
Technician 450 500 0.9
3 Skilled Machinist 550 700 0.79
4 Skilled Electrician 600 750 0.8
Case Exercises
Netflix and Redbox Compete for Movie Rentals
The present case scenario deals with competition between Netflix and Redbox for movie rentals and
acquiring customer base. The case presents how strategy of lower pricing is carried out to attract
customer and increase customer base in a very short period. Further, the case also presents the
evolution of technology and entry of new competitor with the passage of time. On the basis of
above details the questions have been answered here-in-below:
Question 1
The disruptive technology that has threatened the brick and mortar enterprise like Redbox is mail-in
delivery service which was initiated by Netflix in terms of case study further online –DVD retail
business had a similar dampening impact. On the basis of this, Redbox later on decided to enter this
two sectors to acquire and increase customer base.
Question 2
It indicates a high threat of new entrant as one can easily make its presence in the market without
much intervention as stated in the question that Redbox can easily install 20,000 vending machines
in grocery store to sale its Dvd to customers thus enabling an easy entry in the movie rental business
and the threat of new entrant to be high.
Mc Donald’s shall be even better compared to grocery stores as the turnover or customer show up is
higher in these store, demographic structure of customer is different and majority of customers are
youth who are movie lovers, grocery stores fall under the category of necessities goods while stores
of Mc Donald’s falls under the comfort zone. Accordingly, the sales in these units shall be higher
compared to the first option of opening vending machines in grocery stores.
Question 3
Yes, there is economies of scale in the sense that it is based on Just in Time concept and there shall
be no inventory at the disposal of the company and no capital blockage shall take place, thereby
reducing the cost of inventory for the company. However, economies of scale. However, the term
economies of scale is generally used for increase in production which leads to reduction in cost on
account of better utilisation of fixed cost. However, no such data has been provided and assuming
that sales shall be high there can be an economies of scale which can serve as barrier to entry of
amazon.
Question 4
Suppliers of Netflix and Redbox are majorly the companies (having the rights) that sold their CD or
DVDs which were purchased/ hired by Netflix and Redbox to latter on supply to ultimate customers.
Since

Question 5
The factors that determine the intensity of rivalry is the level of profit of each competitor in the
industry along with size and number of competitors and restriction on entry and exit of sellers. The
higher the competition in the industry, the lower shall be profits in term of Porter’s Five Force
Model.
The competition in the video rental industry is high as the profit of the competitor is wiping out on
account of reduction in prices to attract customer leading to profit reduction with passage of time.
Thus, the competition is high as there is no restriction on entry too.
CASE 2 Saving Sony Music
The current case deals with the crisis for companies like Vivendi Universal, Sony Music, EMI and AOL
Time Warner Music which together supplied greater than 70% of global music industry on account of
sharing of copyrighted article/ recordings on internet. (Harris, 2014)
Answer 1
Since internet firms is the latest disruptive technology that dampens the sales of companies like
Vivendi Universal, Sony Music, EMI and AOL and resulted in downfall in the market for these
companies. In 1999, Shawn Fanning created Napster, a MP3 website that allowed Napsters to search
a music and share it with other Napsters leading to huge piracy and made it a mass phenomenon.
(Porter's Five Forces Understanding Competitive Forces to Maximize Profitability) The popularity of
company was at peak with 80 million users in February, 2000. Thus, on porter five force model the
entry of new competitor shall become easy, threat of substitute shall become high, bargaining
power of buyers shall increase, bargaining power of sellers shall reduce and rivalry among existing
competitor shall increase. (Nicholas D. Evans, 2015)
Answer 2
Internet technology was disruptive for Sony Music as it reduced their sales and promoted piracy of
copyrighted music which led to lower sales of copyrighted packed CD’s . Further, it was alleged that
companied like Napster promoted online sharing of copyrighted article during that period.
No, it did not favour album size transactions which Sony Music understood that well. However, it did
favour the I tune music store focussed on easily accessible 99- cent singles.
The aspect that favoured I tune store is that it was a ground breaking technology that offered the
revolutionary right to burn an unlimited number of CDs for personal use and to put an music on
unlimited number of I-pods for the on-go listening. Further, it was legal. (Apple Inc)
Answer 3
Sony Music is a giant company with huge resources at its disposal and huge business opportunity
was at its disposal to synchronise itself with the new advent of digital technology and introduce
similar platforms like I pods. The company strategy that should have served better the needs to
anticipate the digital revolution and change focus from just CDs to digital revolution and

manufacture innovative product to cut through competition and create a competitive edge. Further,
company shall try to explore new concepts keeping existing revenue sources intact.
Answer 4
IT strategy along with product differentiation shall be the most coveted strategy as with advent of
technology, IT shall be the backbone of the music industry. Further, in order to survive the
completion company should differentiate its product in order to charge higher prices from
competitors.
References
Apple Inc. (n.d.). Apple Launches the iTunes Music Store. Retrieved January 19, 2019, from
www.apple.com: https://www.apple.com/newsroom/2003/04/28Apple-Launches-the-iTunes-Music-
Store/
Harris, M. M. (2014). Managerial Economics. Retrieved January 19, 2019, from books.google.co.in:
https://books.google.co.in/books?
id=Y0_TCQAAQBAJ&pg=PA381&lpg=PA381&dq=porter+five+force+model+for+internet+firm+like+n
apster+and+kazaa&source=bl&ots=NQUAOxhIjx&sig=ACfU3U34EtdwwYEVegUBOtznA1SRIaHrSQ&hl
=en&sa=X&ved=2ahUKEwjg7PPC2PffAhVWXSsKHfszDPoQ6AEwC3o
Nicholas D. Evans. (2015, August 26). How digital business disrupts the five forces of industry
competition. Retrieved January 19, 2019, from www.cio.com:
https://www.cio.com/article/2976572/emerging-technology/digital-disruption-from-the-
perspective-of-porters-five-forces-framework.html
Porter's Five Forces Understanding Competitive Forces to Maximize Profitability. (n.d.). Retrieved
JAnuary 19, 2019, from www.mindtools.com:
https://www.mindtools.com/pages/article/newTMC_08.htm