Netflix Case Study Analysis

This assignment requires an in-depth analysis of Netflix's business model, focusing on key aspects such as its streaming platform, original content production, and global expansion. Students will evaluate Netflix's competitive advantages, marketing strategies, and the impact it has had on traditional media and consumer viewing habits. The analysis should draw upon provided academic sources to support arguments and demonstrate a comprehensive understanding of Netflix's position in the evolving entertainment landscape.

Running head: NETFLIX AND BLOCKBUSTER
Netflix and Blockbuster
Name of the Student
Name of the University
Author’s note

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Table of Contents
1. Introduction..................................................................................................................................2
2. Institutional Background.............................................................................................................3
2.1 A brief history of Blockbuster...............................................................................................3
2.2 A brief history of Netflix.......................................................................................................3
3. How Netflix beat Blockbuster.....................................................................................................4
3.1 Changing technology.............................................................................................................4
3.2 Retail outlet versus operating online.....................................................................................5
3.3 Pricing strategies....................................................................................................................6
3.4 Innovations of Netflix............................................................................................................7
4. Will Netflix remain the dominant provider of online video streaming.......................................8
4.1 Netflix stumbles: the demise of Qwikster.............................................................................8
4.2 Netflix rebuilds: The rise of original content........................................................................9
4.3 The future of Netflix............................................................................................................10
5. Conclusion.................................................................................................................................11
References......................................................................................................................................12

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1. Introduction
The market of video rentals is replaced by online streaming. Internet streaming is
considered to be the fastest way of accessing internet-based contents. Streaming is a process that
enables the viewers to use online contents before the file has been downloaded. The online data
get automatically deleted after it has been viewed. Fast data connection is the main requirement
for online streaming of video (Adhikari et al. 2012). Streaming of video cannot be easily copied
and this helps in piracy protection. Companies can reach a wide range of audiences by video
streaming. Netflix is an online streaming service that is based in U.S. Netflix had started its
business with DVD-by-mail service in 1997 (Amatriain 2013). Later on in the year 2007, Netflix
launched its video streaming services that led to the decline of physical video rental stores and
services. Netflix has become the leader in the market of video streaming and is focusing on
original content production.
This report describes how Netflix beat Blockbuster. It discusses the history of Netflix and
Blockbuster in brief. The following report shows the role played by the changing technology in
the video rental and video streaming market. It compares the characteristics of online operations
with the retail outlets and shows how online operations have helped Netflix to achieve success.
This report outlines the pricing strategies and the innovations of Netflix. It also predicts whether
Netflix will remain the dominant player of video streaming. The following report discusses the
reasons behind the demise of Qwikster. It shows how Netflix regained its position by providing
original content. This report also shows the future scope of Netflix.

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2. Institutional Background
2.1 A brief history of Blockbuster
Blockbuster was founded by David Cook in the year 1985 after Cook Data Services had
stopped supplying software to the oil and gas industry of Texas. The first retail store of
Blockbuster was opened in Dallas, Texas, U.S.A (Freedman 2012). Blockbuster became the
largest video rentals in the world. In the year 1987, Blockbuster was sold to three investors. In
the year 1992, Blockbuster had more than 2800 stores across the world. In the year 2004,
Blockbuster had gained market share with around 9000 retail stores around the world. In 2004,
10 percent of its revenue was from the late fees that customers had paid because they were
unable to return the rented movies. In the year 2010, Blockbuster had filed for bankruptcy
protection against a debt of $1 billion. With the advanced technological growth and business
strategy of Netflix, Blockbuster was facing problem in the video market. The old or traditional
business model and strategy of Blockbuster had allowed its competitors to take most of the
market share (Davis and Higgins 2013). Dish Network had bought the retail stores and other
assets of the company in 2011. In the year 2013, Dish Network had announced to close all the
retail stores in U.S.A. Blockbuster has been able to operate at least 10 stores across U.S.A.
2.2 A brief history of Netflix
Netflix was founded in the year 1997 when Internet retailing was gaining importance
over traditional retail stores. Netflix had offered the delivery of DVDs to the customers via mails
(Cook 2014). Initially, Netflix had concentrated on the early-technology adopters with a
marketing strategy of developing cross-promotional programs with the sellers and manufacturers
of DVD players. Netflix had charged $4 for each movie along with $2 handling and shipping
charges. Netflix had a cash-induced strategy. Customer complaints regarding high price and slow

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delivery of the DVDs led to the formation of the prepaid subscription strategy and service in the
year 1999. A recommendation system was offered to the customers based on customer surveys.
In 2002, Netflix had allowed the customers to unsubscribe over the Internet by completing a
survey form for explaining the reason for unsubscribing. Netflix attempted to split the streaming
businesses and DVD by creating Qwikster in 2011. This idea did not work well and was dropped
within one month. The explicit strategy of Netflix led to its growth and success. In the year 2013,
Netflix had moved to original programming with the “House of Cards” series.
3. How Netflix beat Blockbuster
3.1 Changing technology
Netflix could beat Blockbuster by effectively utilizing the functionalities of emerging
technologies. Its executives and leaders had understood the importance of the emerging and
advanced technologies and had supported the idea of Internet streaming (McDonald and Smith-
Rowsey 2016). Netflix had adopted a strategy of Internet streaming that allowed its customers to
access movies over a virtual platform. It was more convenient for the customers as they did not
have to visit the stores (Hiller 2017). Netflix could deliver high level customer service. Reed
Hastings could predict that the renting of movie and video cassettes would come to an end. The
role of compression technology helped Netflix to achieve success (Lusted 2012). People were
gaining access to the Internet services, and this enabled the streaming of video files over the
Internet. Netflix could change its strategy to video streaming from its strategy of sending DVDs
through mail by utilizing the functionalities of Internet and compressed technology. Netflix had
adopted an open-source strategy and approach for distributing movies on computers, DVD
players, mobile phones, laptops and TVs. The subscription strategy allowed the customers of

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Netflix to watch movies and videos based on their demand (Sherman and Waterman 2016).
Netflix had adopted a pay-per-view programming approach. The search engine of Netflix had
helped the customers to search and sort by the name of the movie, actor and genre. Netflix
developed a recommendation system based on customer preferences that used an algorithm to
give proper suggestions to the users (Hallinan and Striphas 2016). Customers of Netflix were
asked to go through a survey after they created a new account. Based on the survey as well as the
searches of the users, the proprietary algorithm of Netflix could give appropriate movie and
series recommendations to the users. This recommendation system based on machine learning as
well as algorithm had proved to be convenient for the customers. The adoption of advanced
technologies and algorithms had helped Netflix to flourish and beat Blockbuster.
3.2 Retail outlet versus operating online
Netflix could beat Blockbuster because of the advantages that it provided by operating
online. Blockbuster had retail outlets where the customers had to visit. The online operations of
Netflix had allowed the customers to watch movies and series over the Internet in real-time. This
online approach was convenient for the users. The users did not have to visit the retail video
rental stores for hiring video cassettes. The online video streaming concept had saved the cost
and time of the customers. Netflix could save the cost of operating retail outlets and maintaining
sales executives (Summers et al. 2016). Netflix could operate its business at a low cost as
compared to Blockbuster. Blockbuster was still using the traditional strategy of operating retail
stores. Netflix could offer several advantages to the customers. Netflix offered several choices of
movies to the users over its online platform. Users having high-speed connection of Internet
could easily watch web series and movies in real-time. Users could get access to video games
and movies at their doorsteps. Netflix could offer customized packages based on customer

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preferences that were not available in any retail video rental stores. The recommendation system
of Netflix had helped the customers to choose movies and series easily. The original contents
provided by Netflix had played a major role in its success (Villarroel, Taylor and Tucci 2013).
Netflix could update the online programs and channels on a regular basis. The various features
and facilities offered by Netflix through the online operations have helped in beating the retail
stores of Blockbuster.
3.3 Pricing strategies
Netflix had initially adopted a traditional pricing model where the customers had to pay
for each rented movie, and this charge also included the shipping as well as handling charges.
The customers had to return the DVDs before a specific date or else they had to pay extra
charges. This strategy was not appreciated by the customers as Netflix had a slow delivery
service as compared to its competitors.
Netflix had adopted a prepaid subscription pricing model to overcome the limitations of
slow delivery services. This subscription model had allowed the customers to get four movies at
once and receive four new movies every month. This new pricing strategy had turned the
disadvantage of the slow delivery service into an advantage as the users could watch the other
movies. Later on Netflix had further improved its pricing strategy (Allen, Feils and Disbrow
2014). The next pricing model of Netflix was to offer unlimited rentals at the first time.
Subscribers were allowed to have three movies at one time. The subscribers could exchange the
movies as many times as they wanted to. This pricing strategy of offering unlimited rentals had
attracted new customers and users. Netflix did not charge any late fee to the customers. The main
focus of Netflix was to provide convenience to the customers. Blockbuster used to rent movies
and charge for late fee when the customers were unable to return the video cassettes within a

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specified time. The overall expense of the customers was more when they used to hire video
cassettes from the retail stores of Blockbuster (Baccarne, Evens and Schuurman 2013). The
subscription plan of Netflix was effective and customers had found it to be more convenient as
compared to that of Blockbuster. The subscription pricing strategy or model of Netflix had
played a significant role in beating Blockbuster in the video rental market.
3.4 Innovations of Netflix
Netflix is considered to be one of the most innovative companies across the world.
Unlike other broadcasters, Netflix does not aim to reach a broad range of audiences. Netflix aims
to effectively cater to the needs of niches (Euchner and Ganguly 2014). The key innovation of
Netflix was to build streaming video demand by providing free service along with the DVD that
was delivered by mail. It keeps on upgrading and adding innovative ideas for growing its
business. The innovative idea of video streaming had led to the close down of the traditional
video renting businesses. The subscription plan of Netflix was also considered to be creative.
Netflix had used the concept of online library and recommendation systems for providing
convenience to the customers (Gomez-Uribe and Hunt 2016). Initially, Netflix had used a
different and innovative approach to rent movies to its customers via mail. Later on the idea was
modified and the features of Internet were utilized for streaming the videos online. Netflix
believed in disruptive innovations. The recommendation system of Netflix used an algorithm to
get an insight into the customer choices and preferences. Netflix had also offered a “Netflix
Prize” of $1 million to the public for getting a better and advanced algorithm for its
recommendation system (Hallinan and Striphas 2016). Netflix had also used innovative ideas to
bring the concept of original programming where it broadcasted original web series such as
“House of Cards” (Tryon 2015). Netflix has recently updated its static images on the user-

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interface platform to custom-created videos. The innovations and creativity of Netflix also
allows the users to download the videos and watch them offline (Villarroel, Taylor and Tucci
2013). The main strategy of Netflix is to add devices for allowing subscribers to stream content.
The creative approach of Netflix was mainly responsible for beating Blockbuster.
4. Will Netflix remain the dominant provider of online video streaming
4.1 Netflix stumbles: the demise of Qwikster
Netflix had announced a hike in price for its combined streaming as well as DVD service
in the month of July in 2011. Netflix had realized that DVD-by-mail service was completely
different from streaming businesses. They had different marketing as well as cost structures.
Netflix had identified that both the businesses could be run independently. Netflix wanted to
resolve this issue by separating the two businesses into two different entities. Netflix had decided
that the DVD-by-mail business would be conducted by Qwikster. Qwikster was planned in
response to the negative reaction of the price hike that was announced by Netflix. There were
several reasons behind the failure of the Qwikster plan. The split of the website made it
inconvenient for the users to manage the different queues and accounts in the separate websites
(Som.yale.edu 2018). Separate ratings, separate preferences and separate bills for Qwikster and
Netflix would create problem for the users. This plan had showed that Netflix was focusing on
its own benefits rather than the benefits of the customers. Netflix wanted to focus on the
streaming business as this was considered to be beneficial for the company in the future. It had
seemed to the investors that Netflix wanted to focus on its own benefits by separating the
business of DVD-by-mail service and the video streaming service. DVD-by-mail service had to
incur high cost because of the acquisition of pay-for-postage and physical discs. The operational

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cost of the business associated with the DVD-by-mail service would be high, and this business
would become obsolete in future. No investor would show interest in buying a cost-intensive
company that would become obsolete in the near future. The business strategy developed by
Netflix was outraged by its customers and it had lost several customers along with a fall in its
share price. Netflix could have used a smarter strategy by increasing the price of the subscription
plan by a small amount for few years, and after reaching a certain limit it could have split the
businesses. Netflix had lost a huge number of members with the hike in price and the Qwikster
plan.
4.2 Netflix rebuilds: The rise of original content
After the demise of the Qwikster plan, Netflix decided to invest in content production and
original programming. Netflix had contracted with an independent studio for creating 26
episodes of the “House of Cards” series. The series was a success and it had set a success
standard for original programs and ventures (Tryon 2015). Netflix had focused on original
programming for developing a competitive edge in the video streaming business (Stelter 2013).
Netflix had spent a major portion of the budget on original content production. The unique
approach and strategy of Netflix had helped it to gain several subscribers. Netflix focused on
delivering high quality content for its growth. The company started focusing on balancing the
mix of original contents and licensed series for gaining competitive advantage in the streaming
market (CNN 2018). The concept of original programming was considered to be a key to the
success of Netflix. Netflix had collected customer information and data for producing original
contents that could satisfy the needs of the subscribers (Goldfayn 2012). The customer data was
initially used for improving the recommendation system of Netflix. Later on the details were
used for creating appropriate original contents that would satisfy the users. Netflix could beat its

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competitors: Amazon Prime and Hulu by providing better quality contents (Adhikari et al. 2015).
The concept of original programming and content had helped Netflix to succeed and become the
leader in the video streaming market.
4.3 The future of Netflix
Netflix is supposed to spend around $8 million on original programming in the year
2018. It will also announce a hike in the price of the subscription plan. This plan would edge the
price towards the price offered by other competitors such as HBO (Harvard Business Review
2018). This can be a challenging factor for Netflix in the future. The rise in competition in the
market can affect the business of Netflix. Netflix will get international growth opportunities in
the future. Netflix has observed substantial growth in the international markets such as Brazil,
Canada and Mexico and expects to have further growth in the international market
(Tippie.biz.uiowa.edu 2018). International competition is considered to be lighter as compared to
domestic competition, and it will enable the expansion of Netflix in the future. As the number of
competitors is expected to increase in the domestic market, Netflix will need to invest more in
the production of original contents. With the spending of $8 million on original content, Netflix
is expected to run with a negative free cash flow in 2018. The original content can play a
significant role in contributing to the additional growth of the subscriber and increase the future
earnings of Netflix (Tryon 2015). If there is continuous growth in economy, then Netflix will be
able minimize the negative effects due to increased competition. The main focus of Netflix is to
invest in original content in the future. Netflix will add more original programs and contents to
its library for maintaining its position in the streaming market. The library of Netflix is expected
to consist 50 percent of original content such as original films and TV series by the end of 2018.

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Netflix is expected to remain the dominant leader of online video streaming by using its
innovative strategies.
5. Conclusion
This report concludes that utilization of emerging technology has helped Netflix to
achieve success in the video streaming market and beat the business of Blockbuster. Blockbuster
had the leading video rental business in 1987. It had around 9000 retail stores across the world.
The traditional business strategy had led to the downfall of the business of Blockbuster. Netflix
had offered DVD-by-mail service to the users. Netflix had adopted an advanced business
strategy, and had focused on streaming video by utilizing the features of compressed technology.
The recommendation system of Netflix had helped it to improve customer experience by giving
appropriate movie and series suggestions. Online operations had provided more convenience to
the customers, and they had started to prefer online streaming and operations over retail outlets.
This report pointed out that the prepaid subscription pricing strategy and model of Netflix was
one of the main factors behind the success of its business. According to this report, innovations
of Netflix include custom-created videos on the user-interface, original programming and the use
of recommendation system. This report highlighted certain reasons for the demise of Qwikster
such as high operating costs and chance of becoming obsolete in the future. It showed how the
idea of original content had helped Netflix to regain its position in the market. This report said
that Netflix is planning to invest $8 million on the original content production in 2018. It
concludes that Netflix will be able to maintain its position in the market and remain the dominant
leader in the streaming industry by focusing on the production of original content.

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