Strategic Analysis of Netflix and Blockbuster: Technology, Pricing, and Innovation

This report provides a strategic analysis of Netflix and Blockbuster, highlighting the dominance of Netflix in the online video streaming industry. It covers technology, pricing, and innovation strategies used by Netflix to surpass Blockbuster. The report also discusses the demise of Qwikster and the rise of original content as a strategy for rebuilding Netflix. The subject is business and the course code is not mentioned. The college/university is not mentioned.

Strategy and case analysis

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Contents
INTRODUCTION.................................................................................................................................2
Institutional background........................................................................................................................2
Brief History of Blockbuster..............................................................................................................2
Brief History of Netflix.....................................................................................................................3
Netflix beating Blockbuster...................................................................................................................3
Technology change............................................................................................................................4
Retail outlets versus online operations...............................................................................................4
Pricing strategies...............................................................................................................................5
Netflix Innovations............................................................................................................................5
Netflix as a major provider of Online Video streaming.........................................................................6
Netflix Stumbles: The Demise of Qwikster.......................................................................................6
Rebuilding Netflix: The rise of original content................................................................................7
Netflix’s future..................................................................................................................................8
Conclusion.............................................................................................................................................9
REFERENCES......................................................................................................................................9

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INTRODUCTION
The global environment for business has changed over the years. It has become important for
the organisations to make sure that they do the strategic analysis of their operations (Barney,
2014). This is necessary for making their position in the market. Strategic analysis of the firm
will help them in understanding various aspects related to its strategies which is cable of
giving competitive gains to the firms. Advancements in technology have made the most
significant impact on the various industries. Netflix is an US based firm which offers movies
and television series with the use of online mediums or by delivery of mails. This report does
the strategic analysis of the Netflix and Blockbuster. It also provides the analysis regarding
dominance of Netflix in the online video streaming. The way in which Netflix has been able
to surpass its competitor Blockbuster with the use of technology and effective strategies have
been highlighted. In the last it presents the idea regarding the Netflix’s future in online video
streaming industry.
Institutional background
Brief History of Blockbuster
In the entertainment industry Blockbuster is considered to be one of the biggest organisations.
It is a US based firm that offers entertainment related services like video games, media
streaming, on-demand videos, cinema theatre and home movie rental services using DVD
mail delivery. In 1990’s this firm it stretched its business in various parts of the world.
Netflix in 2000 denied the offer of Blockbuster to acquire it and now it is the biggest
competitor of Blockbuster.
Blockbuster was established by David Cook and now it is having employee strength of more
than 84,300 people all around the world (Blockbuster, 2017). Alone in US it has more than
58,000 employees and rest are in other nations. Present it owns around 9094 stores all across
the globe. Recently this company is facing many kinds of challenges and risk in business like
Redbox automated kiosks, higher competition and on-demand video services. These
challenges have led it to demand for bankruptcy prevention in the year 2000 which could be
seen by the fact that there was consistent decrease in its revenue.

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Brief History of Netflix
It is also an America based firm which was established in the year 1997 by Marc Randolph
and Reed Hasting. It is also an Entertainment provider that was founded in Scot Valley,
California. This firm offers different services that are associated with streaming videos on
media. It offers its consumers various opportunities for streaming the TV episodes, movies or
other things via internet (Chopra, et. al., 2017). In the beginning, Netflix model included
DVD sales and rental. Its leaders restricted the sale and hence reducing the sales of DVD so
that they could focus on giving it on rental basis through mail. Presently its services have
surpassed all the businesses that are running in its parallel in the world market. Write now its
online services are run in 190 nations and there are around 109.25 million subscribers. Alone
in US it is having more than 52.77 million in United States. Rage of TV series or movies is
available at its online services which can add more number of potential customers to its basis.
In the present global business scenario Netflix operates its business with aim to enhance its
subscriber’s base related to its video streaming in both national and international markets. For
achieving this, it is regularly increasing the experience of consumer by adding the services
range. By focusing on its aim and by the help of its effective strategies, Netflix is planning to
become best entertainment provider in the industry having a large base of subscribers on the
global level. It has adopted several marketing and corporate strategies for creating more
revenues and profits than its competitors.
Netflix beating Blockbuster
From the beginning, Blockbuster has dominated the rental movie business for so long and
hence in the year 2005, its organisational value was more than $8 billion. On the hand Netflix
started to utilise postal services for the DVD’s delivery (Gomez-Uribe and Hunt, 2016). By
the use of efficient marketing strategies, they have started to become the business leader and
hence its result can be seen that Blockbuster which was its competitor asked for declaring
itself to be bankrupt. The blockbuster made a loss of $518 billion and hence they locked most
of its stores. Few years later Netflix crossed its subscriber list to 16 million by running its
videos through online mediums. The leadership of Netflix played a very major role in beating
the Blockbuster by the help of strategies. Some of the major factors that helped them in
beating blockbuster are as follows:

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Technology change
DVD on demands was the initial business through which Netflix was targeting its consumers.
As there were advancements in technology related to entertainment industry hence the
customers also started to make certain different kinds of demands. Netflix adopted all the
advanced technologies for conducting its activities. The major factor behind its development
can be understood to be the approach that its leaders adopted towards adopting advanced
technologies. Its manager adopted the best technologies for delivering the videos or DVD. Its
technology strategy was implemented under several distinct stages. Further it has adopted the
strategy of virtual films and media and internet streaming which was capable of giving its
services to clients appropriately and at lower cost (Lees-Miller, et. al., 2008).
Checking the environment in the market, management of Netflix has understood that content
is very essential and unique. When they understood the problem the firm has changed its
catalogues. By making improvement in the technology, now Netflix is providing many types
of episodes and videos that are most suitable for its consumers (Grant, 2016). The adoption of
online technology has helped them in neglecting the accountability of its retail outlets. For
this they started utilising internet services so that greater satisfaction of subscribers can be
achieved. Their lists of viewers were shown by gathering the information base from the
contents that have been watched the highest number of times. On the other hand, Blockbuster
still relied on its retail store and here is where Netflix have beaten them by the use of
technology.
Retail outlets versus online operations
Blockbuster is known for using retail outlet stores for its operations while Netflix focuses on
giving services through online DVD rental firms. This strategy of the Netflix has reduced the
liability in terms of retail stores and hence by making use of online store they reduced their
operational cost (Indiviglio, 2011). They just have a few offices and warehouses where they
make virtual films while there are no sales people or physical stores. Netflix’s strategic
planners understood that the way in which Blockbuster is operation through Physical stores
may limit the chances of company to reach to larger consumer base. With the use of internet
they could possibly reach to larger targeted consumers and hence expanding its area of
business (Martin, et. al., 2013). Netflix adopted Open source approach that helped Netflix to
supply the movies on mobile phones, DVD players, TV’s and Computers. Presently, the firm
is offering online streaming contents and DVD through the help of mails which differentiate
it from its competitors. Furthermore, the cost of DVD delivery is relatively higher in the

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market place and online contents are available at cheaper cost hence people enjoy online
videos. The online video offering has helped the firm to attain larger gains from consumers as
compared to Blockbuster (Netflix, 2017). This made them the leaders in the market.
Pricing strategies
Since Netflix is offering its products and services by two different modes like DVD with the
use of mails or via internet mediums. Netflix is known for using its strategies for attracting
consumers and hence they were able to resolve their issues by offering exclusive and modern
type of services (Peteraf, Gamble and Thompson Jr, 2014). With the use of internet mediums
they have been able to sale its products at lower prices. This offer products at affordable
prices as they do have to maintain the cost of inventory like retail stores hence they are still
able to earn huge profits. It offers its services at monthly subscription basis and the charges
are also not too high. Their plan for pricing is illustrated below:
 For one title at a time it is around $8.99.
 For two titles it is $13.99
 For three titles it is $16.99
These plans offer unlimited DVD and video streaming each month. In the case of movies that
are given on rent, it does not change any additional cost for late returns and due dates
(Adhikari, et. al., 2015). This strategy was distinct than that which was offered by local
movie rentals. On the other hand Blockbuster adopted the pricing structure where they
charged $5 per movie. The most important reason behind failure of Blockbuster is that its
subscribers disliked the late fees charged by the firm. The firm is continuously improving its
strategy for pricing.
Netflix Innovations
Innovation has been the major area of focus for the Netflix. Innovation has the part of their
business operations and marketing strategy of Netflix (Sicoli, 2018). They are utilising
innovative techniques and processes for improving their business. By utilising it they have
been able to attract larger numbers of customers towards their business. Netflix stands as one
of the major companies that have adopted innovation. For such innovative processes, the
cited firm has stressed upon four elements namely think big, fail quickly, scale fast and start
small. Online streaming video is one of the prime examples of its innovative services. For
facing the competition, it has distributed a user interface guide and has placed the poster
images with video preview (Walker, 2016). The sample video automatically gets played

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when any client scrolls over the DVD title card. Apart from disruptive innovation, the firm
has also implemented open innovation as well.
In the field of innovation, Netflix has made a huge amount of investment for enhancing the
business processes and technology. All the information regarding various kinds of contents,
new releases, critics, synopses as well as information regarding movie rating is also been
provided by Netflix. Such innovations have made them better than Blockbuster.
Netflix as a major provider of Online Video streaming
Netflix’s business was started in the year 1997 and it now it is the major player in the
entertainment market and video streaming. For improving Netflix’s processes and operations,
the firm is implementing effective and innovative strategies (West, Ford and Ibrahim, 2015).
It has made them capable of capturing the entertainment industry. At the same time
Blockbuster the major competitor of the cited firm. Blockbuster is charging extra fee from
viewers on late return of rental movies which is not done by Netflix. For competing with
Blockbuster, Netflix reduced the plan rates. At the time when the Blockbuster is at the verge
of bankruptcy, Netflix have crossed borders and have become the major player in the industry
especially in terms of online entertainment video streaming. There are several other
competitors of Netflix like Kiosk Machine services, cable service providers, television
stations etc. By checking at this intense rivalry, Netflix have been effectively used policies,
their strategies and advanced technologies. It has assisted the firm to achieve the dominant
position in the online video streaming market. Netflix have focused on its present business
rather than having their stretch in various new services (Matrix, 2014). It has helped the firm
to become leader in entertainment service industry and online video streamlining.
Netflix Stumbles: The Demise of Qwikster
Among the various services that Netflix have launched over the years, they have also
experienced significant growth in its operations and business activities. They have launched
its new subsidiary named Qwikster in the year 2011 after setting up the market base in other
services. By using this subsidiary, the firm has shown its intentions to redesign and rebrand
its DVD Home Media rental services. Qwikster was a subsidiary that was highly unique and
offered a slight different kind of video streaming and DVD rental services (Amatriain, 2013).
It comprised of DVD that was delivered through mail facility which also included video
games with it. Netflix created certain distinct kind of websites for its new service Qwikster.

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Their leaders had a view point that it will enable them to give equal focus towards improving
both the services. Even when Netflix made many efforts to manage this business, negative
effect of it can be seen on the overall business of firm (Bennett and Lanning, 2007). Several
reasons were found for after analysis that why this business failed for example the enhanced
price of service, split of website, name change etc. Qwikster which was the subsidiary of
Netfllix has impacted their viewers as it forced clients to take use of DVD and hence
empowers them to make new accounts.
The demise of Qwiskster was unable to produce significant impact on their business because
the clients were unable to find that Qwikster was also the part of Netflix. But still there was a
significant impact of it as they lose millions of viewers. It had also affected the business
profit of Netflix.
Rebuilding Netflix: The rise of original content
The setback of Qwikster was not good for Netflix hence after this they have taken several
efforts for regaining its client’s base and its strategic positioning in the market. For regaining
this problem they launched their first TV service named “House of Cards” which proved to
be major image builder for the firm (Bell and Koren, 2007). After this they also started
producing television series and films. It also provided the “Netflix Original” content with the
help of internet library of television series and films. Till the year 2016, Netflix launched an
around 126 series and films which are better than cable channel and other network. Unlike
other competitors they have now totally focused on developing original content. It was the
influence of its real content as per the study of 2015-17 that their client’s base increased
sharply. It has provided as one of the other reasons why Netflix attracted customers. Netflix
works for making a balance among the services so that clients may get TV packages where
the subscribers might get the content that is ads free. It has made $7 billion of investment for
services related to content which was better than fund that was allocated in previous years
(Bell, Koren and Volinsky, 2008). The shifted their focus towards content development and
marketing efforts. It also has emphasized on their catalogue. By evaluating the Netflix’s
condition, it is obvious that in term of sports, music and other things there was no scope but
still better content in DVD and pay-per-view. All this helped company to rebuild image and
regaining revenue after the setback of Qwikster.

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Netflix’s future
The cited firm has been highly successful in their business in their industry and the type of
strategies it has implemented shows that its future will be brighter. Various factors related to
the industry success like alterations in status and lifestyle, convenience, consumer behaviour,
change in the interest of people and affordability has to be clearly monitored (Gomez-Uribe
and Hunt, 2016). If Netflix emphasised on all these factors them there is a sure that it can
achieve success and growth. Its past success shows that their future successes will also
depend upon the strategies they have made for themselves. The important elements of their
strategies are:
 Netflix gives its clients a wide range of DVD titles.
 Purchasing original contents by creating and managing effective relationship among
the service providers.
 Offering such as alternative to watch the content online in terms of original contents
or streaming video by fast delivery of DVD through mails.
 They are making it easier for their subscribers to access the content.
 They are focusing on marketing by developing brand awareness regarding the
contents of Netflix.
There are several reasons why Netflix will ensure higher growth over its rivals. The type of
unique content and strategies that Netflix is making they will be able to attract more number
of customers to become their subscribers. With the advancements in the mobile technology
along with the improved internet technology users will be able to access their contents from
anyplace, anytime. The cost of internet facilities is reducing hence Netflix will be able to
generate more profits from their operations. Various researches have predicted that in the
coming years they could attain 80 million foreign consumers and is capable of generating 7
billion in terms of revenue by the end of year 2020 (McCord, 2014). Its present growth
attributes the fact that their growth is in appropriate path and will add new potential
consumers from different age groups. It reasonable pricing strategy will again gave push to
its growth and hence their financial strength will enhance in future. In the time to come, the
firm must be able to provide advanced facilities with the help of technology development so
that piracy can be stopped and more consumers can be added to its base. Some kind of
promotional offers must also be launched so as to improve their sales performance (Singel,
2009). They will also have to look towards the type of strategies their new competitors are
adopting so as to make changes in the firm to stay ahead of them. Innovation that they are

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making will help the firm to stay ahead of most of their competitors in the future. The only
thing for which the firm needs to worry about is the increasing competition.
Conclusion
From the above based report it can be said that Netflix is the market leader in online video
streaming and entertainment industry. They have outlasted all their major competitors like
Blockbuster which was once the giants of the industry by the help of various strategies. In
this the technology and pricing strategy have played a much greater role in this regards. With
their strategies they are able to face all the challenges confronting their business like
increasing market cost, competition etc. With the help of their strategies they were also
successful in attracting huge number of potential consumers towards their subscriber base.
This company faced the setback in business in the name of Qwikster but with the help of
original contents, they regained their market position and captured even further bigger market
share.

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