MNG932002 - Strategic Analysis: How Netflix Beat Blockbuster

This case study provides a strategic analysis of Netflix and Blockbuster, examining how Netflix, founded in 1997, surpassed Blockbuster, which dominated the home video rental market in the 80s and 90s. The report details the institutional background of both companies, highlighting Blockbuster's initial dominance and Netflix's emergence with a 'rental by mail' model and subsequent streaming services. It explores key factors in Netflix's success, including adapting to changing technology, operating online versus retail outlets, innovative pricing strategies, and continuous innovation. The analysis also covers Netflix's challenges, such as the Qwikster debacle, and its recovery through original content creation. Furthermore, the report discusses Netflix's current dominance in the online video streaming market and speculates on its future prospects, considering competition and evolving market dynamics. The case study uses strategic concepts from the textbook, focusing on technological diffusion, first-mover advantages, and innovation, to explain Netflix's strategic choices and actions.

Running Head: BUSINESS STRATEGY AND PLANNING 1
Strategy and Case Analysis: Netflix

BUSINESS STRATEGY AND PLANNING 2
Table of Contents
1. Introduction.........................................................................................................................................3
2. Institutional Background......................................................................................................................3
2.1 Brief History of Blockbuster...............................................................................................................3
2.2 Brief History of Netflix.................................................................................................................4
3. How Netflix Beat Blockbuster..............................................................................................................4
3.1 Changing Technology.........................................................................................................................5
3.2 Retail Outlets versus Operating Online..............................................................................................5
3.3 Pricing Strategies...............................................................................................................................6
3.4 Netflix Innovations.............................................................................................................................6
4. Netflix as a Dominant Provider of Online Video Streaming.................................................................7
4.1 Netflix Stumbles: The Demise of Qwikster.........................................................................................7
4.2 Netflix Rebuilds: The Rise of Original Content...................................................................................8
4.3 The Future of Netflix..........................................................................................................................9
5. Conclusion.........................................................................................................................................10
References.................................................................................................................................................11

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1. Introduction
Strategic analysis of an organization is a significant process for maintaining and improving its
position in the industry. It helps the company to understand different strategic aspects and adopt
effective strategies to gain competitive advantage against its competing brands. There are several
frameworks and tools such as PEST analysis, SWOT analysis etc. that can be used by the
organization to analyze the environment strategically (Grant, 2016). The main aim of this report
is to discuss the strategic analysis for case study Netflix and Blockbuster. Netflix is an US based
organization that offers television and movies by streaming online media and delivery by mail.
The report discusses about the history about both Blockbuster and Netflix. Furthermore, it
examines that how Netflix is able to beat Blockbuster via its effective strategies and technology
advancements. The last section of report analyzes about the dominance of Netflix in the sector of
online video streaming. After this analysis, it talks about the future of Netflix in online video
streaming industry.
2. Institutional Background
2.1 Brief History of Blockbuster
Blockbuster Inc. is a US based organization that provides entertainment services and offers video
games and home movie rental services through DVD mail delivery, media streaming, video
rental shops, on-demand video and cinema theatre. In the era of 90s, the company has become
internationally known. In 2000, it had offered acquisition to Netflix, but it had denied the offer.
Netflix is running its operations as the biggest rival of Blockbuster. After its establishment by
David Cook, the company has recruited more than 84,300 people across the world that include
around 58,500 from United States and 25000 from other countries. Now, the company is
operating its business through 9094 stores all over the world (Blockbuster, 2017). The
organization is facing various risks and challenges such as Redbox automated kiosks, on-demand
video services and competition threat from Netflix. These are the reasons behind the final demise
of Blockbuster. During 2000s, Blockbuster started to drop in its revenues and it demanded for
bankruptcy prevention.

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2.2 Brief History of Netflix
Netflix is also an America based firm that has started its operations in the year 1997 by Reed
Hastings and Marc Randolph. It is an entertainment service provider which was established in
Scotts Valley, California. The company provides different services which are related to
streaming video on media. It offers its customers different opportunities to stream the movie and
TV episodes via internet. In the starting phase, the model of Netflix included DVD rental and
sales. Though, Hastings unrestricted the sales of DVDs after a year of its foundation so that this
could emphasize on rental DVD delivery by mail. From past few years, the company is running
its business in foreign markets by providing more and better services than its competing brands.
Presently, it has its operations in over 190 nations and it has 109.25 million subscribers across
the world including 52.77 million in United States (Netflix, 2017). Along with the TV episodes
and range of movies, Netflix’s series is also available on the internet for its potential customers.
In today’s competitive business environment, Netflix is operating its business with the mission to
increase its subscriber base for video streaming in both national and international markets. For
this, it is continuously enhancing customer experience by increasing the range of its services. By
emphasizing on its mission and using effective strategies, Netflix wished to be one of the best
entertainment service providers globally. Additionally, it helps the content developers across the
world so that it can increase its customer base on international level. It adopts many corporate
and marketing strategies to generate more profits and revenues than its rivals (Netflix, 2017).
3. How Netflix Beat Blockbuster
From its establishment, Blockbuster Company had administrated the rental movie business for so
many years. In the year 2005, the value of organization was more than $8 billion. In the
meantime, Netflix began using postal service for the delivery of DVDs. By implementing
effective marketing strategies, it has been operating the business as an industry leader and soon
Blockbuster has sued for bankruptcy. In 2010, it had lost $518 billion and locked its stores. After
that, Netflix achieved 16 million subscribers by running its online video business (Sicoli, 2018).
Its effective leadership has enabled it to beat the blockbuster. The major factors behind this beat
are given below:

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3.1 Changing Technology
In the initial stage of Netflix’s operations, the organization was offering its targeted audiences
with the DVDs on demand. With the changes in the customers demand, the firm has
implemented more emerging and updated technologies its operations. The main factor behind
this business development is that Netflix’s managers came to understand that enhancing
technology can improve the delivery of rental movies and DVDs. It has formulated a technology
strategy which was implemented under different stages. Moreover, it has adopted the strategy of
internet and media streaming and virtual firm so the firm can provide its services inexpensively
and perfectly (Chopra, et al, 2017).
Considering the market environment, Netflix’s management has understood that content is very
unique and important. After understanding this, the company has altered its catalogues. By
making advancement in its technology, now organization is providing many versions of videos
and episodes that are most suitable for its subscribers. Another component of its technology was
to avoid the accountability of retail outlets by operating the online business. Thus, it has used
modern and updated technologies to provide satisfactory services to its subscribers. Moreover,
Netflix gathers the information base from its most watched movies and shows then it released a
list of viewers (Mcdonald, 2016). In this way, Netflix beat the Blockbuster as Blockbuster failed
to use modern technologies.
3.2 Retail Outlets versus Operating Online
Netflix is an online movie DVD rental organization so this has avoided its liability towards
physical stores and it has operated its business online only. The company has established few
warehouses and offices and it has become virtual firm with no physical stores and sales people.
Netflix believes that operating business through retail outlets as Blockbuster may limit the
business area range and its targeted population. This is the reason that it has implemented Open
Source Approach that allows Netflix to supply the movies on DVD players, mobile phones,
computers and TVs. Currently, the company is offering online streaming videos and DVD
through mails that differentiate it from rivals in the industry (Armstrong, et al, 2015).
Additionally, the delivery costs of DVDs are relatively higher in marketplace so people prefer to

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enjoy online videos. The online video offering has enabled the organization to gain more
customers than Blockbuster and it has become a leading player in entertainment service sector.
3.3 Pricing Strategies
As mentioned above, Netflix offers its products and services by two different modes i.e. DVD
via e-mail and online streaming videos. Although, it has confronted various problems but it is
able to overcome these issues by offered modern and exclusive services. In international
entertainment service industry and video streaming sector, Netflix has a leading position due to
its effective strategies. The pricing strategy of Netflix is one of the major attractions of its
entertainment services. It has affordable and attractive plans for its subscribers which help the
organization to entice more people (Gomez-Uribe and Hunt, 2015). It offers its services on
monthly subscription basis. There are three major plans through which company offers its
services. These plans are given below:
 For One title at a time: $8.99
 For two titles: $13.99
 For three titles: $16.99
All the above plans of Netflix allow its customers with the unlimited DVDs and video streaming
each month. In the case of rental movies, it does not charge additional for due dates and late
return. This strategy makes it different from local movie rentals. Blockbuster adopts outdated
pricing policy and it charges $5 per movie. The chief reason behind Blockbuster’s failure is that
its subscribers disliked the late fees charged by it (West, Ford and Ibrahim, 2015). The company
is continuously improving its pricing strategies.
3.4 Netflix Innovations
Innovation is the major focus of marketing strategy and business operations of Netflix. It has
used many innovative processes and techniques to improve its business. It is able to entice more
customers towards its products and services. In 2017, Netflix is ranked in the list of most
innovative firms worldwide. When the company had started its operations, it had used disruptive
innovation. To implement these innovative processes, the firm has focused on four components
such as start small, think big, scale fast and fail quickly (Abushova, Burova and Suloeva, 2016).
Through its advanced innovations, the company is able to win the sector of online streaming
videos. To deal with the competition, it has distributed a user interface guide and placed the

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poster images with preview of videos. The video preview automatically plays when any visitor
scrolls over title card of DVD. In entertainment industry, it is first company to deliver the DVDs
by mails. In addition to disruption, the company has implemented open innovation as well.
Netflix has made a huge investment in the innovation so that it can improve its technology and
business processes. Along with the movies and TV episodes, the company provides all the
information about a particular movie such as online trailers, reviews, critics, movie ratings from
viewers and synopses (Gandel, 2010).
Thus, these strategies and innovations have made Netflix better than its competing brands such
as Blockbuster.
4. Netflix as a Dominant Provider of Online Video Streaming
Netflix has started its business operations in 1997 and it has attained a better position in online
video streaming and entertainment market. In order to enhance its operations and processes, the
organization is continuously implementing innovative and effective strategies. This is the reason
that company is able to capture the entertainment industry. Apart from this, Blockbuster is
another major player that has its operations in the same industry. As compared to Netflix,
Blockbuster is charging additional fees from viewers on late return of rental movies. To compete
with this, Netflix has reduced the rates of its plans. Currently, Blockbuster is facing the issue of
bankruptcy. At that time, Netflix used effective strategies and tactics and it is able to capture a
larger market share in the industry. In this way, Netflix has dominated the online video streaming
and entertainment service sector (Cook, 2014). Apart from Blockbuster, Netflix has other
competitors also such as Television Stations, Kiosk Machine services, cable service providers
etc. By looking at the intense competition in market, Netflix has adopted effective pricing
policies and advanced technologies. It helped the company to gain the dominant position in the
online video streaming market. One of the critical success factors of Netflix is that it is
emphasized on its current business rather than expanding the business in new services. It allows
the company to dominate the online video streamlining and entertainment service industry.
4.1 Netflix Stumbles: The Demise of Qwikster
After experiencing significant growth through its business activities and operations, Netflix had
launched its new subsidiary in 2011 i.e. Qwikster. Through this subsidiary, the company has

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introduced its intentions to rebrand and redesign its DVD Home Media rental services. Qwikster
was an autonomous subsidiary which separated different services i.e. DVD rental services and
video streaming. It was DVD by mail facility that included video games as well. The company
had made different websites for Qwikster and Netflix, as the head of company thought that it will
enable them to provide equal consideration to improve both services (Gandel, 2010). However,
this company made sincere efforts to introduce this new service but this had adverse impact on
company. It did not work in the favor of Netflix. There were many reasons which have affected
introduction of this subsidiary like website split, change in the names, increase in services prices
etc. This new subsidiary i.e. Qwikster influences the viewers of Netflix to use the DVD
subscription and forces them to create different account for managing them. It was not able to
associate both of its websites in any way such as bills, separate ratings, separate preferences for
Netflix and Qwikster, despite held by same company. Netflix Organization has confronted the
Qwikster’s demise as new viewers failed to recognize that both of the firms are owned by similar
company (Indiviglio, 2011). In this way, it is the main reason which forced its subscribers to
choose a different service and it led the Netflix to lose millions of its customers. Thus, the
Qwikster was failed due to above reasons which affected the growth of business in the
perspective industry.
4.2 Netflix Rebuilds: The Rise of Original Content
After facing the demise of Qwikster, Netflix has made efforts to regain its customer base and
strategic position in the industry. Considering this, the company has entered in the business of
content development and launched its first series i.e. House of Cards. After Qwikster’s failure,
this new service assisted the firm to rebuild its position. It has considerably extended its business
in the production of film and television series and it is providing the “Netflix Original” content
through internet library of films and television. Till 2016, the company has launched
approximately 126 series and films that are better than other network and cable channel. It is
making more investment on original content development than other players in the same industry
like Hulu and Amazon.com. As per the study of 2015-2017, the significance of real content was
enhanced (McLean, 2018). In this period, this business has attained more awareness among
customers like a main reason to pay for online video. This company works as balancing service
to pay for the TV packages as it allows the subscribers to watch the content that is free from ads.

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In the year 2017, Netflix has made investment of $7 billion in content development services that
were more than last year’s fund (Tryon, 2013). In order to entice more viewers, the organization
has emphasized on enhancing its marketing efforts and investment of content designing. In this
way, it is totally focused on new content creation and catalogue so that it can create a large
customer base. By analyzing the situation of Netflix, it can be stated that there is no room for
development of other contents such as news, sports, music and human-generated data, but still it
prepare effective and better content in pay-per-view and DVDs. Thus, this expansion in the
business of Netflix assisted the company to rebuild its brand image and regain the revenues after
Qwikster’s failure (Walker, 2016).
4.3 The Future of Netflix
As mentioned above, Netflix is at the top position in entertainment and online video streaming
industry. Past records and position of the company shows that future of company will be brighter
than other competing brands i.e. Amazon.com, Kisok and Hulu. There are various factors that
are changing with the time like changes in lifestyle and status, affordability, convenience,
customer behaviors and changes in people’s interests. If the company focuses on these factors
positively, it can lead it towards future growth and success. Based on the above evaluation, it can
be said that Netflix is on good position in online streaming video and entertainment service
sector. Furthermore, it implements various impactful strategies and tactics which will assist the
organization to become a leader in this industry (Barney, 2014). The major components of this
strategy are:
 Company provides its customers with an extensive range of DVD titles.
 Buying original content by developing and maintaining beneficial relationships with the
video service providers.
 It is offering its users an alternative to watch online streaming video and original content
of quick delivery of DVD via mails.
 It makes it very easy for its subscribers to choose the movies that they like to watch.
 Making investment on marketing to attract more people towards its products and
services.
 It is developing brand awareness about the services of Netflix (Gilligan and Wilson,
2012).

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These are the major components which are the reasons behind the growth of Netflix over its
competing brands. The company confronts immense competition from its competitors like
Blockbuster because this offers the services like Netflix. In the future, the company will be able
to attract the customers due to its innovative and unique strategies. On the other hand, Netflix’s
business model requires high speed of internet to run its videos but still the company has the
ability to attract the subscribers because internet costs are decreasing. By considering different
factors, it can be stated about Netflix that company will experience a considerable growth in the
duration of next five years. It can be forecasted that the company will be able to attain the
customer base of 80 million from foreign countries and produce approximately 7 billion
revenues by 2020. This growth of company is a sign that it is directed in correct direction. It will
be not only getting more visitors every year but they will be able to retain them. The company
attains this growth and development due to its reasonable pricing strategy (Peteraf, Gamble, and
Thompson, 2014). Therefore, the firm will be able to enhance its financial performance in the
future.
In the coming future, the organization needs to improve and make advancements so that it can
attain its business objectives. In addition to online services, it should establish its physical stores
and kiosks where customers can have free access with their card. In this way, Netflix is
dominating the video streaming industry and it will dominate in the future as well.
5. Conclusion
From the above analysis, it can be concluded that Netflix is one of the fastest growing company
in online video streaming and entertainment industry. It offers its services very effectively so that
it can attain its customers for longer time. Operating the business as a leader in the industry, the
company is facing some issues like competition, increase in marketing costs, new purchase
expenses etc. The company can overcome these challenges and issues by applying more effective
strategies to attract customers towards its products and services. The above report indicates that
company is able to beat its largest competitor i.e. Blockbuster. The company is able to overcome
the issue of Qwikster’s demise by introducing original content development services. Currently,
Netflix has dominant position in the industry and it will face significant growth in the future as
well.

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