University Case Study: Netflix's Strategic Triumph Over Blockbuster

This case study analyzes the contrasting business strategies of Netflix and Blockbuster, examining how Netflix revolutionized the entertainment industry through technological advancements, innovative pricing models, and a shift to online streaming, ultimately leading to its dominance. The report details Blockbuster's reliance on retail outlets, its failure to adapt to changing consumer demands and technological shifts, and its eventual decline. It explores the impact of pricing strategies, the evolution of technology, and the difference between retail and online operations. The study also discusses Netflix's innovative approach to content production and its ability to maintain its position as a leading online video streaming provider. The analysis covers key decisions, market dynamics, and strategic moves that shaped the fate of both companies, providing insights into competitive advantage and the importance of adaptation in the business world.

Running head: CASE STUDY ANALYSIS
Case Study Analysis
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Table of Contents
Introduction......................................................................................................................................2
Institutional Background.................................................................................................................2
A brief history of Blockbuster.....................................................................................................2
A brief history of Netflix..............................................................................................................3
How Netflix beat Blockbuster..........................................................................................................4
The Changing Technology..........................................................................................................4
Retail outlets versus operating online..........................................................................................5
Pricing Strategies.........................................................................................................................6
Netflix’s Innovation.....................................................................................................................7
Will Netflix remain the dominant provider of online video streaming............................................9
Netflix Stumbles: The demise of Qwikster..................................................................................9
Netflix Rebuilds: The rise of original content............................................................................10
The future of Netflix...................................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

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Introduction
Business strategy plays a significant role for the business organizations as this determines
the success of the company in the competitive market. As commented by Verbeke (2013),
business strategy is defined as the choices about business positioning relative to competitors. As
the customers are easily bored with a similar trend, the demand, and expectation of the
customers’ changes. Therefore, the business organizations need to change their business strategy
in accordance with the present market and trend in order to sustain in the competitive market.
The modification and change in the business strategy provide an opportunity for the business
organizations to bring innovation to the existing business thereby, increasing the revenue.
The report is a case study analysis about the technological advancement and innovation
of Netflix and Blockbuster. The report also sheds light on the impact of changing technology,
pricing strategy and the difference between retail outlets and operating value. Additionally, the
report also discusses whether Netflix has the potential of being the dominating provider of online
streaming.
Institutional Background
A brief history of Blockbuster
During the 1980’s and 1990’s, Blockbuster dominated the US home video rental market.
Blockbuster is an American based company that provided video game rental services along with
home videos. The company was internationally popular throughout 1990. The company
established more than 9000 stores both nationally and internationally and had employees more
than 50,000 employees in the US and more than 25,000 employees internationally. The range of

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services provided by the Blockbuster includes VHS/DVD home video rentals along with video
streaming on demand. The company solely operated on retail shops. As a result, the customers
had to visit the retail shops in order to access the services offered by the company
(Blockbuster.com, 2017). However, competition from Netflix, Redbox resulted in the decreasing
demand of the company eventually shut down the majority of the stores in the US. In 2000, the
company started losing their popularity thereby, encountering a significant loss in the revenue.
The company filed for bankruptcy protection in 2010 after which the satellite television provider
Dish Network bought the remaining 1700 stores in the US (Blockbuster.com, 2017).
A brief history of Netflix
Netflix is an American entertainment company founded in August 1997. The range of
service offered by Netflix includes streaming media and video on demand. Due to similar service
providers in the US market, the company expanded their business into film and television
production. Initially, the business strategy of Netflix included renting and selling DVD. However,
considering the changing demands of the customers and the prevailing competition in the US
market, Netflix changed their business strategy by introducing media streaming simultaneously.
At the beginning, the company expanded the video streaming service to Canada but later the
service was operated in more than 190 countries (CNN, 2017).
In 2013, Netflix entered the content production industry by broadcasting their first series
“House of Cards”. Since then, the company has expanded their services to both films and
television series that have been hugely popular. Netflix has released more than 120 original series
or films only in 2016. Due to such innovative and a wide range of services, as of October 2017,
Netflix has an estimated 109.25 million subscribers globally out of which more than 50 million
belongs from the US (Netflix.com, 2017).

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How Netflix beat Blockbuster
The Changing Technology
In search of continuous improvement, Netflix emphasizes on incorporating new and
advanced technologies. Being one of the best Internet televisions Network in the world, Netflix
uses pen sources of technology. This is because the top priority of the company lies in providing
great quality of video streaming to the users with an internet connection. Netflix emphasizes
greatly on big data analytics that ensures different methods of improvement. Netflix uses the
most advanced technologies in terms of programming language and coding that provides high-
quality video streaming to the users. Netflix uses Java and Python in the backend and Javascript
in the frontend. Additionally, Netflix uses Node.js as the framework (Halal 2015).
With the aim of building different applications that are easily accessible to the users in a
variety of devices, Netflix also uses React and RxJS other than Node.js. This is because the
entertainment company visualizes in providing impeccable services to the customers. In order to
amuse the customers with flawless performance, Netflix uses Falcor – a Javascript library
developed by the company. The use of Falcor, the Javascript library helps in accomplishing
productive data fetching by enabling representation of accessing remote data sources in terms of
a domain pattern graph. Additionally, for scaling Node.js apps, Netflix implements Restify that
helps in effective monitoring. Netflix’s effort of continuously improving the RxJS needs to be
considered (Walker et al. 2017).
The main databases used by Netflix are Oracle, PostgreSQL, MySQL, and Cassandra.
Additionally, the most preferred database tool includes Atlas-DB. Netflix developed the Atlas-
DB with the aim of controlling dimensional time series data effectively. One of the significant

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function of Atlas-DB includes the ability of in-memory data storage thereby, enabling the
database tool to gather and report a huge amount of data in minimal time (Chopra et al. 2017).
Therefore, the continuously improving technology used by Netflix helped in overtaking the
entertainment industry internationally.
Retail outlets versus operating online
Blockbuster generally operated in retail stores that made it difficult for the target
customers to access according to their convenience. As a result, the customers were unable to
view the services and offers provided by Blockbuster without visiting their stores physically
(Kang, Tang and Fiore 2014). However, on the contrary, the CEO of Netflix predicted the
increase of internet among the population. Based on the upcoming trend and demand of the
customers, Netflix preferred operating mainly through online facility. As a result, Netflix has very
few outlets and warehouses thereby, becoming one of the virtual operating organizations. The
online operating service allowed the company to provide global access to the target customers
nationally and internationally (Cavusgil et al. 2014).
Operating through retail outlets hampered the flexibility and professionalism provided by
Blockbuster. On the other hand, the online operation used by Netflix improved the client service
through greater flexibility. The services provided by the company along with the charges offered
for the services were easily accessible by the customers. Additionally, being a virtual
organization allowed Netflix to provide access to the target customers according to their
convenience. The customers are able to compare the services and the prices offered by Netflix
before making any subscription. On the other hand, the company also informs the customers
about any changes instantly (Hill and Hill 2012).

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Operating online also provided an opportunity for Netflix to manage the business from
anywhere in the world that was less practiced by Blockbuster. As Blockbuster operated both
through retail and online, the company encountered issues in managing both the operations
effectively. However, on the contrary, as Netflix operated majorly through online services and
has very few outlets, managing business is comparatively much easier (Wakefield, Bayly and
Scollo 2014). Moreover, operating mainly as a virtual organization saved the costing of land, tax,
decoration, electricity for Netflix. Furthermore, operating as a virtual organization is also a
sustainable approach implemented by Netflix, as it saves paper (Varley 2014).
Pricing Strategies
Netflix has been successful in overtaking Blockbuster in terms of the pricing strategy
implemented by the company. Blockbuster charged $5 per movie and the target customers did
not prefer the late returns that were frequently practiced by Blockbuster. In order to avoid the
mistake, Netflix developed the pricing strategy of a monthly subscription. Due to the
implementation of the monthly subscription, Netflix was able to offer unlimited rentals to the
target customers along with avoiding late fees. Therefore, the pricing strategy developed by
Netflix emphasized on providing convenient service rather than renting movies. Therefore, to
make the customers easily order for movies online, Netflix developed the best software in the
industry (Nagle, Hogan and Zale 2016).
Netflix offers unlimited online video streaming for only $7.99 whereas Blockbuster
charges $9.99 for video streaming. For $7.99, Netflix offers unlimited TV shows and movies
with a membership option or using the unlimited one-disc at a time rental service for $11.99 for
2 unlimited. Additionally, Netflix also offers the $15.98 per month for opting unlimited video
streaming and one-disc rental. Netflix also offers the access to Blu-ray discs with additional

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charges of $2 per month. However, on the contrary, Blockbuster charges $2.99-$3.99 per rentals
and $9.99 for one disc rental and $14.99 for two discs. Therefore, the price offered by Netflix is
affordable compared to Blockbuster thereby, making it preferable within the entertainment
industry (Xu, Frankwick and Ramirez 2016).
In spite of increasing the price of the services offered by Netflix, they are also increasing
the number and quality of the services. Netflix entered the US market with an innovative product
and an innovative pricing strategy. The implementation of flat subscription fee by Netflix rather
than penalty pricing strategy by Blockbuster allowed Netflix to overtake the entertainment
market. According to the CEO of Netflix, the short-term loss incurred by Netflix due to the
cancellation of subscription does not need consideration in order to consider the long-term
benefit by the new subscribers that do not prefer DVD-by-mail option (Adhikari et al. 2012).
Netflix’s Innovation
Initially, Netflix used postal service in order to distribute DVD that questioned the
survival of the company in the competitive market. However, the founder of Netflix soon
predicted that renting video cassettes would soon be out of trend. The success of Netflix is due to
exceptional leadership along with the understanding of technology within the founder of Netflix.
Initially, Netflix used to stream movies on a television box that required 16 hours of downloading
time. Even Blockbuster was aware of the fact that renting video cassettes were soon outdated but
were unable to develop the business strategy accordingly. In spite of foreseeing the impact of
technology, Blockbuster increased the number of stores into outlets for books, toys and other
merchandise (Gomez-Uribe and Hunt 2016). The founder of Netflix saw that better video
compression and faster internet connectivity facilitated the use of YouTube largely. It was then
when the founder of Netflix decided to change DVD rental business to video streaming. This is

8CASE STUDY ANALYSIS
because developing a box was a limiting factor and that an open-source approach would provide
an opportunity to Netflix to distribute movies in almost any device. Additionally, in order to
increase the acceptance of the new service provided by the target customers, Netflix gave away
streaming movies thereby, making it easy (Villarroel, Taylor and Tucci 2013).
Another innovation used by Netflix to overtake Blockbuster is to avoid the burden of
operating retail outlets. Blockbuster majorly operated on retail stores due to which the customers
were not allowed to access the services according to their convenience. Additionally, the burden
of operating the retail stores added to the bankruptcy of the company. Considering the results,
Netflix decided to operate majorly through online services. The company had very few
warehouses and offices thereby, becoming a virtual organization with absolutely no employees
and retail stores. This allowed the customers to access the services offered by Netflix according
to their convenience without being present physically (Euchner and Ganguly 2014).

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Figure 1: Netflix vs. Blockbuster
(Source: Abraham 2013)
Will Netflix remain the dominant provider of online video streaming
Netflix Stumbles: The demise of Qwikster
After successful establishment of Netflix in the entertainment industry, the company
announced that they would operate DVD-by-mail and video streaming business separately. This
gave rise to Qwikster that would solely conduct the DVD-by-Mail service of Netflix. Qwikster
by Netflix failed to make a mark in the entertainment industry due to a variety of reasons. In
order to sustain in the competitive market, video games were also included within Qwikster by
the CEO. Therefore, the inclusion of video games resulted in price hike that is considered as one
of the reasons of the failure of Qwikster. This is because the users would not get both DVDs and
video games simultaneously upon joining Qwikster. The customers did not prefer to pay
additional charges for video games thereby, decreasing the popularity of the website (Bailey
2016).
Another major reason for the demise of Qwikster is that both Netflix and Qwikster had
distinct websites as well as credit charges. According to the CEO of Netflix, having separate
websites for Qwikster and Netflix would provide an opportunity to ensure equal attention.
Therefore, providing better attention to both Netflix and Qwikster will help in improving both the
services. However, things did not go the way predicted by the CEO of the company. On the
contrary, having two separate websites made it more complex and difficult both for the
customers and for the company. Due to separate websites, the customers had to create two
distinct accounts and passwords. For example, if a user was unable to stream their title, they

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would have to make a Qwikster account in order to get the title on the DVD. The customers did
not prefer such complexity thereby, resulting in the demise of Qwikster so quickly (Bowers, Hall
and Srinivisan 2017). Additionally, Qwikster would enforce the Netflix users with combined
streaming and DVD subscriptions to create separate accounts for availing the services. However,
the users were unable to access the websites simultaneously. This suggested separate bills,
ratings, and preferences for the users despite being owned by the same company. The users did
not find it justified to pay twice for the services offered by the same company thereby,
decreasing the use of Qwikster (Ryan 2013).
The name Qwikster also did not go in the favour of the company, as it was extremely
easy to misspell. Additionally, new users may not recognize that Qwikster and Netflix are owned
by the same company thereby, enforcing the users to select a completely different mailing
service. This resulted in losing millions of customers for Qwikster thereby, resulting in the
demise of the company. The services offered by Qwikster were less user-friendly compared to
Netflix. During splitting the websites of Netflix and Qwikster, Netflix still contained bigger
library than Qwikster.
Netflix Rebuilds: The rise of original content
After the failure of Qwikster, Netflix has developed the idea of original content in order to
rebuild and combat their loss. According to a survey, it has can see that original streaming is
gaining popularity and momentum in terms of video streaming. The opportunity of having access
to original content is enforcing the users to pay the subscription charges offered by Netflix.

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Figure 2: Increasing popularity of original Content from 2015-2017
(Source: Cook 2014)
According to the graph, it can be seen that the demand for original content has increased
over the years and has become a top priority for the streaming enthusiasts. Additionally, the
majority of the Netflix subscribers states the main reason for subscribing Netflix is original
content. By 2018, Netflix aim towards making its own library containing 50% original content by
spending an estimated $8 billion. As a part of the initiative, Netflix proposes the release of 30
new anime series along with nearly 80 new original films.
Figure 3: Netflix vs. Amazon original content