How Netflix Beat Blockbuster: Role of Technology and Pricing Strategy

0
SOUTHERN CROSS UNIVERSITY
ASSIGNMENT COVER SHEET
For use with online submission of assignments
Please complete all of the following details and then make this sheet the first page of each file of your assignment
– do not send it as a separate document.
Your assignments must be submitted as a Word document. If you wish tosubmit in any other file format please
discuss this with your lecturer well before theassignment submission date.
Student Name:
Student ID No.:
Unit Name:
Unit Code:
Tutor’s name:
Assignment No.:
Assignment Title:
Due date:
Date submitted:
Declaration:
I have read and understand the Rules Relating to Awards (Rule 3 Section 18 – Academic Misconduct
Including Plagiarism) as contained in the SCU Policy Library. I understand the penalties that apply
for plagiarism and agree to be bound by these rules. The work I am submitting electronically is
entirely my own work.
Signed:
(please type
your name)
Date:

1
Executive summary
The retiring of the Blockbuster brand had been mostly attributed to the growth of online video
streaming services that led to the fall in the revenue of the company. Findings reveal that in the
growth and success of Netflix the role of Technology and rather the technological diffusion has
been immense. Netflix is considered to be one of the top most innovative companies since the
last decade by Forbes magazine. Netflix is probably one of the best example showing how the
change and rather in the growth of the scope of Technology has changed the manner in which we
watch television. The analysis of the factors that made Netflix beat blockbuster video involves
the study of the growth of online operation over the preference for retail outlets. Another reason
why Netflix was able to put blockbuster videos out of business had been the genius pricing
strategy of the company.

2
Table of Contents
I. Introduction..................................................................................................................................4
II. Context........................................................................................................................................4
Historical overview of Blockbuster.............................................................................................4
Historical overview of Netflix.....................................................................................................5
III. Theory........................................................................................................................................5
PESTEL Analysis:.......................................................................................................................5
Porter Five Force analysis of Netflix...........................................................................................8
Porter Five Force analysis of Blockbuster...................................................................................9
Transactional strategy................................................................................................................10
IV. Analysis: How did “Netflix beat Blockbuster Video”?...........................................................11
Role of technological diffusion, innovation; first movers and followers......................................11
Changing technology.................................................................................................................12
Operating online vs retail outlets...............................................................................................12
Pricing strategies of Netflix.......................................................................................................13
V. Discussion.................................................................................................................................15
Assessment of Netflix dominating the provider of the online video streaming........................15
Stumbling of Netflix after Qwikster failure...............................................................................16
Rebuilding of Netflix with original content...............................................................................17

3
Future of Netflix........................................................................................................................17
VI Conclusion................................................................................................................................18
VII List of references.....................................................................................................................19

4
I. Introduction
The aim of the report is to analyse the growth of online operations with reference to the
emergence of Netflix in the online video streaming business. The report shall begin with the
overview of blockbuster and Netflix to state their comparison followed by the illustration of the
strategic positioning and action of Netflix. The role of Technology and the shift to online
operations and innovation shall be discussed in terms of Netflix. The pricing strategies as well as
the challenges faced by the company shall also be analysed and the future of the company shall
be discussed.
II. Context
Historical overview of Blockbuster
Blockbuster also referred to as Blockbuster video or Blockbuster entertainment is a provider of
Rental services for video game and home movie distributed through the video rental stores,
cinema theatre and DVD by mail. The company had witnessed immense growth in the 1990s and
it was about a decade ago when it had strength of 9000 stores in United States employing over
84000 people in the stores (Sawhney 2017). In 1990 it was the undisputed leader in video rental
industry. However, Netflix went public the revenue of blockbuster came crashing down and in
2010 the company filed for bankruptcy. In 2013, there were about 300, company owned stores
for video rental in United States that were soon shut down. The extreme competition from
automated kiosks of Redbox, the mail order service of Netflix and the growth in the demand of
'Video on demand' services had led to the eventual device of the company (Aziz et al. 2018).

5
Historical overview of Netflix
The history of Netflix is very interesting as Netflix was founded by two software engineers in
1997 with the intention of using internet for renting movies on the DVD that was then a new
video streaming format. It is also believed that the idea of Netflix to one of the founders, Reed
Hastings, came when he was charged by blockbuster $1 40 as late fees for returning a DVD. In
1999 monthly subscription model was adopted by Netflix with unlimited rental for a single rate
monthly. In 2007 Netflix moved into video streaming as the subscriptions were increasing by
great bounds and in 2010 there were over 20 million subscribers for Netflix. In 2013 Netflix
announced its move into the original programming with its web series called the 'House of Cards
(Fernández-Manzano, Neira & Clares-Gavilán 2016). With the idea of dividing it streaming
business and DVD business, Qwikster was created by Netflix for the purpose of DVD
distribution. In which of protest from the consumers the idea of Qwikster was soon dropped. The
success of its first web series led to the eventual growth in the original programming in Netflix
that is the USP of the company at present (Gedye 2018).
III. Theory
PESTEL Analysis:
Factors of PESTEL Impact on Netflix Impact on Blockbuster
Political
USA, as the second biggest vote
based system on the planet, has the
President as the leader of the nation.
USA appreciates noteworthy
political soundness just as
reasonable and straightforward
This fast infrastructural and
mechanical back-up by the
Government has helped
business improvement of
Netflix in the USA just as
advancement of required
foundation for achieving
Similarly this has assisted
Blockbuster in
development of its home
video rental business along
with operating with net
income US$ 468 million
during 2010-2011, after