Blockbuster's Rivalry with Netflix

Topics: Renting, Blu-ray Disc, Video rental services Pages: 9 (3201 words) Published: February 21, 2011

Blockbuster history
Blockbuster was founded by David P. Cook in 1985, a 34 year old entrepreneur from Dallas, Texas. Having past experience in providing database software and other computer services to industries like oil and gas, Cook had strong information system knowledge. His innovative idea of running a video rental business using a scanner to keep a track of the customer’s data and their rented movies, he came up with Blockbuster Inc which was a great success. Creating a family-oriented atmosphere and providing good customer service with better information system he opened 19 stores in the same year. In 20 years Blockbuster opened 2,100 stores in 25 countries possessing 40% share of the U.S video rental market with a growth of 7-9 million dollars yearly. Netflix history

Netflix was founded by Reed Hasting and Marc Randolph in 1997, both veterans’ entrepreneurs from Scotts Valley, California. In the past, Randolph had founded a computer mail order company called Micro Warehouse and Hasting had founded a software company called Pure Software. These two visionaries came up with the idea to rent and sell the DVDs over the internet. Their initial strategy was that carrying DVDs in stores to sell were like a hit-or-miss affair so they thought delivering the light weight DVDs through mail would be a better and cheaper option. In 5 years Netflix was still in its growth mode with increase in its customers every day. Netflix mailed about 190,000 per day to its 670,000 monthly subscribers – The New York Times, September 2002. During fiscal year 2003 earning $6.5 million profit in revenues of $272 million and gaining market share from 2 to7 percent.

Blockbuster was leading the market of video rental business until Netflix came into picture. Netflix revolutionized the market of video rental business by eliminating the physical store and using internet & postal service to interact with their customers. Blockbuster took a really long time to understand that it had to cope up with the new technology. All the new entrees Amazon, Netflix and Coinstar came into business with different technologies, Blockbuster being a leader of the market instead of fighting the competition they were busy making money, allowing the competitors to form a strong base in the market.

Blockbuster pros –
* Rent and return movies to a blockbuster store
* Offers video game rentals too
* No additional charges on Blue-ray
* Discounts In-store movies and games
Cons of Blockbuster –
* Has late fees on “discounted” In-store movies and games * Free In-store movies must be returned back to the store in order to release online in-queue movie * US and Europe market almost saturated

Netflix pros –
* Instantly watch TV series and movies on your TV via Netflix ready devices * Better versioning of different plans and different queuing of the movies according to parental control * Huge selection of international movies

* Has a good community features on their site: making friends, sharing suggestions on movies etc * The best recommendation engine and has multiple queuing. Netflix cons –
* Download to pc and Netflix devices limited
* Postal service problems
* Extra charges on Blue-ray disc rentals
* No videogames rental
Threats to Netflix and Blockbuster –
* Competition from pay-per-view
* Video on Demand on cable television
* Red Box movies rental (CoinStar)
* Duplicating and Pirating video cassettes
* Free movies online sites
* iTunes

What happened?
In 1992, Blockbuster acquires Sound warehouse and Music plus chains to create Blockbuster music stores. In 1998, Netflix entered the video rental market offering DVD sales and rentals. In 2001, Netflix joined hands with Best Buy which gave them an exposure if 1,800 stores. In 2003, Netflix subscribers touched 1 million mark and had its...
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