Blockbuster vs. Netflix Case Study Questions
1. Blockbuster’s original business model was to be a traditional brick and mortar video rental store; however with the new entry of Netflix in 1998, an online movie rental establishment Blockbuster soon realized their business model needed some revamping. Between 2003 and 2004 Netflix’s market share went from 2% to 7%. Blockbuster took note of this rapidly growing competition and decided to make some major changes to their business model.
Millions of dollars were dedicated towards the information technology department in order for Blockbuster to establish their own online subscription service. They came in with competitive pricing compared to Netflix and also kept all of their brick and mortar stores in tact which they thought would give them an advantage in regards to having many stores nationwide allowing cheaper shipping of movies to and from different nationwide locations.
After a year of this online subscription service reviews of Blockbuster’s changes still could not stand up to the success that Netflix was experiencing. Carl Icahn soon took advantage of Blockbuster’s low stock price and bought 9% of the stocks allowing him a seat on the board of directors. He thought that the new initiatives were took expensive, including the “no more late fees” that brought Blockbuster’s previous $250 to $300 million annual late fee revenue to a screeching halt. Blockbuster’s CEO, John Antico still believes that the only way for Blockbuster to expand its market share is to maintain and improve their online rental system.
3. Blockbuster is trying to regain their ground in a market that is changing rapidly. I think that they have made the right move by investing millions of dollars into their information technology department because now they are able to compete at the online subscription level just as Netflix does. They still do need some improvements in their system and also need to consider what the future holds for their market.
Blockbuster is essentially playing catch up with Netflix and with that comes problems for the company. They were forced to get rid of their late fee policy quickly to retain customers that may have otherwise turned to Netflix however I do not think they accounted for the loss of $250 to $300 million in late fee revenue per year. They also have a user interface that is not well recognized by customers which is causing them less growth. Going into these changes I think Blockbuster should have considered taking more time and investing more money into the information technology side of the new business model which would have helped them achieve sustainability for the long run. They should have also taken into consideration the new wave of technology hitting the market which is video on demand. They should research this new technology and attempt to develop faster video downloads as well as converting software that can easily burn computer downloaded videos to DVD allowing the customer greater viewing variety. In order to gain some of the funds that would allow them to conduct this research I think they should sell off a percentage of their brick and mortar stores. It is not going to be necessary to have thousands of stores nationwide when the market is rapidly moving towards online rentals.
4. Netflix is a very successful online video rental establishment. When entering the market it catered to customers desire for convenience by doing away with late fees, letting a customer keep a video as long as they desire and mailing videos right to the customer doing away with traveling to a crowded video rental store. They also used information technology to keep track of video rentals, ship and track videos without ever needed an actually store front. The plan was very well thought out and worked; Netflix gained a large market share quickly forcing Blockbuster and other competing traditional video stores to scramble for new and innovative ideas that would retain customers. According to Kagan Research LLC, revenue from online video rentals reached $522 million in 2004 and is projected to reach $3 billion by 2009. Netflix was able to look at the market, hear what the customers wanted and deliver.
1. Blockbuster’s original business model was to be a traditional brick and mortar video rental store; however with the new entry of Netflix in 1998, an online movie rental establishment Blockbuster soon realized their business model needed some revamping. Between 2003 and 2004 Netflix’s market share went from 2% to 7%. Blockbuster took note of this rapidly growing competition and decided to make some major changes to their business model.
Millions of dollars were dedicated towards the information technology department in order for Blockbuster to establish their own online subscription service. They came in with competitive pricing compared to Netflix and also kept all of their brick and mortar stores in tact which they thought would give them an advantage in regards to having many stores nationwide allowing cheaper shipping of movies to and from different nationwide locations.
After a year of this online subscription service reviews of Blockbuster’s changes still could not stand up to the success that Netflix was experiencing. Carl Icahn soon took advantage of Blockbuster’s low stock price and bought 9% of the stocks allowing him a seat on the board of directors. He thought that the new initiatives were took expensive, including the “no more late fees” that brought Blockbuster’s previous $250 to $300 million annual late fee revenue to a screeching halt. Blockbuster’s CEO, John Antico still believes that the only way for Blockbuster to expand its market share is to maintain and improve their online rental system.
3. Blockbuster is trying to regain their ground in a market that is changing rapidly. I think that they have made the right move by investing millions of dollars into their information technology department because now they are able to compete at the online subscription level just as Netflix does. They still do need some improvements in their system and also need to consider what the future holds for their market.
Blockbuster is essentially playing catch up with Netflix and with that comes problems for the company. They were forced to get rid of their late fee policy quickly to retain customers that may have otherwise turned to Netflix however I do not think they accounted for the loss of $250 to $300 million in late fee revenue per year. They also have a user interface that is not well recognized by customers which is causing them less growth. Going into these changes I think Blockbuster should have considered taking more time and investing more money into the information technology side of the new business model which would have helped them achieve sustainability for the long run. They should have also taken into consideration the new wave of technology hitting the market which is video on demand. They should research this new technology and attempt to develop faster video downloads as well as converting software that can easily burn computer downloaded videos to DVD allowing the customer greater viewing variety. In order to gain some of the funds that would allow them to conduct this research I think they should sell off a percentage of their brick and mortar stores. It is not going to be necessary to have thousands of stores nationwide when the market is rapidly moving towards online rentals.
4. Netflix is a very successful online video rental establishment. When entering the market it catered to customers desire for convenience by doing away with late fees, letting a customer keep a video as long as they desire and mailing videos right to the customer doing away with traveling to a crowded video rental store. They also used information technology to keep track of video rentals, ship and track videos without ever needed an actually store front. The plan was very well thought out and worked; Netflix gained a large market share quickly forcing Blockbuster and other competing traditional video stores to scramble for new and innovative ideas that would retain customers. According to Kagan Research LLC, revenue from online video rentals reached $522 million in 2004 and is projected to reach $3 billion by 2009. Netflix was able to look at the market, hear what the customers wanted and deliver.
You touched on Video on Demand (VOD) however, what role will Netflix play when streaming technology becomses so cheap that the studios will opt to have their own services to create a higher margin? Will they be relegated to the indi movies who are too small to invest in that sort of distribution?
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