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Porter’s Five Forces in the Video Rental Industry
Although the five forces framework has limitations, it is a useful tool to asses the current status of the video industry. The impact of each of Porter’s forces will be examined, and the extent to which the industry is impacted by that force will be reviewed.

Firm Rivalry/Internal Rivalry
Rivalry refers to the jockeying for market share by firms. In the video rental industry, there are two main types of players: traditional renters, such as Blockbuster, who operate physical store locations, and mail-order renters such as Netflix. For the traditional renter, competition for market share is fierce. As a traditional renter, Blockbuster has positioned itself with a heavy fixed cost infrastructure investment in retail store locations. Due to this high fixed cost, the only way Blockbuster can lower its average cost per item (be it a VHS, DVD or game rental) is to spread the fixed cost over many rentals/sales. As competition takes market share away from Blockbuster, it is possible that average cost for Blockbuster would begin to increase. This would occur if Blockbuster was no longer able to achieve the minimum efficiency of scale required to spread fixed costs to a point where average cost was declining. If this were to happen, Blockbuster would find itself competitively disadvantaged. Therefore, Blockbuster fiercely competes to maintain its market share. This can be witnessed via several recent Blockbuster promotions, most of which were aimed at the competition from Netflix. Plans such as the Blockbuster Game or Movie Passes (unlimited game or movie rentals for a flat per month fee) were designed to stem the loss of market share. While these passes clearly do not generate as much revenue as per rental fees, it does regain some market share for Blockbuster, which is critical in order for it to remain cost competitive overall.
In contrast to the traditional renter, mail order...