Charging $$17\mathrm{.}99$ a month for an unlimited number of movie rentals $($three at one time$),$ Netflix revolutionized the movie rental business with a one$-$day mailing service for DVDs and acquired $12$ million subscribers and $$1\mathrm{.}5$ billion in revenue. However, Blockbuster, the video rental giant from the earlier $$5\mathrm{.}5$ billion bricks$-$and$-$mortar movie rental business, decided to enter the mail$-$in delivery and online$-$DVD rental businesses. Blockbuster $($now a division of Dish Network$)$ drove prices down to $$14\mathrm{.}99,$ attracting $2$ million subscribers. Netflix responded with a cut$-$rate service of one movie at a time for $$9\mathrm{.}99$ per month, which drove the net profit right out of the business. Movie studios like Viacom and Time Warner also entered the market with direct$-$ to$-$the$-$customer video on demand delivered over the web. Following two months of theatre$-$only releases, the studios asked $$20$ to $$25$ per showing. This fee is five times what it costs to rent a second$-$run or classic movie from the cable companies and $10$ times Netflix$$s or Redbox$$s $$1\mathrm{.}99$ or $$1$ fees for overnight rentals. At such exorbitant prices, the studios earn a $70$ percent margin, but studies of price elasticity in home entertainment experiments suggest an eight$-$fold increase in volume for half$-$price promotions. On$-$demand movie rentals and Blu$-$ray retail sales are the only two growing segments of consumer demand for video.

a$.$ What disruptive technology has threatened the bricks$-$and$-$mortar and mail$-$in movie rental business?

b$.$ Does easy access to distribution channels at grocery stores for Redbox$$s $22,000$ vending machines indicate a high$-$ or low$-$entry threat in the movie rental business? Why? Why might McDonald$$s be an even better distribution channel than grocery stores?

c$.$ Are there any economies of scale in the on$-$demand video rental business to serve as a barrier to the entry of Amazon?

d$.$ Who are Netflix$$s and Redbox$$s suppliers? Are they in a position to appropriate much of the value in the value chain? Why or why not?

e$.$ What factors determine the intensity of rivalry in any industry? Is the intensity of rivalry in the video rental industry high or low? Why?