NETFLIX CASE STUDY
Overview:
Prior to the prospectus of Netflix, Blockbuster dominated the home video market by opening 5,194 retail outlets in U.S. and achieving ‘100% brand recognition with active movie renters’. The industry was largely based on retail outlets, which subscribers needed to visit physically and pay separate rent fees for each movie for a period between two days to one week. ‘Late fees’ will be charged to overdue rents, and these fees account for about 10% of Blockbuster’s revenue in 2004. Netflix, as a rapidly growing online subscription-based DVD rental company, founded in 1997 by a businessman called Hastings. It has been gone through few major strategic changes in the first decade. Theses changes opened the market for Netflix and helped Netflix grabbed opportunities along the way. At the end of 2006, Netflix reached annual revenue of 1 billion. In this paper, I will fully exam the strategic evolvement of Netflix in these ten years and then discuss how did Blockbuster fought back. Lastly I will lists the opportunities and challenges these companies face on the emerging video-on-demand market.
Rise of Netflix:
Netflix’s goal was being the ‘ultimate online destination for movie enthusiasts’. It started by focusing on a niche market which are early-technology adopters who owned DVD players at home. Netflix brought the rental business online and worked with U.S. Postal Service for on average 2 days delivery. The company overcame many difficulties over time and made five major adjustments to combat these situations. Netflix created a new pricing system; it established its own recommendation and rating system; it built long term relationship with its supplier; it created distribution centers; and last but not least, Netflix allowed online unsubscription without penalty. I will then elaborate each changes in detail.
First, Netflix pioneered the ‘no late fee’ pricing system and then evolved to an unlimited monthly plan quickly. In 2000, the adoption rate of DVD
Prior to the prospectus of Netflix, Blockbuster dominated the home video market by opening 5,194 retail outlets in U.S. and achieving ‘100% brand recognition with active movie renters’. The industry was largely based on retail outlets, which subscribers needed to visit physically and pay separate rent fees for each movie for a period between two days to one week. ‘Late fees’ will be charged to overdue rents, and these fees account for about 10% of Blockbuster’s revenue in 2004. Netflix, as a rapidly growing online subscription-based DVD rental company, founded in 1997 by a businessman called Hastings. It has been gone through few major strategic changes in the first decade. Theses changes opened the market for Netflix and helped Netflix grabbed opportunities along the way. At the end of 2006, Netflix reached annual revenue of 1 billion. In this paper, I will fully exam the strategic evolvement of Netflix in these ten years and then discuss how did Blockbuster fought back. Lastly I will lists the opportunities and challenges these companies face on the emerging video-on-demand market.
Rise of Netflix:
Netflix’s goal was being the ‘ultimate online destination for movie enthusiasts’. It started by focusing on a niche market which are early-technology adopters who owned DVD players at home. Netflix brought the rental business online and worked with U.S. Postal Service for on average 2 days delivery. The company overcame many difficulties over time and made five major adjustments to combat these situations. Netflix created a new pricing system; it established its own recommendation and rating system; it built long term relationship with its supplier; it created distribution centers; and last but not least, Netflix allowed online unsubscription without penalty. I will then elaborate each changes in detail.
First, Netflix pioneered the ‘no late fee’ pricing system and then evolved to an unlimited monthly plan quickly. In 2000, the adoption rate of DVD