Netflix's Strategies to Beat Blockbuster in the Video Streaming Industry

This report evaluates the strategies implemented by Netflix to replace Blockbuster in the video streaming industry. It discusses how Netflix used differentiated pricing, online operations, and continuous innovation to acquire a competitive edge in the entertainment industry. The report also analyzes whether Netflix will remain the dominant provider of online video streaming.

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STRATEGY AND CASE ANALYSIS
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Introduction
An organization is expected to implement a strategy that will assist in acquiring a
sustainable competitive edge in the market. Proper evaluation of the external business
environment provides the management with the needed information to formulate a successful
strategy. An organization that uses technology and innovation in the production process is
possible to increase the market share of the business. New companies are supposed to evaluate
the competitiveness of the industry in developing plans that will increase the market share in that
particular industry. The products and services are supposed to appear unique to the consumers in
ensuring that there is a successful market entry. Staff training and development is necessary for
making them have a proper understanding of the implementation of the strategies. The strategies
of a business are developed by the top management of an organization with an aim of
accomplishing long-term goals of production. Skillful staffs assist the business to increase
customer service that is vital in attaining the long-term objectives of production. Blockbuster and
Netflix are entertainment companies that have specialized in video streaming. The report
evaluates the strategies implemented by Netflix making it possible to replace Blockbuster in the
video streaming industry. Netflix strategies assisted the business to enter the US entertainment
industry and acquire a competitive advantage in the industry.
2. Institutional Background
2.1. A brief history of Blockbuster
Blockbuster is a company that focuses on movie and video streaming to the public. The
company offers different options for individuals to stream the movies with an aim of increasing
market share in the entertainment industry. Blockbuster was founded in 1985 by David Cook and

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was later sold to Viacom in 1994 (Forbes, 2011). The company developed plans for people to
purchases videos and movies at the various outlets in the United States. The company later was
listed for a public offering which was valued at $ 465 million in 1999 (Forbes, 2011). The public
offering was aimed at making the company acquire a sustainable competitive edge in the
entertainment industry through the increased capital from the investors. Blockbuster later became
a part of DISH Network in 2011 with an aim of handling the stiff competition from Netflix and
other entertainment companies in the US (Blockbuster, 2018). Blockbuster partnership with
DISH Network made it possible for consumers to access new movies and videos from home. The
partnership with DISH provided Blockbuster with the required broadcast satellite service to
reach out consumers in the comfort of their homes (Blockbuster, 2018). Blockbuster is a
company that is determined by offering family-friendly movies for an increase in the number of
people willing to use the products of the company.
2.2. A brief history of Netflix
Netflix is a company that is focused on offering online movies and TV show streaming to
the people all over the world. The entertainment company was founded in 1997 by Marc
Randolph and Reed Hastings (Castillo, 2017). Netflix has been able to acquire a sustainable
global competitive advantage in the entertainment industry through diversified products. The
differentiated services are aimed at being able to deal with the needs of people from all parts of
the world. It is possible for an individual to watch Netflix movies using a smart television,
laptop, personal computer, tablet, Mac mobiles and other electronic devices (Netflix, 2018). The
high number of people willing to use Netflix has assisted the company to have the required
revenue to expand to new market segments. In expanding operations the business used the initial
public offer where investors are allowed to purchase shares from the company. In the initial

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public offering Netflix was able to attract $95 million in 2002 and in 2011 it was valued over
$4.5 billion (Forbes, 2011). The increased value of the company is due to the ability to increase
the market share in the global entertainment industry. According to Bhunjun (2018), Netflix has
been able to acquire over 104 million subscribers globally due to streaming of the latest movies
to the public.
3. How Netflix beat Blockbuster
Netflix was able to acquire a competitive edge in the global entertainment industry
through the use of differentiated strategy. Blockbuster was the known company in the movie and
video industry before the establishment of Netflix. An organization is required to implement an
effective price that will increase the competitiveness of the market. Blockbuster competitiveness
issues started when Netflix was founded and Blockbuster refused to reduce the prices charged to
watch movies. Blockbusters used DVDs and cassettes to offer services to the consumers in the
entertainment market. Netflix implemented a reduced price that made Blockbuster lose over 75%
of market share from 2003 to 2005 (Netflix, 2018). Netflix was determined to continue acquiring
the competitive edge in the entertainment industry through the offering quality services to the
consumers at affordable prices. Castillo (2017), states that Netflix developed CD by mail service
that was aimed to compete with Blockbuster’s service DVD by mail. The service was widely
accepted due to the quick delivery to the consumers making movie lovers to prefer Netflix to
Blockbuster. It is essential to focus on consumer satisfaction in order to acquire the desired
competitive advantage in the market (Saeidi et al. 2015). Netflix focused on developing a proper
reputation in the entertainment market through quality services to the consumers.
3.1. Changing technology

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Netflix management was focused on using advanced technology to beat Blockbuster as
the leading company in the entertainment industry. The use of technology makes it possible for
an organization to develop unique products at a reduced production cost. The unique prices are
used to satisfy consumers with different tastes and preferences in the market. Netflix
implemented the technology of offering DVD by mail services to the consumers willing to watch
latest movies and videos in the entertainment industry. The company later developed a single
rental service to the consumers who allowed individuals to acquire one movie or TV series at a
time (Castillo, 2017). The subscription services made Netflix have a desired number of
consumers as it offered a variety of movies and videos in the subscription package. Blockbuster
depended on the DVD by mail service and stores to satisfy the needs of the consumers. The use
of outdated technology made Blockbuster lag behind with many people willing to use Netflix to
watch latest movies. Netflix services were accessed in various electronic devices reducing the
time required by an individual to acquire the latest movie. The availability of Netflix services on
different electronic devices led to the decline in Blockbuster which served consumers in the
stores. Blockbuster was unable to handle the competition from Netflix due to the continuous
loss-making. Blockbuster was later declined bankrupt in 2010 as it was unable to cover the debts
owed to different stakeholders (Satell, 2014). Netflix was able to analyze the changes in the
technology to apply advanced technology in production for a steady performance in the
entertainment industry.
3.2. Retail outlets versus operating online
Netflix focused on operating online while Blockbuster focused on retail outlets in
offering the latest movies to the consumers. The online operation is highly profitable for an
organization as it helps in capturing a large number of consumers in the targeted market. The

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online presence of Netflix has increased the subscription of the company which is vital for an
increased market share in the entertainment industry. The increased number of people accessing
internet provided Netflix with a great opportunity to expand operations using the online business
operations. The subscribed consumers can enjoy different videos and movies in the market
making the online business operations highly effective in the entertainment industry.
Blockbuster management did not discover the opportunity in online operation where the business
focused on retail outlets to meet the targeted consumers. An organization that operates online can
capture investors from different parts of the world due to the possibility of making profits from
production (Wohlgemuth, Berger & Wenzel 2016). Netflix operating online increased the
number of people willing to purchase shares from the company with the value invested used to
increase business productivity. The retail outlets are used by the businesses that are focused on a
small market segment to interact with the various consumers in the market effectively. Retail
outlets used by Blockbuster reduced the effectiveness of the company in the entertainment
industry due to inability to serve a large market segment.
3.3. Pricing strategies
The price implemented by a business should focus on developing the market share
through an increased number of consumers. Netflix offered affordable services to the consumers
with the aim of accomplishing the desired production level. Netflix prices were able to acquire
an increased market share compared to Blockbuster due to the reduced prices implemented by
the business (Forbes, 2011). The management is required to consider the cost of production and
expected return in implementing a proper strategy that will increase customers in the market.
Penetration price is used to gain a market share by using a low price that will be accepted by
many customers in the market. After acquiring a competitive edge in the entertainment, Netflix

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implemented a price skimming which is aimed at increased the income from service delivery.
Netflix raised the prices in 2011 where the standard option was raised from $9.99 to$ 10.99,
premium plan $11.99 to $13.99 and the entry level remained $7.99 (Richter, 2017). Price
skimming strategy is used by organizations that have a high number of consumers with the aim
of offering an enhanced service to the market. The higher prices are used in research and
development in the market to ensure that there is a satisfaction to the consumers. An organization
is required to use price skimming strategy for new products and services in the market to reduce
cases loss of market share in that particular industry (Spann, Fischer & Tellis 2014). Netflix
skimming price strategy is gradual to make the streaming services affordable to many people
globally. The implementation of decent prices increases the subscription which is vital in
maintaining the competitive edge in the entertainment industry.
3.4. Netflix’s innovations
Netflix is an organization that focuses on continuous innovation and creation of
entertainment services for prolonged survival in the industry. The entertainment industry is
highly dynamic requiring an organization to focus on the use of innovation to deal with issues in
the market. According to Jones-Evans and Klofsten (2016) innovation is used by a business to
offer products that meet the diverse needs of the consumers. An organization should involve
different departments in coming up with a business model that focuses on innovation in the
production process (Spieth, Schneckenberg & Ricart 2014). A continuous innovation level is
used by a business to establish a strong brand that is popular with the existing and prospects in
the market. Netflix has been able to develop a strong brand that is popular globally through
quality entertainment services to the consumers. The company has been able to enhance user
interface (UI) to provide a proper international between humans and machines which has

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contributed to the Netflix being able to operate in over 130 countries (Fast Company, 2018).
Innovation is used in making an organization widely accepted in the global market. According to
Whigham (2017) Netflix is focused on offering HD streaming at low bandwidth to increase the
number of people willing to sue the service.
4. Will Netflix remain the dominant provider of online video streaming?
Netflix is expected to continue dominating in the online video streaming market due to
the quality services provided by the company. A proper understanding of the online operation
made it possible for Netflix to beat Blockbuster as the leading company in the entertainment
industry. The differentiation strategy is used by the company making the products and services
widely accepted in the global market. Grant (2016), states that it is important for a multinational
organization to implement differentiation strategy to meet the diverse needs of consumers. The
execution of a competitive strategy is used by the management in accomplishing production
goals through the development of products that are consumer focused (Lechner & Gudmundsson
2014). Netflix is an organization that offers quality online video streaming services to handle the
competition in the entertainment industry. The use of original content increases the number of
subscriptions globally with people willing to use Netflix for entertainment. The company focuses
on online interaction with the consumers to analyze complains and complements in the market.
The feedback from the consumers is used by the management in developing the online video
streaming globally. An organization that is focused on customer service is able to increase
consumer loyalty which is vital for a sustainable competitive advantage in the market (Lam &
Mayer 2014). Netflix is focused on maintaining the competitiveness of the online video
streaming industry which is vital to increasing the income of the company. Netflix will sustain
its competitive advantage in online video streaming by continuously analyzing the external

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business environment. According to Hamilton and Webster (2015), the management is required
to have an insight into the dynamic external environment to deal with the threats and
opportunities in the market.
4.1. Netflix stumbles: The demise of Qwikster
Netflix has experienced some stumbles while offering services in the entertainment
industry which has reduced the development of the company. Qwikster negatively impacted the
performance of Netflix due to the confusion that it caused the users. The system required a client
to open an account for online video streaming and a different DVD account. The two accounts
were to use different credit card and domain names which made it hard for the client to use the
products of the company. Netflix consumers were unable to use the DVD rental segment and the
online video streaming using the same account. Qwikster was focused on separating the DVD
service from the online streaming service which led to a reduced performance of the company. It
is important for an organization to focus on consumer behavior before implementing changes in
a product (Foxall 2015). The launch of Qwikster led to a decline in the subscription as
consumers were unaware of the rising cost of using the online streaming and DVD renting
services from Netflix. The company lost 800,000 subscribers due to the Qwikster initiative of
separating the two services in the entertainment industry (Stelter, 2011). The subscribers were
expected to receive latest movies through online streaming, and the old movies through DVD
send to mail. Juster (2015) states that it is necessary for an organization to anticipate the
purchasing behavior of the targeted consumers to reduce stumbles in the market.
4.2. Netflix rebuilds: The rise of original content.

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Netflix was able to acquire a competitive edge in an industry that was dominated by
Blockbuster through innovation and use of technology. The digitalization of services by Netflix
has assisted the company to offer the original content from the movies and TV series. According
to Whigham (2017), Netflix is a highly innovative company which is consumer-focused on
offering original content at affordable prices. The HD quality of the online streaming is designed
to consumers at low bandwidth to save money. It is essential for an organization to consider the
costs incurred by a consumer in the consumption process for increased performance in the
market. The online operation of Netflix provides the company with a platform to reach a large
number of consumers in the global entertainment industry. A business is required to develop
restricting strategies considering advanced technology for proper flow in the targeted market
(Paroutis, Bennett & Heracleous 2014). Netflix restructured its operations by using advanced
technology which replaced DVD renting with online video streaming. The restructuring greatly
contributed to an increase in subscription which moved from 6,300 subscribers in 2006 to 75
million subscribers in January 2016 (Davis, 2016). The company has continuously increased the
market share in the online streaming reaching over 104 million (Bhunjun 2018).Netflix products
are consumer-oriented with personalized entertainment options used to offer unique experiences
to the subscribers.
4.3. The future of Netflix
Netflix aims at continuously increasing the number of subscribers in the online video
streaming industry. The company uses advanced technology to develop products that will meet
the diverse needs of the consumers. The digital streaming technology has enabled people from
all parts of the world to connect by watching the latest movies and TV series. The digitalization
of services by Netflix has made operations more effective compared to visiting video stores to

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purchase or rent a movie. The subscription fee is standardized to make it affordable to
consumers all over the world (Davis, 2016). The streaming quality is a focus for the company for
a sustainable competitive edge in the market. Netflix focuses on HD pictures and original content
to the subscribers (Whigham, 2017). Online video streaming requires consistent services to the
consumers to reduce cases of dissatisfaction in the market. The customer service representatives
are required to properly access the online feedbacks from the consumers with the aim of
increasing the productivity level in the entertainment industry. In future Netflix aims at
maintaining the competitive edge in the online video streaming through quality content to the
consumers. In 2018 Netflix aims at using $8 billion to improve the programming system of the
company to boost the originality of the videos to the consumers (Fiegerman, 2017). Original
content to the online video streaming consumers will assist in acquiring and retaining a large
market share in the entertainment industry. Netflix quality services will improve the profit
margin for the company and stock earning to investors.
5. Conclusion
Netflix is a leading company in the entertainment industry offering online video
streaming services to global consumers. The company has been able to acquire the competitive
edge in the movie and video industry through implementation of differentiation strategy.
Blockbuster was the dominant company before the establishment of Netflix offering DVD
renting on retail outlets. However, Netflix was able to beat Blockbuster by implementing
advanced technology in service delivery to the consumers. The use of innovation and technology
has greatly contributed to the increased number of subscriber of Netflix. Despite the fact that
Netflix stumbles through the Qwikster the company was able to change and implement a plan

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that is focused on original content for sustainable performance in the online video streaming
market.

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