“We’re just thankful Blockbuster didn’t enter four years ago.” The words of Netflix’s CEO Reed Hastings foreshadow the current situation facing Netflix. In this instance, Netflix is now in a similar position to that of Blockbuster was in during the late 1990’s. Rentals by mail changed the home video industry, and now rentals by internet is changing it again. Blockbuster’s early success in challenging Netflix’s emerging business model should be used to guide strategic decisions regarding the emerging Video-on-Demand market.
Netflix revolutionized the movie rental industry by changing product delivery and product pricing. They provided a similar service as the largest competitor, Blockbuster, with a better price and a better value for consumers. To the ire of anyone that has ever rented a video, Blockbuster made millions by charging late fees. Netflix’s unlimited subscription fee with no late charges represented an incredible value alternative. Although there was a Blockbuster location within ten minutes of everyone’s home, Netflix actually delivered videos to your door. Netflix consumers no longer had to pay late fees, or deal with the hassle of returning videos to the store.
Although Netflix could provide an overall better service and higher value, Blockbuster had all the advantages of a physical store front. When it came to instant gratification or customer service, a brick-and-mortar Blockbuster location would always beat DVD rental by snail mail. For the consumer that had to rent the latest movie on the day or during the week it is released, Blockbuster’s store would always have the advantage. Netflix customers may receive a better value but only because they give up the luxury of same-day rental of the latest releases.
It was the blending of online and brick-and-mortar rental choices that gave Blockbuster a significant advantage over Netflix. Blockbuster...