Netflix's Impact on the Entertainment Industry

This assignment delves into the transformative influence of Netflix on the entertainment industry. It examines how Netflix utilizes big data analytics to personalize user experiences, develop original content, and refine its business strategies. The analysis considers the company's impact on traditional media, consumer viewing habits, and the future landscape of entertainment.

Running head: STRATEGY AND CASE ANALYSIS
Executive Summary:
The report is a discussion on the strategy and case analysis of Blockbuster and Netflix. The
report commences with an overview of each of the companies. This is followed by discussion
on how Netflix moves ahead of Blockbuster based on its changing technology, strategy for
pricing and innovation and retail versus online operation. There is also discussion about how
long will Netflix remain as the dominant provider of videos. The report also puts forward,
Netflix decision on pulling the shutters on Qwikster and its rebuilding after major stumble. A
vivid description on the future growth of Netflix discussed as a part of the report.

1STRATEGY AND CASE ANALYSIS
Table of Contents
1. Introduction................................................................................................................2
2. Institutional Background............................................................................................2
2.1 A Brief History of Blockbuster............................................................................2
2.2 A Brief History of Netflix....................................................................................4
3. How Netflix Beat Blockbuster...................................................................................5
3.1 Changing Technology..........................................................................................5
3.2 Retail Outlets versus Operating Online................................................................6
3.3 Pricing Strategies.................................................................................................6
3.4 Netflix’s Innovations............................................................................................7
4. Will Netflix Remain the Dominate 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

2STRATEGY AND CASE ANALYSIS
1. Introduction
The report is a strategy and case analysis of Blockbuster and Netflix.The report
provides an institutional background on both the companies. Blockbuster has been a provider
of rental services for video game and home movie based on America (Blockbuster.com
2018). The services undertaken by the company provided through rental shops, DVD via mail
and on demand video. The company rose to international acclaim in the year 1990s. During
the year, 2004, Blockbuster employed a large number of people from United States and other
countries for an approximate 9000 stores. On the other hand, Netflix was an American
entertainment company found in the year 1997 and located on the Scotts Valley of California.
The company led by Reed Hastings and Marc Randolph specialized on providing streaming
media and online video on demand as well as DVD via the system of mailing. However, by
the year 2013, the company also expanded on television and film production in addition to its
online distribution. There is also discussion how Netflix beats Blockbuster based on the
changing technology, retail outlets versus online operation, strategy for pricing and
innovations. The report also discusses about Netflix being the dominant provider of online
streaming of videos (Netflix.com 2018). To explain the position of Netflix there is discussion
on demise of Qwikster and rebuilding of Netflix and the rise of original content. The report
also provides a vivid description on the future growth of Netflix.
2. Institutional Background
2.1 A Brief History of Blockbuster
Blockbuster Inc. is one of the largest rental chains for providing videos around the
world. The company provides game and movie entertainment on a rental basis. The company

3STRATEGY AND CASE ANALYSIS
around 9100 video stores around United States , its 24 nations and territories that helps in
serving around three million customers every day(Gershon2013). The initiation of the
company was around the middle of 1980s as an alternative to the small and local operations
that had a limited selection of video rental. The company transformed into a global chain in
no time thereby offering DVDs, video games and videos either through its stores or through
its online subscription program.
The history of Blockbuster traced to Cook Data Services Inc found in the year 1982
by David Cook for supplying services related to computer software in the Texas oil and gas
industry. After Cook Data Services Inc went in a state of bust, the owner sought other means
of revenue generation by entering into a business that dealt with video rental.
After several months of research into the industry of video rental, David Cook sold
the software business related to gas and oil and entered into the business of movie rental. It
was in the year 1985 in the month of October that Blockbuster was able to open its first outlet
in the city of Dallas (Abraham2013). Around 8000 tapes covered around 6500 titles along
with a huge inventory stock sufficient to give the nearest competitor a run for their money.
The stores allowed the customers to choose before finally renting out. The first store of
Blockbuster became an immediate hit that enabled Cook to expand his business by
introducing three additional stores.
The company however appeared to be in a flux during the year 2005 because of the
litigation surrounding its policy of no late fees. Problems also cropped up because of the loss
of income due to extension in the viewing fees, failed attempt to merge with Hollywood
Entertainment Corporation and the efforts of Carl Icahn's in ousting John Antioco, the CEO.

4STRATEGY AND CASE ANALYSIS
2.2 A Brief History of Netflix
Netflix represents the leading internet service for entertainment around the world
serving around 109 million members in 190 countries that enjoys around 140 million hours of
movies and television shows including documentaries, original series and feature films.
Members are able to watch on an unlimited basis anytime and anywhere provided there
screen have an internet connection (Dixonand Graham2017). In addition, the members can
also pause, play and resume watching without any kind of interruption.
Marc Randolph and Reed Hastings found the company in the year 1997. Both
were technology enthusiasts who had a successful career in setting of websites and thereby
successfully running them. Therefore, they possessed a better idea for the creating of a
website that would make it easier for people to rent and buy DVD while sitting at home.
Around, $2.5 million invested by Hastings for starting the business in an improved manner.
Netflix began its business in the year 1998 in the month of April. The
company started with around 30 employees and made an offering of around 900 titles for the
purpose of rent (Preuss 2013). The company also added newer titles for the purpose of sale
by providing a discount of around 30 percent for attracting customers. The website of the
company also provided the users with not only automatic suggestions and movie reviews that
prompted them in renting out additional DVDs.
After a month into the business, the company declared into entering a
promotional venture with the Toshiba America that allowed renting out three DVDs on the
purchase of a DVD player of the company. Other companies that went into a similar pact
with Netflix included Apple, Hewlett-Packard, Pioneer DVD players and Sony.

5STRATEGY AND CASE ANALYSIS
3. How Netflix Beat Blockbuster
3.1 Changing Technology
Changing technology was one of the reasons as how Netflix beat Blockbuster. Initially the
stocks of Netflix tumbled with the introduction of the main delivery service by Blockbuster in
the year 2004. Blockbuster, the largest video rental chain primary focused on the fact that its
survival depended on conquering Netflix. However, in a matter of six years, the worst
nightmare of Blockbuster was a reality when Netflix became the winner in the mailing
business for renting DVDs.
In addition to good leadership, the executives of Netflix understood that the
emergence of technology contributed to a rapid change in the delivery of the movie rentals
(McDonaldand Smith-Rowsey2016) compared to Blockbuster. This enabled Hastings in
developing a virtual organization that focused on a strategy for internet streaming and
convenience in customer service in a cheaper and flawless manner. Thus, Hastings proved
himself to be far ahead of technology curve that helped him in molding the industry.
Streaming of movies over the internet was another aspect that worked in favor of
Netflix. Even when only few Americans had access to the broadband in the year 2000,
Hastings believed that renting of the video cassettes would soon result in streaming of
movies over internet. Netflix worked on a television box that helped in streaming movies
with sixteen hours of downloading time. Blockbuster was also aware of the situation but
refrained from taking a plunge. Instead, the company tried to enhance their sales through
expansion of their outlets with toys, books and merchandize (Cook2014). Around the year
2005, better compression ofvideos and faster broadband lead to the eruption of the Web 2.0
sites and You Tube. It was during this time that made Hastings realize that it was high time
for cannibalizing the rental business of DVDs in the favor of the streaming video. Hastings

6STRATEGY AND CASE ANALYSIS
also ensured an open source approach followed by Netflix that would allow the company in
distributing movies on DVD players, desktop computers and mobile phones. The company
also did the unthinkable that helped the customers in giving up DVDs. Netflix thus allowed
easier streaming of movies.
3.2 Retail Outlets versus Operating Online
Unlike Blockbuster, Netflix adopted the strategyof believing in online operation while
avoiding the burden of the retail outlets. Netflix operated virtually with only a few offices and
warehouses (Halal2015). Thus, the company had no retail store or sales employees. Netflix
also has a smaller staff that operated on the sole idea of freedom and the culture of
responsibility. Instead of authorized sick days, fixed work hours and vacations, Netflix
allowed people to choose as long as their job done. In addition, the company also allows its
staff to choose their titles and compensation.
In the initial days of the internet, videos posted in the website as a link. The visitors of
the website needed to download the complete file before playing it. The streaming of video
brought about a change in this concept (Craig2013). In video streaming, the content served in
a manner that allows the files to play almost immediately after it starts downloading. There
are also special streaming servers that allow the viewers in moving backward and forward
through the video file. The concept is undertaken put adopted by Netflix that is quite unlike
Blockbuster.
The streaming video technology adopted by Netflix is hard to copy and prevents user
from saving a copy in their system. This allows the owners of Netflix in providing mental
peace in distributing the content online.

7STRATEGY AND CASE ANALYSIS
3.3 Pricing Strategies
As far as pricing strategy is concerned Netflix improved the outmoded pricing and
lackluster service of Blockbuster. Blockbuster charged around $5 for each of the movies and
people usually hated the prices that the company imposed on them for the late returns.
Contrary to this, Hastings made use of monthly subscription that allowed disallowed late fees
and unlimited rentals (Cramer2014). The primary focus of the company was not on renting
movies but on providing a convenient service. Thus, Netflix developed the best industry
software that made it inviting for ordering movies online. Moreover, the website of the
company was a representation of intuitive clarity and clean organization. Unlike blockbuster,
Netflix also made use of the responses of the clients for recommending movies as per the
individual taste. The company also offered prize money close to $ 1million to anyone
responsible for improving the rating system of the company.
3.4 Netflix’s Innovations
Netflix adopteddisruptive innovation to beat Blockbuster. Disruptive innovation
described a specific manner in which smaller companies destroys the bigger rivals (Desouza,
and Smith2014). Thus, disruptive innovation is a strategy undertaken by smaller companies
to get a market share. In the year 1995, American scholar, business consultant and educator
Clayton M. Christensen coined the term disruptive innovation. This type of innovation helps
in creating a value network and new market thereby disrupting an existing value network and
market and displacing already established alliances and market leaders (George and Lin
2017). There have been several kinds of disruptive innovation over the past decade that not
only changed lives but also market. These innovations have gradually transitioned in our
lives. Netflix acts as one of the example of disruptive technology. The first appearance of
Netflix appealed to only a few groups of customers who were movie buffs who were unaware
of the new releases, online shoppers and primary adopters of DVD players.

8STRATEGY AND CASE ANALYSIS
During the initial days, the launch of the mail in service for subscription by Netflix
did not look threatening for bigger companies like Blockbuster that ruled the market arena
between the year 1980s and the 1990s. Everything changed with the growth of video
streaming. The founders being already a market player proved to be advantageous for Netflix.
The company was able to appeal to the core audience of Blockbuster through providing a
wider greater option for content, lower price, higher quality and convenient approach.
Disruptive companies like Netflix rose quickly since larger companies like
Blockbuster overlooked it. This is because the strategy adopted by Netflix gave the bigger
company an idea that they would not eat away on its customer base. However, eventually
with time Netflix captured the market and proved to be a primary challenge Blockbusters. By
the year 2016, Netflix totally captured the market of Blockbuster and had a net worth of
around $1.2 billion (Preuss 2013). The only means by which Blockbuster could have fought
Netflix was by introducing its own innovation of disruption.
4. Will Netflix Remain the Dominate Provider of Online Video Streaming?
Presently Netflix is the king of streaming video providers that provides a service that
reaches close to 80 million users in around 200 countries (Walker et al. 2017). Live streaming
drove millions of users in binge watching the entire seasons in just a couple of days. This has
put Netflix in an enviable position compared to its competitors. The company has enough
cash and a market cap in the range of $60 billion. There were enough talks about Apple being
the acquirer of the company.
Netflix acquires a dominant position however, there is enough confusion about
whether the company will be able to maintain its position since increasing number of
competitors are moving into the video streaming arena especially in America.

9STRATEGY AND CASE ANALYSIS
4.1 Netflix Stumbles: The Demise of Qwikster
The primary downside for Netflix was its decision of cancelling Qwikster. Before, the
announcement of the DVD only service in September Netflix ensured the demise of
Qwikster(Goldfayn2012). The CEO of Netflix, Reed Hastings, declared pulling plug on the
Qwikster because of the confusion that would arise from having a completely segregated
offering for only DVDs. He also went on to say that, Netflix and Qwikster, required two
different websites for operation with no integration between the two. This would also create
confusion amongst the users, as they needed to pay two different companies on a monthly
basis, maintaining separate profiles and posting two movie reviews.
Netflix decided to pull down the shutters of Qwikster since they learned from their
users that maintenance of two websites would be a hindrance and would result in situations
that are more difficult. Therefore, the decision to keep a single company that would not only
be responsible for streaming but also ensure DVD rental service. This implied that there was
no change and hence no Qwikster. However, Qwikster was unpopular from its early stage of
initiation. The decision of launching Qwikster as a separate business for DVDs also led to the
price hike in Netflix that resulted in controversy. With the thought ofQwikster, the monthly
subscription plan of $9.99 replaced by two different monthly plans of $7.99 for unlimited
video streaming and DVD renting respectively(Jethaand Berente2014). Thus, the customers
who initially paid $9.99 per month would then have to pay $15.98.
4.2 Netflix Rebuilds: The Rise of Original Content
People in addition to subscribing to Netflix also have also developed a familiarity
with the company(Bailey2016). Many of them associate Netflix with quality and express
their willingness in acquiring the service.

10STRATEGY AND CASE ANALYSIS
Companies like Netflix build their customer base on the basis of trust. This implies a
big leap on the part of the customers as well. This is because more than knowing a service
and actually subscribing for it is important whom the customer can trust and share the credit
card information(Zetterberg, Davidssonand Johansson2015). Netflix has been a market
disruptor and focused on the consumer needs for variety and convenience. To recover from
the debacle, the brand took necessary corrective action in restoring customer trust and moved
towards a trend of individualized environment.
The brand equity built by the company helped it to recover its position in a matter of
three years. The company suffered a major disaster due to the decision of its CEO in deciding
to split the company(Wayne 2017). This outraged the customers and as a result by the third
quarter of 2011 the company lost around 800,000 subscribers. The however ensured a rapid
turnaround. Netflix also built a bond with the customers that only few companies are capable
of. The company also has the capability of connecting with the customers at a deeper level
that helps in driving attraction.
Therefore, by the end of 2013, Netflix had around 44 million members which were
higher compared to the previous years(Riquier2015). The company however expects to have
more than 48 million members by the end of 2014.
Netflix however faces major challenges since it is quite pricey to license the content
and further expensive to produce the original content(Jenner2016). The company will also
have to ensure making deals for paying the internet bandwidth required by its service. In spite
of everything, the powerful brand equity gives the company an edge over the others.
4.3 The Future of Netflix
In future, Netflix is planning to spend on a program spree that’s original. In addition
to shelling out on big budget movies or favorite retreats of fans, the company is planning to

11STRATEGY AND CASE ANALYSIS
pick up a dozen anime series(Kovalick 2016). This is a major step on the part of the company
and is a major step towards global expansion.
Flooding in the Zone:
Compared to the previous years the company have plans of spending around $6billion
in the coming years(Halal2013). This would help in making life so much simpler. There
would also be a jigsaw map putting the regional licensing deals forward that would help in
governing the anime offerings of the company. The company also made sure that in future
when the contract of a program ran itscourse in Netflix then it would disappear regardless of
watching.
Ensuring a Global Appeal:
In future, the country plans to make a global appeal. One step towards it was its
flamboyant announcements of the adoption of program related anime in Japan that helped in
creating ripples around the globe since the company targeted on making country specific
shows(Baka2016). Netflix also targets in streaming shows that the entire world plans to
watch. In ensuring this, the company ensures operation out of a black box.
Trying to be Cheaper:
The company had nearly $ 20 billion debt and liabilities therefore the company will
try to seek out means that will ensure less expensive means of production (Cade, Koonceand
Ikuta2017). Otherwise, a single season of a program known as the House of Cards would cost
around $100 million for production.
5. Conclusion

12STRATEGY AND CASE ANALYSIS
The report ends by throwing a light on the future of Netflix. The report discusses
about rise of Netflix after its debacle on declaration of separate website dedicated to only
DVDs known as Qwickster. The report also throws a light on the fact on whether the Netflix
will be able to maintain its dominant position. There is also discussion on how innovation,
pricing strategy, changing technology and online operation worked in favor of the Netflix and
helped the company in moving ahead of Blockbuster. The report gives an overview on both
Netflix and Blockbuster.

13STRATEGY AND CASE ANALYSIS
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