Netflix vs Blockbuster: Strategic Choice, Action & Innovation

This case study report analyzes the strategic battle between Blockbuster and Netflix, highlighting how Netflix leveraged changing technology, online operations, innovative pricing, and original content to surpass Blockbuster's dominance in the home video rental market. The report details the institutional backgrounds of both companies, emphasizing Blockbuster's initial success with physical retail and Netflix's disruptive 'rental by mail' model that evolved into online streaming. It examines Netflix's strategic choices, including embracing technological advancements, operating online, implementing competitive pricing strategies, and continuously innovating its services. The case study also addresses Netflix's challenges, such as the Qwikster debacle, and its subsequent recovery through a focus on original content. Ultimately, the report considers Netflix's future prospects as a dominant online video streaming provider, concluding that its commitment to innovation and customer-centric strategies positions it for continued success.

Running Head: Blockbuster and Netflix 1
Case Study Analysis

Blockbuster and Netflix 2
Contents
Introduction.................................................................................................................................................3
Institutional Background..............................................................................................................................4
2.1. A brief history of Blockbuster...........................................................................................................4
Netflix beat Blockbuster..............................................................................................................................4
3.1. Changing technology........................................................................................................................4
3.2. Retail outlets versus operating online..............................................................................................4
3.3. Pricing strategies...............................................................................................................................4
3.4. Netflix’s innovations.........................................................................................................................4
Will Netflix remain the dominant provider of online video streaming?.......................................................4
4.1. Netflix stumbles: The demise of Qwikster........................................................................................4
4.2. Netflix rebuilds: The rise of original content....................................................................................4
4.3. The future of Netflix.........................................................................................................................4
Conclusion...................................................................................................................................................5
References...................................................................................................................................................6

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Introduction
Entertainment is significant as it brings people jointly and is a good way for the complete family
to bond. It deflects people's attention from their challenging lives and entertains them
in their spare time. The report is based on the case study in which the Blockbuster and Netflix
are emphasized to make a better understanding of the entire concept of the case study. Netflix
has a strong business model to beat its competitor Blockbuster (Adhikari, et. al., 2012). The
depth information will be elaborated under this report to evaluate that how Netflix beat
blockbuster in which the discussion will be made on the changing technology, Retail outlets
versus operating online, pricing strategies and the Netflix’s innovations. It is vital for the
company to adopt the latest strategy to beat competitors and in such case; Netflix has adopted
them to fight against its competitors and got succeeded. The future of Netflix will be described in
this report by analyzing the current situation of the company. At last, the conclusion will be
drawn in a significant manner to define what has been done in the report and to give a brief
summary of the entire concept of the report.

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Institutional Background
The Institutional background of both company are defined below which will be helpful to create
better understanding about the process of both company.
2.1. A brief history of Blockbuster
The early beginning of Blockbuster can be outlined back to another company like Cook Data
Services. This company was founded in 1978 and the primary aim of the company was to
provide software services to the gas and oil industries right through Texas. This goal was not
very successful and David switched in the video business. The first blockbuster store was
initiated in 1985 in Texas, with a list of 8,000 VHS and 2,000 Beta tapes. The experience of
Cook regarding managing the databases proved useful in driving innovation within the industry.
After that, Blockbuster builds around$6-million warehouse in Garland, Texas, to sustain in
future growth that permitted new stores to initiate in quick manner (Davis and Higgins, 2013). In
1998, DEJ Production has been created by Blockbuster which was able to acquire 225 films
primarily to give exclusive content to the stores of Blockbuster. Along with that the company
had bought Irish Video rental store “Xtra Vision”. Carl Icahn was billionaire and in 2004, the
first investment is done by him in Blockbuster, purchasing 5.8% of the Class A share of the
company for $83.8 million (Mitchelldyer, 2011). The company had to face huge loss due to
entrance of strong competitors with latest technology. It has been found from 2003 to 2005,
company lost around 75% of its market value as competition amplifies from the likes of Redbox
and Netflix.
2.2. A brief history of Netflix

Blockbuster and Netflix 5
Netflix is an American entertainment company which Headquartered is situated in California.
The company was founded in 1997 by Marc Randolph and Reed Hastings. There was $2.5
million invested in start-up of the company and in 1999, company was introduced the monthly
subscription concept and this tactic was drooped down in 2000. The company image was good
due to make its reputation on the business model of flat-fee unlimited rentals without due dates,
shipping and handling fees and late fees. It has been found that when the company has about
300,000 subscribers and responsible on the postal services of U.S. for the delivery of their
services, they were lost money and offered to be obtained by Blockbuster for $50 million. The
offer was declined because they proposed that Netflix would handle the online business and rest
work of taking care of DVDs would be handled by Blockbuster. Netflix has huge existence in the
internet entertainment service as it has 125 million memberships in over 190 countries (Jenner,
2016). The services of Netflix is different from other entertainment services as it provides TV
series, documentaries and features films across a huge range of languages and genres. It allows
its members to watch what they want as much as they desire, anywhere, anytime. The current
position of the company is huge as it covers huge market of entertainment and earns huge range
of revenues in comparison of other companies (Teece, 2010).
Netflix beat Blockbuster
Netflix has covered huge market of entertainment and spoiled the business of its competitor
Blockbuster. The way of how Netflix beat Blockbuster is defined below:
3.1. Changing technology
The role of technology plays a significant role in not only entertainment industry but also all
industry of the world. Changing in Technology is the major reason behind failing of Blockbuster

Blockbuster and Netflix 6
as Netflix has feature of updating with the latest technology to compete in competitive
advantages. Netflix adopted good leadership to go with latest structure but fundamentally it was
done because of better understanding of the executives of Netflix. The role of Hasting (founder)
was huge in making changes in the structure of the company as he developed a proper strategy of
internet streaming, a virtual organization and convenient customer service to provide it
flawlessly and cheaply. Reed was active to adopt the latest technology and just because of his
efforts the industry has changed entirely with the latest technology (Porter, 2008).
The important part of Netflix’s strategy of technology was to keep away from of retail outlets by
functioning online. Due to adoption of latest technology, the company has become a virtual
organization as they did not have a lot of warehouses and offices. On the other hand, Blockbuster
avoids adopting latest technology and got bankrupted in maintaining the old strategy. At last,
Netflix developed on Blockbuster’s lackluster service and outdated pricing (Halal, 2009). It has
been found that Blockbuster charged certain amount on each show and movie and in such case
the customers of that company are hated the fees for late returns. That is why; Hastings adopted a
monthly subscription that permits limitless rentals and no late fees. The main focus of the
company was on offering a convenient service (Bell and Koren, 2007).
3.2. Retail outlets versus operating online
Retail outlets sell several products by physical locations such as store or chains of stores.
Usually, the advertisement on television, billboard and newspaper are encouraged by retail
outlets to increase the sale of the services of the company. On the other hand, operating online is
less costly in comparison of retail outlet and the target market of online stores is huge in
comparison of them. The Blockbuster is retail outlet while Netflix is operating its operation via

Blockbuster and Netflix 7
online store and provide the entertainment services to the customers by its application and online
approaches (Koren, 2009). The technology has become advanced and people prefer to have
application in their phone to watch TV show, movie and other entertainment things. These
facilities are provided by Netflix to the customers through its application which can be
downloaded by the customers in easy subscription in their mobile as well as computers. It has
been found that Netflix has started new pricing plans and is turning off its DVD by mail program
in to a specific company which is known as Qwikster. In the context of change Blockbuster
offers the exchange opportunities of videos and DVDs in-store exchange which become the
major reason of failure of it.
3.3. Pricing strategies
The component of price is important for getting success in any industry. The pricing strategy of
Netflix is affordable by the customers in which they provide best quality in the services. Netflix
Online cost is $7.99 and Netflix by mail is $7.99 $11.99/$15.99. On the other hand Blockbuster
costs $9.99/$14.99/$19.99 for movie which is quite high price in comparison of Netflix (Guina,
2017). It is the major reason why Netflix overcome the customers of Blockbuster. The main
feature of Netflix is that it provides the facilities of its customer to get online video and movie
without going anywhere while the customers of Blockbuster need to go store for getting DVD.
The price is cheaper of Netflix in comparison of Blockbuster that is why the customer prefers
Netflix as they get in more advanced shows and series in cheap cost (Gomez-Uribe and Hunt,
2016).

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3.4. Netflix’s innovations
The innovation strategy is adopted by Netflix is unique strategy by which the company deployed
to reach 90 million worldwide subscribers. “Conglomerated niche” strategies are adopted by
Netflix as it facilitates in developing the programs for a different audience interests (Summers,
Brecht, Eager and Gutarin, 2016). These entail thorny serial dramas such as House of cards,
action series like Daredevil, horror series such as Hemlock Grove and private films starring a
well-known actor such as Adam Sandler (Bessen and Meurer, 2008). There is number of
subscribers of Netflix who might not even idea how many shows Netflix offers since the
subscriber of the company is not revealed to programs that they most likely would not be
interested in (Pisano, 2015).
Will Netflix remain the dominant provider of online video streaming?
Yes, Netflix remains the dominant provider of online video streaming.
4.1. Netflix stumbles: The demise of Qwikster
The company had decided to divide its entities into two parts such as DVD by email and
streaming businesses in which Netflix was continued to stream and Qwikster was born to
conduct its mail services (Indiviglio, 2011. The company had lost its lot of members due to this
idea as it was not success to attract the customers. This plan and strategy of Netflix got negative
criticism and publicity and company had to announce after losing huge range of subscribers that
they would be no longer divided its services in two entities. The company change the strategy
without evaluating the desires of the customers and increased the price of DVD on Qwikster in
which it has been found that Qwikster was not the solution subscribers were looking for. The

Blockbuster and Netflix 9
company should have announced the price hike within a price and services should have split
instead of company. However, the services were entirely owned by a company with the name of
DVD. Com.
4.2. Netflix rebuilds: The rise of original content
After the failure of Qwikster, Netflix started to keep focus on the original content and rebuild its
structure in an efficient manner. Original content is more of a priority for streaming enthusiasts
that is respondents who pay for more than three streaming services. The customers of Netflix are
connected with the company as it provides original content such as Netflix rebuilds initially with
House of Cards in which 65 episodes are included in the series (Ellingson, 2018). The company
is provided original content for audience as per their interest in which for them who like action
series, company made original content Daredevil for them. Along with that horror series has
been made by company such as Hemlock Grove. It is apparent that the original content of the
company has huge responsible for the growth of the company. The company has started to keep
spending on original context as it develops more than million customers and subscribers. It has
been found that the company got 20 Emmy awards this year and this is possible due to its
contribution in original content. Shows such as “The Crown,” “Master of None” and “Stranger
Things” are hard to get new users too high up to the service. As per earning report of the
company, it has been found that the company wanted to spend around $8 billion on original
content. It would be helpful for them to increase the growth of the company in a more significant
manner ((Adhikari, et. al., 2012).

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4.3. The future of Netflix
The future of Netflix is bright as it provides number of services to the customers for
entertainment in which they categories the demand of the customers in a significant manner. it
has showed that the company evaluate the market in an effective manner. There are three reasons
of sustainability of Netflix in Future. These are defined below:
Convenience
Netflix is provided the convenience facilities to its customers to watch series, shows, programs
and other entertainment series. It has been found that viewers do not have time to watch
television through traditional broadcaster schedules. It is not possible for them to time shift
because of watching the show. Scheduled TC shows can be missed by the viewer and they can
miss watching the show due to some urgent work of busy schedule. Netflix provides the facilities
to the customers to watch wither a single episode or an entire season in one sitting (Rao, et. al.,
2011).
Cost
Generally, it is less expensive for the viewers to subscribe to several SVOD services in
comparison of signing an agreement for basic cable. It has been found that Netflix subscription
can be found in every fourth household in the United States. It is the major reason that people
will prefer more to have. Along with that, the company should focus on the online store of series
in one dongle which will increase the acceptance of Netflix in the more generic way and
company can cover those areas as well that has been left to be covered (Dolata, 2017).
Content

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The original content of Netflix is the major reason for switching away from traditional cable
television (Nilles, 2018). The future of the company can be more bright if company start to focus
on developing the country for emerging economies. Emerging economies are getting on broad
content creators and producing shows to leverage the growing audience of the emerging
economies.

Blockbuster and Netflix 12
Conclusion
It can be concluded that the Netflix is world’s leading entertainment services that attract million
of people towards it. The report has been made on the success of Netflix that defeated
Blockbuster and it has been evaluated that Netflix has a strong business model to beat its
competitor Blockbuster. It has been evaluated through this report that the price is cheaper of
Netflix in comparison of Blockbuster that is why the customer prefers Netflix as they get in more
advanced shows and series at cheap cost. The reasons behind the failure of Blockbuster was due
to the entrance of Netflix has been elaborated in a significant manner in which it has been
cleared that the innovation strategy of Netflix is more advanced in comparison of Blockbuster. It
has been found that Qwikster was a very bad idea by Netflix that divided the business into two
entities which were not been adopted by the customers. The company is provided a number of
services to the customers at an affordable rate with original content which is responsible to
increase the demand of it in the entertainment market.

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