Netflix vs Blockbuster – 3 Key Takeaways

netflix blockbuster case study

It’s the ultimate example of technology disrupting a marketplace…

Or is it really the story of a leadership shakeup that toppled an empire?

Or is it a story about the extreme hatred people have for late fees?

The Netflix vs. Blockbuster saga has been told a dozen different ways, with a dozen different lenses applied.

And what I’ve come to realize (and this likely won’t come as a huge surprise)is that there’s no single explanation for why Netflix succeeded where Blockbuster failed.

As is the case with most things in life, it was a nuanced situation. There was a perfect storm of poor decisions and technological advances and other contributing factors that led to Netflix’s staggering growth…and Blockbuster’s equally staggering decline (when Blockbuster filed for bankruptcy in 2010, Netflix’s annual net income was $161 million .)

My goal with this post is to distill everything I’ve learned about these two companies down into a few actionable takeaways for marketers – sort of like this post on Zoom’s success story .

But first, for those who aren’t familiar with how the Blockbuster vs. Netflix story unfolded, here’s a short summary:

The Rise of Netflix (and the Fall of Blockbuster)

When Netflix launched in 1997, Blockbuster was the undisputed champion of the video rental industry.

Between 1985 and 1992, the brick-and-mortar rental chain grew from its first location (in Dallas, Texas) to more than 2,800 locations around the world.

Two years later, Viacom paid $8.4 billion to acquire Blockbuster .

netflix blockbuster case study

So by the time Netflix showed up on the scene with its video rental-by-mail service, it appeared to be a classic case of David vs. Goliath.

In fact, in the year 2000 –perhaps realizing that it’d be easier to fight alongside Blockbuster than against them – Netflix co-founder and CEO Reed Hastings approached Blockbuster’s then CEO, John Antioco, with a merger proposal:

Hastings wanted $50 million for Netflix. And as part of the deal, the Netflix team would run Blockbuster’s online brand.

Of course, that deal never materialized. Partly because Blockbuster laughed in Netflix’s face when they met to discuss the deal.

“It was tiny, involuntary, and vanished almost immediately. But as soon as I saw it, I knew what was happening: John Antioco was struggling not to laugh,” Netflix’s Marc Randolph remembers of the encounter.

At the time, Antioco considered Netflix to be small potatoes, and would come to realize only too late that having an online platform would be the way of the future.

In 1999, Netflix received backing from Groupe Arnault, giving them a $30 million cash injection that helped launch its subscription-based service.

In 2004, Blockbuster did launch a Netflix-like online DVD rental platform , and even abandoned their unpopular (but lucrative) late fees for overdue rentals.

By 2006, subscribers for Blockbuster’s online services had grown to more than 2 million. (Meanwhile, in that same year, the number of Netflix subscribers reached 6.3 million.)

Then in 2007, Antioco left Blockbuster, late fees were reinstated, and Blockbuster’s online efforts were put on the back burner.

In 2008, Netflix signed a deal with Starz to stream around 1,000 blockbuster movies and shows on its service.

Blockbuster’s fate was all but sealed.

In 2010, Netflix was signing deals with names like Sony, Paramount, Lionsgate, and Disney to help them grab a 20% market share of North American viewing traffic. On July 1st of the same year, Blockbuster was de-listed from the New York Stock Exchange and filed for bankruptcy having incurred nearly $1 billion in losses.

netflix blockbuster case study

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Netflix’s valuation at the time?

$24 million.

For comparison, today, Netflix is valued at around $203 billion – a 4,060% increase from its valuation back in 2000.

3 Takeaways from the Netflix vs. Blockbuster Battle

1. never forget what you’re really selling..

For years, Blockbuster dominated the video rental space. But at some point, they lost sight of what business they were really in.

Instead of focusing on delivering incredible (and affordable) entertainment to their customers – something Netflix definitely has down – Blockbuster put more stock in the model they were comfortable using.

And hey, who can blame them? Back before the internet became integrated into nearly every facet of our lives, it was hard to imagine brick-and-mortar Blockbuster stores disappearing.

Blockbuster initially succeeded because they did one core job better than anyone else: delivering entertainment to people’s homes.

But as we all know, technologies change. And instead of investing all of their efforts into finding a new way to deliver on their true purpose (more on that in the next section), Blockbuster’s innovation stagnated. That reality hit Netflix founder Marc Randolph when the business was pivoting from a Mail-order DVD service to online streaming.

He wrote in his book, That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea :

“We’d finally figured out a way to make our original idea of DVDs by mail work, and here we were, looking ahead to a future without either DVDs or mail.”

The way Netflix overcame its challenges? Keep reading 👇

2. You need to be willing to adapt. (And half measures won’t cut it.)

netflix blockbuster case study

1997 era Netflix–before the company embraced streaming

When you dig into the Netflix vs. Blockbuster story, it becomes clear that Blockbuster did (eventually) realize that the Netflix model was the future. And they did make changes to address it.

But in the end, it was too little, too late.

Blockbuster could never fully evolve into the modern business it needed to be in order to compete with Netflix. Once owning 9,000 stores in the US, Blockbuster now has a single brick-and-mortar presence – a lone store in Bend, Oregon .

netflix blockbuster case study

Sandi Harding, the owner of the single remaining Blockbuster store in the world. Source .

As Forbes reported:

“The irony is that Blockbuster failed because its leadership had built a well-oiled operational machine. It was a very tight network that could execute with extreme efficiency, but poorly suited to let in new information.”

Technologies improve. Industries change. In order to grow, you need to keep a pulse on the ever-evolving needs and preferences of your customers so you can make changes to your model accordingly.

London-based Video Producer Andy Ash says this was Blockbuster’s downfall. The company was too busy making money in their video stores to imagine a time when people would no longer want or need them.

“In a bid to rescue their business, their answer at the time was to fight fire with fire. At one point they even opened up rental kiosks, a little bit like a vending machine, but all of these attempts were based on either outdated technology or outdated business models, whereas Netflix at the time, they did the opposite; they streamlined, they were able to see the future of video rentals and then innovate for that future.”

This applies to products and services as well as to marketing strategies. Believe it or not, marketing channels have a shelf life.

So even if you learn how to dominate a specific channel , you need to remember that all channels, no matter how popular they are today, could someday fade into oblivion…just like brick-and-mortar Blockbuster locations did.

The key to surviving, and thriving?

Embrace change.

Blockbuster didn’t. Even in 2008, the company’s CEO, Jim Keyes , was perplexed by (or refused to accept) Netflix’s appeal to customers:

“I’ve been frankly confused by this fascination that everybody has with Netflix…Netflix doesn’t really have or do anything that we can’t or don’t already do ourselves.”

As Square2Marketing’s Mike Lieberman explains :

“Blockbuster didn’t believe a month-to-month subscription service would ever actually work. And it certainly wasn’t planning on going digital. Even when the company was offered a buyout deal early on, it declined, believing that its previous business revenue model would work just as well in the new wave of movie watching as it had in the past.”

3. The customer-driven approach always wins.

Customer-driven sales & marketing from drift.

As we’ve already established, there were several factors that contributed to the company’s downfall, including not understanding what business they were really in – entertainment, not retail – and not being flexible enough to adapt.

But another key piece of the puzzle was Blockbuster’s unwillingness to put their customers first. The company’s revenue relied (massively) on charging late fees. As David Reiss explains:

“Blockbuster’s profit had to be sufficient to sustain their worldwide stores and staffing levels. As well as their pricing structure reflecting this, their profit also relied on something their customers hated – late fees. A significant portion of the revenue that Blockbuster needed to stay in business was a revenue stream that Netflix didn’t even charge for, as you could keep their movies as long as you wanted. Whereas Netflix developed a business model that simplified the video-renting process, making it more enjoyable for customers, Blockbuster only thought about maximizing their own returns.”

Forbes described Blockbuster’s reliance on penalizing its patrons in the form of a late fee as the company’s “Achilles heel.” When Blockbuster did finally address the issue, the cost of dropping late fees from their model amounted to a loss of $200 million.

“Any time you can get rid of the No. 1 customer dissatisfaction factor and in the process generate higher customer traffic, for me, as a retailer, that spells a good answer,” CEO John Antioco said of the move at the time.

Narrator: it didn’t work.

At the same time, the company cut its late-fee revenue stream, it was building out its online platform cost another $200 million. If you add up these two costs, Blockbuster paid $400 million in an effort to modernize and remain competitive with Netflix.

We’ll never know if this plan would have succeeded. Shortly after this modernization effort, Antioco was ousted by the board after the changes were made.

Blockbuster then returned to their company-driven ways…and went bankrupt a few years later.

Final Thought: Change Is Inevitable

When I was a kid, getting to pick my own movie at Blockbuster was a rite of passage.

Every weekend, my siblings and I would pile into my dad’s car and make two stops. First, we marched into Blockbuster. Then it was over to the supermarket next door for snacks, soda, and frozen pizza. It was our little ritual.

But these days, the idea of going to a brick-and-mortar store to rent a video seems kind of crazy.

With the rise of Netflix, home entertainment became just a few clicks away. It’s become its own kind of ritual – for over 182 million paying members .

So the next time you think to yourself, “The way we do things now will never change,” remember the Netflix vs. Blockbuster saga and how an entire industry can become upended in just a few years.

Editor’s Note: This article was published in July 2017 and has been updated to reflect new information.

Want to drive Netflix-level growth for your business? Start here .

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netflix blockbuster case study

CEO Reed Hastings on how Netflix beat Blockbuster

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In early 2000, Netflix founders Reed Hastings and Marc Randolph offered to sell the company to Blockbuster for $50 million. Blockbuster turned them down. Eventually, Netflix triumphed over Blockbuster, popularized streaming, and forced the entertainment industry to adapt. Hastings credits much of this success to the company’s internal culture. For Hastings’ interview with “Marketplace’s” Kai Ryssdal, click here . The following is an excerpt from a new book Hastings co-wrote called “ No Rules Rules: Netflix and the Culture of Reinvention. ”

Reed Hastings: “Blockbuster is a thousand times our size,” I whispered to Marc Randolph as we stepped into a cavernous meeting room on the twenty-seventh floor of the Renaissance Tower in Dallas, Texas, early in 2000. These were the headquarters of Blockbuster, then a $6 billion giant that dominated the home entertainment business with almost nine thousand rental stores around the world.

The CEO of Blockbuster, John Antioco, who was reputed to be a skilled strategist aware that a ubiquitous, super-fast internet would upend the in- dustry, welcomed us graciously. Sporting a salt-and-pepper goatee and an expensive suit, he seemed completely relaxed.

By contrast, I was a nervous wreck. Marc and I had cofounded and now ran a tiny two-year-old start-up, which let people order DVDs on a website and receive them through the US Postal Service. We had one hundred employees and a mere three hundred thousand subscribers and were off to a rocky start. That year alone, our losses would total $57 million. Eager to make a deal, we’d worked for months just to get Antioco to respond to our calls.

netflix blockbuster case study

We all sat down around a massive glass table, and after a few minutes of small talk, Marc and I made our pitch. We suggested that Blockbuster purchase Netflix, and then we would develop and run as their online video rental arm. Antioco listened carefully, nodded his head frequently, and then asked, “How much would Blockbuster need to pay for Netflix?” When he heard our response—$50 million—he flatly declined. Marc and I left, crestfallen.

That night, when I got into bed and closed my eyes, I had this image of all sixty thousand Blockbuster employees erupting in laughter at the ridiculousness of our proposal. Of course, Antioco wasn’t interested. Why would a powerhouse like Blockbuster, with millions of customers, massive revenues, a talented CEO, and a brand synonymous with home movies, be interested in a flailing wannabe like Netflix? What did we possibly have to offer that they couldn’t do more effectively themselves?

But, little by little, the world changed and our business stayed on its feet and grew. In 2002, two years after that meeting, we took Netflix public. De- spite our growth, Blockbuster was still a hundred times larger than we were ($5 billion versus $50 million). Moreover, Blockbuster was owned by Viacom, which at that time was the most valuable media company in the world. Yet, by 2010, Blockbuster had declared bankruptcy. By 2019, only a single Blockbuster video store remained, in Bend, Oregon. Blockbuster had been unable to adapt from DVD rental to streaming.

The year 2019 was also noteworthy for Netflix. Our film Roma was nominated for best picture and won three Oscars, a great achievement for the director Alfonso Cuarón, which underscored the transformation of Netflix into a full-fledged entertainment company. Long ago, we had pivoted from our DVD-by-mail business to become not just an internet streaming service, with over 167 million subscribers in 190 countries, but a major producer of our own TV shows and movies around the world. We had the privilege of working with some of the world’s most talented creators, including Shonda Rhimes, Joel and Ethan Coen, and Martin Scorsese. We had introduced a new way for people to watch and enjoy great stories, which, in its best moments, broke down barriers and enriched lives.

I am often asked, “How did this happen? Why could Netflix repeatedly adapt but Blockbuster could not?” That day we went to Dallas, Blockbuster held all the aces. They had the brand, the power, the resources, and the vi- sion. Blockbuster had us beat hands down.

It was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. Our culture, which focused on achieving top performance with talent density and leading employees with context, not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us.

Netflix is different. We have a culture where No Rules Rules.

Excerpted from “No Rules Rules: Netflix and the Culture of Reinvention” by Reed Hastings and Erin Meyer, reprinted courtesy of Penguin Press. 

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Blockbuster: It’s Failure and Lessons to Digital Transformers

netflix blockbuster case study

Blockbuster, a wildly successful national movie-rental chain, filed for bankruptcy 6 years after achieving $6 billion dollars in revenue. Why did this happen and what lessons can we learn from it?

As a teenager growing up in America in the late 1990s/early 2000s, I was a frequent customer of Blockbuster – the largest movie rental retail chain with a strong brand and stores across the country. Its revenues impressively climbed to around $6 billion dollars in 2004 only to suffer a crashing descent into bankruptcy in 2010. [1] The reasons behind this failure reveal valuable lessons to future digital transformers and business leaders. I will first summarize the original business model in terms of value creation and value capture and then will offer an analysis of its failure with accompanying lessons.

Business Model

Value Creation

Blockbuster movie rental retail stores offered a wide selection of movies, but focused mainly on new releases. It’s 9,000 stores allowed customers to easily walk through aisles of movies advertised with their DVD cases in order to make a selection. [2] It built a strong brand with 100% recognition and attempted to offer a customer-friendly experience with movie popcorn, candy, and snacks also available for purchase. [3]

Pathways to a Just Digital Future

netflix blockbuster case study

Value Capture

Blockbuster captured value by owning physical copies of movies that could be rented enough times to exceed the cost of purchasing. It cost from $2-$5 typically to rent a film, new releases commanding higher prices than old films. Each time a customer rented a movie, they agreed to a time and day for return. Late fees, which comprised an estimated 70% of profits, were added to a customer’s account if they did not meet the return deadline. [3]

Why it failed?

After synthesizing analyses on its unraveling, I think these things most contributed to the failure:

  • They were making a lot of money : While Netflix was just beginning its DVD-by-mail service and later its streaming/online service, Blockbuster was still earning billions of dollars in revenue using its current model. Additionally, the margins and markets for these new offerings did not appear as attractive as its established model. [3] Why even pay attention to these new ideas if the markets are small and the margins slim?
  • Changing competitive landscape: Blockbuster was challenged not only by the startup Netflix, but also eventually by powerful technology companies (Apple and Amazon) and cable companies with streaming and video-on-demand services. It struggled to compete against both, especially when it was late to the game (see number 4 below).
  • Operating model implications: Pursuing a new business model with either a DVD-by-mail or streaming/online service required the current operating model to change significantly as Blockbuster would need to shift from its brick-and-mortar approach with retail stores to an entirely new way of functioning that was unknown. This only further encouraged Blockbuster to continue focusing on where it was still earning profit.
  • Failure to recognize timing: Blockbuster actually responded to all of its perceived competitive threats with similar models, but it was too late. It eventually tried a DVD-by-mail service, rental kiosks similar to Redbox, and put up its own website for online streaming after acquiring a smaller player in the field. [4] While Blockbuster’s CEO from 2007-2011, Jim Keyes, recognized that his organization was behind the curve in DVD-by-mail and kiosk services, he thought that they were not late to the streaming/online service world, and confidently stated that Blockbuster could leverage its strong brand to win:

In this industry, changes occur rapidly, and Blockbuster was left in the dust.

Lessons learned

Blockbuster’s demise offers many lessons. Here are some of the salient ones to me:

  • Currently unattractive opportunities can become very attractive opportunities in our changing world.
  • Current success is easily distracting and can blur vision when considering new opportunities or threats.
  • Transformation can happen very quickly, and if you miss it, it can be very unforgiving.
  • Brand strength and/or past successes are not enough to compete against new digital transformers.
  • It didn’t have to end this way – Blockbuster had a chance to purchase Netflix for $50 million  [5] and could have identified the streaming/online trend much earlier.






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Student comments on Blockbuster: It’s Failure and Lessons to Digital Transformers

Nicely summarized the battle between Blockbuster and Netflix Tyler! I agree to your assessment that in today’s dynamic digital age past success is no guarantee for future successes for established companies. Based on the Blockbuster-Netflix saga and other similar happenings in different industries what do you think can the big players do or adopt as a strategy to keep themselves from becoming irrelevant (since the new digital business model seems unlucrative to them in its infancy)?

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Winning the Customer Journey Battle: Netflix vs Blockbuster Case Study

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By   Stratability Academy

Published: April 25, 2019

Last Update: May 4, 2020

TOPICS:   Gameplans & Roadmaps , Operating Model , Service Design , Transformation

We know a brand has established a strong position in customers’ mind when its name becomes a verb, like Google, Uber, Skype. And one such brand that cannot be ignored in this digital age is Netflix. Netflix has come a long way, starting from an online DVD rental service to the world leader in the streaming industry. The company completely changed how people watched movies and, consequently, destroyed the throne of Blockbuster, once the giant brick and mortar video rental store in the U.S. Interestingly, in 2000, Blockbuster turned down the $50M offer to purchase Netflix, just to find itself decease under the reign of Netflix 10 years later. How did Netflix flip the table and nail the customer journey as of today? How did it master the art and science of digital transformation on its strategy journey?

Let’s explore what happened based on the pains and gains in the customer journey.

Blockbuster’s Customer J ourney

netflix blockbuster case study

Before Netflix, the age of Blockbuster…

Back to the late 20th century, when Netflix was just a small start-up, Blockbuster dominated the video rental industry with over 9,000 stores around the globe. With the emergence of DVDs as the new video medium, Blockbuster managed to get exclusive deals with big Hollywood studios to rent new DVD releases after cinema showings ended. At that time, almost every household had a videocassette recorder (VCR) for the purpose of video watching, and Blockbuster rental stores were people’s frequent destination for movie selections.

Then, at one point, people realized they went to Blockbuster stores not because they enjoyed the experience but just because it was the only choice for them to watch new movie releases. With that being said, Blockbuster store visits were far from convenience. Imagine one Sunday afternoon, your kids were home and you wanted to watch a movie with them. Then you would probably spend the next few hours driving them to a nearby Blockbuster store, going through hundreds, if not thousands, of DVDs on the shelves without a catalog or any recommendations from store attendants, except for the new releases which were charged out at a premium, getting eyestrain from reading the titles, and arguing with your kids what to watch. By the time you got home, you realized you had not cleaned up the VCR machine’s video head after the last watch, so you do that first, before sitting down on the couch to play the DVD you brought home earlier. How much enjoyment was left then? But it was not the whole story. After some days of watching the movie, you were too caught up in your work and forgot to return the DVD on time, thus you had to pay the store an exceptionally high late fee. In fact, late fees comprised of a large pie of Blockbuster profits. It was an unpleasant experience that actually drove people away from the business.

Netflix’s Digital Transformation Customer Journey

netflix blockbuster case study

Then Came Netflix – a Market Disruptor

As a former Blockbuster customer, Netflix CEO Reed Hastings thoroughly understood the issues with that customer journey, and he initially started Netflix as a mail-order DVD subscription service to eliminate the lengthy in-store visits and annoying late fees. To make up for the lack of physical customer interaction, Netflix offered lower prices (monthly subscription fees for unlimited rentals) and implemented efficient order-processing computer systems. After just a few years, from a small business, Netflix steadily grew its revenues and got Blockbuster on guard.

Nevertheless, it was when Netflix launched its video streaming service that saw the end of Blockbuster. Netflix, again, took a deep dive into the consumer journey and foresaw the future demands for instant-access entertainment at the convenience of Internet devices. With the new streaming service, Netflix customers could browse a detailed digital movie catalog and press play in a second with no need for a physical DVD. The streaming service of Netflix is so successful that it accounts for one-third of downstream Internet traffic during peak hours in the U.S.

In 2013, upon discovering the potential hype of binge-watching, Netflix started to produce in-house content, known at Netflix Originals, and released all the episodes at one time. Its first original series House of Cards still remains one of the best dramas on Netflix. Besides, Netflix took on customers’ desire for personalization and came up with the smart content recommendation system which was backed by machine learning. Each customer now has a customized experience on Netflix based on their personal habits and preferences. This is where Netflix built up its sticky service to get customers addicted and keep them coming back for more.

Netflix’s popularity can be exposed by impressive numbers: circa. 150M users, almost double the runner-up Amazon Prime; two-thirds of Netflix users share their accounts with others, increasing the actual viewers by 2.5 times; 10 hours spent on Netflix weekly by average U.S. users; 23 languages used and 57% of international users; etc… Considering the recent increase in the share of users outside the U.S., Netflix is drastically growing its international content in the library.

netflix blockbuster case study

And it gets that the customer journey doesn’t stop changing either. Netflix has been extending the customer journey via cross-platform partnerships. It has teamed with telecommunications and media companies like Vodafone, BT, and Sky in the UK, who all offer Netflix as part of their mobile or cell phone packages, or TV packages, and you can now control your Netflix accounts with voice-activated home automation IoT apps like Amazon Alexa, and Google Home. All of these customer journey extensions are there to save customers time and to provide convenience, and continue to provide better customer experiences.

Hasting could not have applied all of these digital transformation changes to the Netflix business model so successfully without closely following and predicting the customer journey and even testing with customers via co-creation. For a service company like Netflix, customer experience is king, thus the importance of the customer journey mapping process when it comes to lifting a business or an organization to another level, and changing the ‘game’.

Digital Transformation success through the customer journey

Netflix’s success results from the continuous effort of understanding the customer journey and delivering value driven; customer co-created; and network connected services; three digital transformation approaches introduced in THE STRATEGY JOURNEY Framework . The customer journey mapping process and digital transformation approaches, go hand in hand with each other, which explains the failure of Blockbuster to digitally transform due to its customer experience blind spot.

So when it comes to innovation and defining any new service, don’t forget to ‘map the customer journey ‘ as Reed Hastings and Netflix did.

Stratability Academy

About the author

Stratability Academy is a provider of strategic management, innovation and digital transformation learning materials based on the THE STRATEGY JOURNEY Framework , and is the publisher of THE STRATEGY JOURNEY book (2019) by Julie Choo and Graham Christison.

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Netflix didn't kill Blockbuster — how Netflix almost lost the movie rental wars

Ten years after Blockbuster filed for bankruptcy, the demise of the one-time movie rental giant has become the stuff of legend. 

The popular narrative typically casts Blockbuster as a lumbering, old giant with an outdated business model that was taken down by the upstart Netflix, a spritely tech start-up with the revolutionary foresight to see that the future of home entertainment was all online. Movie over. Cue the end credits and nostalgic news coverage of the world's last brick-and-mortar Blockbuster store (it's in Bend, Oregon).

But the truth is far from being so simple.

It's a topic that comes up in a recent episode of ReCode's podcast "Land of the Giants: The Netflix Effect," in which tech journalists Peter Kafka and Rani Molla discuss the fact that "Blockbuster … should have squashed Netflix." What happened instead was not so much that Netflix actually killed Blockbuster, but really that "Blockbuster killed Blockbuster," Kafka says on the podcast.

It may still be fair to see Netflix as the tech industry's David, laying waste to massive Blockbuster's Goliath. But it's also true that Dallas-based Blockbuster, which boasted 9,000 locations and $6 billion in annual revenue at the height of its powers, also dropped the ball — big time — despite seemingly having Netflix on the ropes only a few years before going bankrupt. 

Blockbuster laughed off Netflix

Blockbuster actually had plenty of chances to fend off Netflix's advances long before the tech start-up became the $213 billion Oscar- and Emmy-winning streaming behemoth it is today. 

In fact, Marc Randolph, who served as Netflix's first CEO (until 1999) after co-founding the company with current CEO Reed Hastings, tells CNBC Make It that many people do not realize "how close Blockbuster came to actually winning."

First of all, Blockbuster turned down a golden opportunity to end its rivalry with Netflix early in the game when Randolph and Hastings offered to sell Netflix to the video rental giant in 2000 for just $50 million. Instead of taking that offer, in which Hastings said that Netflix would essentially become Blockbuster's online business, Blockbuster basically "laughed us out of their office," former Netflix chief financial officer Barry McCarthy said in a 2008 interview .

Instead of making a deal, Randolph and Hastings left that meeting determined to knock Blockbuster off its perch.

Cramer on the streaming war: Netflix's algorithms are brilliant

Randolph admits that, at the time, big, well-established Blockbuster really held "almost all of the cards" in that negotiation. However Netflix did have a few advantages: "To start, everyone hated Blockbuster," Randolph wrote in his 2019 book about the founding of Netflix, called " That Will Never Work ." Many customers were fed up with aspects of Blockbuster's business model. For instance, in 2000, Blockbuster collected $800 million in late fees from customers.

In fact, Netflix's early success in adding subscribers hinged on luring away Blockbuster customers who were tired of being charged a dollar a day for late returns. (Hastings has even said he had the idea to start Netflix because he was irked by paying $40 in Blockbuster late fees .) Netflix offered DVD rentals by mail and at a flat rate with no late fees.

As a result, Netflix topped 1 million subscribers within three years of being rebuffed by Blockbuster, and 6 million by the end of 2006. 

Blockbuster makes up ground

Eventually, Blockbuster and CEO Antioco realized that Netflix was onto something. In 2004, a year in which Netflix's annual revenue hit $500 million , Blockbuster debuted its own online DVD subscription service, called Blockbuster Online. In a call with Wall Street analysts at the time, Netflix's Hastings said that Blockbuster and Antioco had "thrown everything but the kitchen sink at us." (Not long after, Antioco sent a package containing an actual kitchen sink to Hastings.)

Blockbuster Online quickly added over 1 million subscribers less than a year after launching, and then succeeded in hitting its online goals by reaching 2 million subscribers by the end of 2006. It was still trailing Netflix in overall online subscribers, but Blockbuster was picking up steam, even adding online subscribers just as quickly as the fast-growing Netflix. 

In 2006, Blockbuster launched Blockbuster Total Access, which allowed online subscribers to return DVDs to Blockbuster's brick-and-mortar locations and exchange them for another DVD for free. That move added a wrinkle to Blockbuster's plan that Netflix could never match, and it finally seemed as if Blockbuster might be able to put Netflix on the ropes. In one quarter of 2007, Netflix even lost 55,000 subscribers compared to the previous quarter, while Blockbuster's subscriber base continued its growth.

Netflix co-founder Randolph, who left the company in 2003, tells CNBC Make It that things got "very scary" for Netflix once Blockbuster finally put serious resources toward its digital business, mustering "the true strength that they could [and] that we couldn't match, which was a blended model of online and stores."

"They were hurting us, and they were making tremendous gains," Randolph says.

Given Blockbuster's financial might compared to Netflix, it's not hard to imagine an alternate reality where Blockbuster continued to grow its online business and eventually wrote Netflix out of the history books.

Blockbuster's demise

Obviously, that's not what happened. A few different factors contributed to Blockbuster eventual demise.

First of all, Blockbuster was already carrying roughly $1 billion in debt when the company launched its online business, as its former parent company, Viacom, saddled its subsidiary with debt while spinning off Blockbuster into its own public company in 2004.

The debt was an especially big problem for Blockbuster, because launching its online subscription business was expensive. For instance, every time a Blockbuster customer actually exchanged a DVD at one of its stores through the Total Access plan, Blockbuster lost about $2. The idea was that Blockbuster would eventually add enough subscribers to make Total Access profitable. (Netflix faced similar obstacles, which is why the company took over six years to post its first profit and why it continues to burn through billions of dollars each year while adding new streaming content to grow its subscriber base.)

Blockbuster's debt rankled shareholders, especially with Blockbuster plowing roughly $200 million into an online business that was not yet profitable while also losing out on hundreds of millions of dollars in late fees.

"If it hadn't been for their debt, they could have killed us," Netflix's Hastings told reporter Gina Keating about Blockbuster in 2009.

The other thing that got in the way of Blockbuster squashing Netflix was Wall Street billionaire and activist investor Carl Icahn. By 2005, Icahn had acquired a nearly 10% stake in Blockbuster, large enough to entitle him to three seats on the company's board, where he immediately began battling Antioco for control of the company in an attempt to quickly boost its stock price.

Icahn and the other board members he installed vehemently opposed Antioco's plans to build out Blockbuster's online business and, especially, the decision to ditch the company's lucrative late fees. They didn't seem to grasp the importance of building a strong digital presence to the future of Blockbuster's industry.

In the end, though, Blockbuster's ultimate demise might have come down to an argument between Antioco and Icahn over the CEO's bonus. After a strong year in 2006, Antioco was due an annual bonus of more than $7.6 million, which Icahn felt was exorbitant. Icahn began pushing for Antioco's ouster, and the CEO agreed to step away in March 2007. 

Antioco accepted a roughly $3 million bonus, plus an additional buyout of almost $5 million, to walk away from Blockbuster, leaving Icahn free to install a CEO he supported. That CEO was James Keyes , who had previously been CEO of 7-Eleven but had little experience building a digital business.

Icahn and Keyes wanted Blockbuster to focus on growing its revenue to pay off its debt, which they believed meant turning the company's focus away from the online business and reinvesting in brick-and-mortar stores. Under Keyes, the company even reinstated its unpopular late fees in 2010.

Blockbuster's online subscription business sputtered and the company was suddenly faced with an even larger obstacle than Netflix: the 2008 financial crisis that led to the Great Recession. The financial crisis made it a scary time to be carrying so much debt, especially since banks were no longer as willing to lend additional money.

For his part, Keyes later blamed Blockbuster's ultimate demise on the company's inability to raise Wall Street financing to pay off its debt. "That was the death blow to Blockbuster that caused us to have to file for bankruptcy," Keyes said in 2018 .

By 2010, Blockbuster was forced to file for bankruptcy after still being unable to pay off its roughly $1 billion in debt six years after the spin-off from Viacom. 

That same year, Netflix hit 20 million subscribers and started expanding overseas. 

"I firmly believe that if our online strategy had not been essentially abandoned, Blockbuster Online would have 10 million subscribers today, and we'd be rivaling Netflix for the leadership position in the internet downloading business," Antioco wrote in a 2011 essay for Harvard Business Review.

Today, Netflix boasts more than 183 million global subscribers and the tech company brought in over $20 billion in revenue in 2019.

Antioco sold his shares in Blockbuster upon leaving the company in 2007 and, instead, invested that money in Netflix, which was then priced "around $20" per share, he writes in the essay.

"I could see that Netflix was going to have the whole DVD-by-mail market handed to it, along with a direct path to streaming movies into homes—which is exactly what Netflix has done. I thought I was a genius when I sold my shares at about $35. Today they're over $200."

That was in 2011. Now, Netflix shares are worth nearly $485 apiece.

(And despite its success with streaming, Netflix still boasts more than two million subscribers who pay to have DVD's mailed to their homes, a business that brought in nearly $300 million in revenue in 2019.)

Randolph calls Icahn's activist push at Blockbuster something of a "deus ex machina" that rescued Netflix just as Blockbuster had "finally mounted a truly legitimate and sustainable challenge."

Meanwhile, Icahn has called his activist role at Blockbuster "the worst investment I ever made" in his own 2011  Harvard Business Review essay , a rebuttal to Antioco's. Icahn blamed Blockbuster's debt and "changes in the industry" for the company's demise, though he also admitted that the Blockbuster board might have erred in replacing Antioco with Keyes. Icahn also complimented the job Antioco had done in building Blockbuster Total Access, which the billionaire investor said "might have helped Blockbuster fend off Netflix" eventually.

"To this day I don't know what would have happened if we'd avoided the big blowup over Antioco's bonus and he'd continued growing Total Access," Icahn wrote. "Things might have turned out differently."

— Additional reporting by Jade Scipioni

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Netflix & Blockbuster – Case Study Of Disruptive Innovation

Written By:

Post Date – Update:

It’s rare for a week without me tuning into Netflix to watch something or at least browse its offerings to find my next binge-worthy series. I know I’m not alone in this habit; countless others probably engage in the same routine.

That’s why examining the Netflix and Blockbuster case study is so enlightening. It offers a riveting look at how disruptive innovation can permanently alter the digital landscape. One company survived and flourished, while the other faded into business irrelevance. As we delve into key learnings from this case study, we also discuss what contemporary companies can do to avoid meeting the same fate as Blockbuster.

Table of Contents

Understanding disruptive innovation, netflix’s early challenges, low-end footholds, new market footholds, blockbuster’s missed opportunities, the importance of transformation in business, 1. adapt or perish, 2. recognize low-end footholds, 3. embrace technology early, 4. customer-centric approach, 5. stay ahead through innovation, 6. use data intelligently, 7. anticipate future trends, 8. understand market signals, 9. transformation is continuous, listen to our podcast about streaming wars chronicles: the netflix & blockbuster case study of disruptive innovation below or by clicking here., 5 questions to ask when considering a solid wood furniture manufacturer, what is solid wood vs. engineered wood, hardwood solids furniture, what does the term mean, netflix & blockbuster: a case study in disruptive innovation.

One of the most compelling case studies in disruptive innovation is the saga of Netflix and Blockbuster. This story provides valuable insights into how Netflix managed to upend the industry, positioning itself as a dominant force in today’s digital landscape.

Continue reading as we delve deeper into the disruptive journey of Netflix and Blockbuster.

Digital disruption has been a game-changer in entrepreneurial strategies since the late 20th Century. Contrary to popular belief, disruptive innovation is not the same as mere creativity.

While creating a fuel-efficient engine might draw a new consumer base, the minor variations from standard engines do not categorize it as disruptive. True disruption focuses on targeting sectors that established companies overlook or revolutionizing an existing system.

This case study delves into how Netflix applied disruptive innovation to dethrone Blockbuster in the home entertainment industry.

Brief History Of Netflix

Understanding its history is crucial to grasp the scale of Netflix’s disruption fully. Netflix was founded in 1998 by Reed Hastings and Marc Randolph in Scott’s Valley, California, with an initial investment of $2.5 million from Hastings.

Opting to distribute DVDs rather than bulky and fragile VHS tapes, Netflix started with 30 employees and 925 available titles. Over time, the company introduced a monthly subscription model, eliminating the single rental system. It positioned itself as a consumer-friendly alternative to Blockbuster’s model, often including late fees and hidden charges.

Watching Netflix

Netflix wasn’t always the giant we know today. In 2000, the company even offered to sell itself to Blockbuster for $50 million—an offer that Blockbuster refused.

Following the dot-com bubble burst and the 9/11 attacks, Netflix was forced to lay off two-thirds of its staff. However, the proliferation of affordable DVD players and an IPO in 2002 helped the company regain its footing.

Disruptive Strategies Used By Netflix

Netflix employed various disruptive approaches to outmaneuver Blockbuster in the market. Continue reading to uncover two of these critical, innovative strategies.

Netflix initially targeted lower-end markets that Blockbuster ignored. It presented itself as a hassle-free alternative to Blockbuster by eliminating late fees. This allowed Netflix to grow its customer base steadily.

The company focused on improving service speed and video quality, gradually becoming a preferred choice over Blockbuster for many consumers.

Netflix further disrupted the industry by introducing DVDs and streaming services. Their easy-to-use online interface and innovative recommendation algorithm provided an experience Blockbuster couldn’t match.

They also invested in creating original content, widening their market appeal, and keeping audiences engaged.

Blockbuster’s business model worked well for a time, but their complacency in innovation left them vulnerable to disruption. They continued to rely on an aging model that included late fees and did not adapt quickly enough to new technologies.

When they finally attempted to catch up, it was too late, and they were already in decline.

Watching In Blockbuster

While disruptive innovation is crucial for capturing market share, continual transformation is essential. Netflix’s willingness to adapt allowed it to evolve from a DVD rental service to a streaming giant.

Conversely, Blockbuster’s resistance to change led to its downfall. The case of Netflix vs. Blockbuster is a compelling example of how disruptive innovation can reshape industries and why companies must adapt to survive.

Lessons From The Netflix & Blockbuster Case Study On Disruptive Innovation

The evolution of Netflix and the decline of Blockbuster serve as an epic tale of disruptive innovation in the business landscape. This case study provides insights into strategic decision-making and offers lessons on how to deal with market transformation.

Here are ten key lessons companies can learn from this saga.

The inability of Blockbuster to adapt to emerging technologies and new consumer preferences, especially around the convenience of movie rentals, was a critical downfall. Companies must be agile and willing to adapt their business models to remain relevant.

Netflix capitalized on the aspects of the market that Blockbuster ignored, primarily around consumer annoyance with late fees. Companies should be cautious not to ignore market segments that might seem less profitable or secondary, as they may become entry points for disruptive competitors.

Netflix took a risk by betting on DVDs and online streaming. Companies should look towards emerging technologies as opportunities for future growth and be willing to invest early, even if the technology hasn’t yet reached mass adoption.

Netflix’s recommendation algorithm, easy-to-use interface, and concern for customer experience made them a consumer favorite. Companies should place the customer at the center of their business model and continually strive to improve the user experience.

Netflix invested in original content to differentiate itself further from Blockbuster and new competitors. Companies must continuously innovate and expand their offerings to keep customers engaged and deter potential entrants.

Netflix has been a pioneer in utilizing big data to understand customer behavior and preferences. Companies should leverage data analytics to make more informed decisions and to tailor their services/products to individual customer needs.

While Blockbuster remained committed to physical stores, Netflix anticipated the shift toward digital consumption. Forecasting and acting upon trends can differentiate between leading the market or becoming obsolete.

Blockbuster missed the signals when Netflix offered to sell itself for $50 million, and consumers began to show dissatisfaction with late fees. Recognizing and acting upon market signals, even subtle ones, can impact a company’s trajectory.

Even after establishing itself as a leader in streaming, Netflix continues to evolve and adapt. Understanding that transformation is an ongoing process rather than a one-time event is crucial for long-term success.

10. Learn From Failures

Both Netflix and Blockbuster had their share of mistakes. However, Netflix has shown an ability to learn from its failures, pivot, and recover. Companies should not only celebrate successes but also see failures as learning opportunities.

The tale of Netflix and Blockbuster is a masterclass in understanding disruptive innovation and market transformation mechanics. By recognizing early signs of disruption, staying adaptable, and being committed to continuous improvement and innovation, companies can remain competitive and relevant in their respective markets.

Podcast About Netflix and Blockbuster

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Related Questions

One of the things we look at when we go into a new solid wood furniture manufacturer is in-house kiln wood drying. We also want to know if they understand how to join the wood properly and have the equipment. Also, if the manufacturer is in a hot and tropical climate if they have a dry room to help control the wood moisture levels. We like to work with factories that cut and shape all the wood and have in-house finishing facilities.

You can discover more by reading our blog  5 Questions To Ask When Considering A Solid Wood Furniture Manufacturer ; read more by  clicking here.

Solid  wood is cut down from the tree , cut into wood boards, and then used for manufacturing. On the other hand, engineered wood is considered manmade as it is usually manufactured with wood chips, wood shavings, and an adhesive. Today the manufacturing of engineered wood is extremely technical.

You can discover more by reading our blog  All About Teak Wood And Outdod?  by  clicking here.

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Netflix’s Bold Disruptive Innovation

  • Adam Richardson

Every now and then, the business world presents us with a lab experiment that we can observe in realtime. Netflix’s announcement that it is splitting off its DVD-by-mail business from its streaming business is just such an experiment. The DVD business will now go by the name Qwikster, and the streaming business will stay under […]

Every now and then, the business world presents us with a lab experiment that we can observe in realtime. Netflix’s announcement that it is splitting off its DVD-by-mail business from its streaming business is just such an experiment. The DVD business will now go by the name Qwikster, and the streaming business will stay under the Netflix brand. It is Clayton Christensen ‘s innovator’s dilemma incarnate, and Netflix is very publicly trying to solve it. Like its 60% price increase did earlier this year, this move is understandably causing consternation amongst some customers. It’s a bold move, one that will cost them in the near term, but Netflix I’m sure has done the calculus and is looking at the endgame 5-10 years out, not 5-10 months.

  • Adam Richardson is a creative director at the global innovation firm frog design and the author of Innovation X: Why a Company’s Toughest Problems Are Its Greatest Advantage . His background combines experience in product development, product strategy, and customer research.

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Home » Management Case Studies » Case Study: How Netflix Took Down Blockbuster

Case Study: How Netflix Took Down Blockbuster

Blockbuster and Netflix are two big business within the domestic videocassette rent payment market place that skilled very much distinctive products. Netflix extremely multiplied its firm estimate even as Blockbuster dropped its leading market position and fallen into bankruptcy. Back to the late 20th century, whilst Netflix was just a small newly established business, Blockbuster ruled the video cassette rental business with over 9,000 shops all around the world. With the emergence of DVDs as the brand new video medium, Blockbuster be able to get special deals with massive Hollywood studios to rent new DVD releases after cinema showings ended. At that point in time, nearly every family had a videocassette recorder (VCR) for the reason of video watching, and Blockbuster rental shops were people’s familiar starting point for film selections. Technology and innovation performed a significant task inside the improvement of the apprehensive business. Today’s dynamic domain is completely centered on progression of technology and every area requires to carry out new intervention of technology to obtain success . The on-line video package providers companies are those who design a new to look at preferred programs. The business idea of Blockbuster change into related to serving the DVDs on a rental basis. Netflix become also using the equal idea however after a period of time, it changed to the online streaming video. This advertising approach of Netflix offers with the phases that Netflix used to promote its commercial enterprise businesses. 

Netflix Blockbuster Case Study

History of Blockbuster

Blockbuster turned into one in every of the biggest video companies all over in the globe. Blockbuster became the primary organization, which commenced to offer DVDs on condominium basis. David Cook set up the company in the year 1985. David in Dallas based the primary store of Blockbuster. The primary video market of Blockbuster turned into an extensive success on global horizontal. The retailer became opened with 8000 tapes which consist of 6500 titles. Afterward they had been opened three more but, the company face challenges 3.2 million dollars in 1986. Therefore Cook sold 1/3rd share beginning of 1987. The business was managing 133 stores in 1987. Within 1919, the full number of shops reached as much as 1000. During 2000, the Blockbuster is the pinnacle DVD carrier company. But, within the year 2006, Blockbuster disconnected from Viacom.

History of Netflix

In 1997 Netflix turned into established in California, founded by Reed Hasting. At the preliminary level of this blockbuster advertising method the videos were offered on a hire charge base by the organization. But, in 1999, the business changed into commencing the delivery of obtained videos via postal facility of the United State. After a few year of its setting up order, in 2009, the business had a large and improved database system. In 2009, business was began delivering DVD such as distinctive titles. It can be referred that the business nearly contained a focus of 4.5 million customers. Within the same year, company had completed an affiliation with a digital company named as consumer electronics. This partnership made easy to get entry to the internet on specific appliances. In 2010, Blockbuster business turned into bankrupt. As in line with the facts collected, after this affiliation, people can easily get entry to internet over iPad, computer, mobile phone, laptop, and exclusive net devices. But, currently the company has 23 million contributors from different international location those make use of Netflix subscription. 

How Netflix beat Blockbuster

A year after establish in 1998 Netflix gain control the marketplace of video industry through advertising and marketing strategy as well as their special offers attract more consumer than any other video industry. As a result it impact other entertainment business without doubt. In case that there is to some extent obstruct during the delivery sort out of DVD throughout mail or via post than the company do not charge for late fee and it became well turned-out change. On the other hand, before the setting up of this establishment, Blockbuster existed the growing enterprise in this business. Blockbuster company apply same “No late Fee” strategy as Netflix but unfortunately it did not work for this company and blockbuster challenged a massive forfeiture as well as the marketplace cost of its shares decline. Now Blockbuster Company is currently identified for instance bankrupt industry in the video business. Afterwards Netflix give emphasis to more on marketing strategy to go to next level and extended DVD business. There are several brands of competitors from another province who contested with Netflix. Aside from, Netflix has its distinctive line of attack to attain achievement and advance in the industry. The simple technique used by the organization for the fulfilment of organization objectives. The maximum critical part is associated with the market place expansion idea of DVD products. Aside from that customer relationship is the major strength and strategy for this organization to achieve their mission and vision. Every organization has two aspects of success, one is present commercial enterprise and another is organization consumer. The essential aspects is that company always selects current business. Aside from that, in the time of Antioco’s stage, Blockbuster made double revenue by implementing of low cost strategy “reducing late charges”. But this footstep draws attention lots of consumers to finance further in the Blockbuster Business. After the Examination, it turn into clear-cut that the forfeiture from reducing changed into 200 million dollars while; on-line campaign motion total yet again 200 million dollars. After this action, 5 years later Blockbuster Business was announced bankrupt. Netflix uses following strategy where Blockbuster never think of changes. These are;

Technological Advances

Ever since 2000, the initiating of latest technology and computer electronics commodities has unexpectedly elevated customer possibilities to view cinemas. Now days it is fairly well-known to watch movies on airplanes, in cars, hotel rooms, in homes or almost every places through a laptop PC or smartphone appliance like an apple iPhone, iPad, or iPad touch. Most important in year 2012 it was clear-cut that the 134 million US families with excessive speed internet facility and internet related Blu-ray , video games, TVs, computers, tablets, or smartphones had been swiftly transferring from manual hiring DVDs to watching cinemas and TV programs streamed over the net. Customer can watch these films and Television programs via an extensive type of distribution networks and sources. The trend of the upcoming marketplace for hiring movies and TV contents is undisputable in streaming movie industry and Television programs to internet- associated televisions, PCs and smart phone devices. Streaming has the gain of accepting household adherents to reserve and instantaneously watch the movies and Television shows they desired to watch, hiring a streamed show possibly will be performed both by way using the service of Netflix, Blockbuster online, Amazon instant video, Apple’s iTunes and different streaming video vendors or through the usage if a  television distant to assign arrangements with a cable satellite TV for pc, or fiber optics issuer to instantaneously look at a movie from a listing of numerous hundred choices. The numeral of families which have a DVD player or video recorder has become more intense, so they may simply make a recording TV shows and movies after which pay off them at their suitability. Netflix changed into expected that the DVD systems, at the side of excessive- clarity replacement designs one of these Blu-ray, will be the car for watching content material in the home-based for the expected future. Modern innovations in video-streaming technology have been swiftly enhancing the possibilities that video application would become the leading movie rental network in the next few years. 

Low cost strategic is one of the most powerful strategic position for the movie rental industry. Blockbuster organization was making money by implement overdue price to its clients. The value of operational cost of this business movement is a smaller amount of cost that the price of market stores. Aside that the value of adjustments is likewise not as much of than the market things. For the fulfilment of achievement and advance Netflix advertising and marketing method, organization uses specific modern strategies and technologies. The business has start-off the idea of delivery the DVDs at the consumer’s location and subscription fee is comparatively subsequent the low-cost idea which was not carefully thought by Blockbuster. In USA everyday uses, on regular, almost 5 hours each day seeing video contents. And that may become pricey, rent out a movie can prevent a big expanse of cash while competed to actually go to a movie which can charge as extremely as $16 a ticket. When think about Netflix’s business standard, rate supports mail transport over in-store rental. Some plan via the mail cost $7.99/month limitless vs. the in-store $4/rental. Kiosk Rental acquisition market proportion with $1 nightly rental price. Video on call for is anticipated to maintain to lower in price as competition rises. When Netflix released its subscription version, it flashed significant attention between clients trying to find reasonably-priced movie rentals. A delivered bonus is that disc are brought directly to their doors ways, eliminating trips to a store and late fees. Netflix is the biggest on-line streaming video provider with over 23 million subscribers. Consumer pay a flat monthly fees of $7.99 for unrestricted log on to movies and Television indicate, presently ad- unrestricted. The provider is accessible on Nintendo Wii, Microsoft’s Xbox 360, Sony PS3 consoles, Blu-ray disc players, Internet-connected TVs, and many other Internet-supported video players.

Customer Relationship

Netflix advertising and marketing approach is associated to the subscription of the channel. This strategy of the organization is performed a crucial part within the improvement of the company. Concurrently, this strategy also consist of the delivery procedure of distribution DVDs via mail and streaming of videos. The subsequent crucial stage is connected to the method of consumer closeness . The phrase consumer intimacy allocates with the participation of consumers for business growth drive. This advertising idea primarily appreciated by the Netflix organization because it turned into aimed to get honest source consumer and right, way to applied most excellent sources for the success of organization objective and achieve the need of its clients. Aside, from this, the significance of these method is associated with offer the top facilities to the clients. The purpose in arrears the recognition of the Netflix organization is the advertising and marketing method of this business enterprise, the strategies put together the Netflix business finest on-line video issuer within the world. Further than, the importance is absolute to its clients. The principle goal of the Netflix business is to supply the high-quality customer service and respects in comparison to Blockbuster. The intention behind the leading quality of the Netflix business enterprise is an effective execution of these business strategies . But, these techniques might capable the Netflix business to stand marketplace opposition.

Netflix Innovation

The phrase innovation co-operated an essential function in the productive implementation of industry action. It is able be distinguished that innovation may be considered as a heart for the organization . The character of innovation utilized by the Netflix organization is disruptive . The Netflix business enterprise is operating this characteristics from its first environment. On the other hand, this organization brought the idea of undertaking the demand of DVD turning in thru the mail without a late fee. Other than this the handy of watching movies and TV programs at home-based at a low rate. The Netflix organization usually attempts to offer cost friendly deals to its clients. It be possibly will be identified to all that the Netflix Corporation is an entertaining network site. But, the dream of the Netflix organization is aimed to be the top supplier of entertaining movies all over the world. Aside that, the vision of the corporation is associated with the verdict of the global target market with the assist to the content inventors all over the globe. However, the Netflix business aimed to deliver the quality and high-priced DVDs to its clients by treating free of charge and rapid distribution method. There are distinctive models associated with the innovation of Netflix. The current monthly subscription of Netflix is 12.99 dollar per month. As peer the sources it have turn into clear-cut that Netflix is famous in their live programs simply accessible to the subscribers or clients of the Netflix organization. One of the exceptional and maximum famous programs of Netflix is Black Mirror show. Form this examines of these sources; it turn into clear-cut that the Netflix company is one of the top organization that manage its business movement after thinking the needs of its clients.

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Lessons From a Blockbuster Failure

Lessons From a Blockbuster Failure

A few months ago, Blockbuster announced that it will close all of its remaining U.S. stores, about 300 of them. This has been a long time in the making, and there is still a lot you can learn from it.

Prior to Netflix, Blockbuster thrived on its use of “bad profits.” Bad profits, a term from Fred Reichheld’s book, The Ultimate Question , which introduced the concept of the Net Promoter Score (NPS) , are a highly disruptive source of negative word of mouth. Blockbuster’s bad profits were, of course, late fees. Everyone I know who was a Blockbuster customer, including me and my wife, hated late fees. You knew Blockbuster “got you,” and you felt that you only had yourself to blame because you were the one who was late returning the rental video. Sometimes, you would plead for mercy with the store associate. Late fees eventually became the primary source of Blockbuster’s profits.

“Thank goodness for Net Promoter." —Brad Smith, CEO of Intuit

“Thank goodness for Net Promoter.” —Brad Smith, CEO of Intuit

Anytime bad profits are your primary source of profits, you are due for a hard knock. That knock came from Netflix. Their original ad campaign, “The end of late fees,” was pretty much all they needed to say. Their business model was designed very differently, leveraging the Internet and network economic effects—a nod to another favorite book, Net Gain by John Hagel III . When Netflix proclaimed the end of late fees, word of mouth took care of the rest.

This is why NPS has become so important to companies as a way to measure their most important external stakeholders—their customers. NPS is used by thousands of companies, including many Fortune 500 companies. Brad Smith, CEO of Intuit, said, “Thank goodness for Net Promoter. It provided a framework for thinking about—and managing—in this social media world … our teams call it the love metric.” Tony Hsieh, CEO of Zappos, said, “We use NPS every day to make sure we are wowing customers and employees.”

I wrote a four-part series on the Bazaarvoice blog about what could be learned from the Netflix versus Blockbuster battle. My goal for writing this was to move our industry, still a very nascent one today, to think hard about the power of word of mouth. This eventually led to our mission statement: “changing the world, one authentic conversation at a time.” We saw companies change the way they operate based on the customer data and insights that they were accumulating as a result of deploying Bazaarvoice.

There is a lot to be learned here, and there is no doubt that books like Clayton Christensen’s The Innovator’s Dilemma help all of us think about steering clear of bad profits, lest we be vulnerable to someone like Netflix coming along and disrupting our business model, in this case to Blockbuster’s ultimate extinction. Blockbuster used to have 8,500 stores located in 29 countries, and was worth $5 billion at one point. But the company was addicted to bad profits, and it was caught in the downward spiral that only The Innovator’s Dilemma can best explain. What could Blockbuster have done differently? A lot—and it is best explained in Christensen’s follow-up book, The Innovator’s Solution .

Have you or the company you worked for used bad profits before? What happened as a result? Did you or your employer have the courage to change in the gut-wrenching way that books like The Innovator’s Solution detail?

Tell me below in the comments section.

Editor’s note: For further background on Brett’s views on the Blockbuster decline, read his blog series:

Feb. 2006: Bad Profits and the Incredible Power of Word of Mouth

Dec. 2006: Netflix vs. Blockbuster: Round Two

Jan. 2007: Netflix vs. Blockbuster: Round Three

Mar. 2009: Netflix vs. Blockbuster: Round Four (Lights Out?)

netflix blockbuster case study

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BUS606: Operations and Supply Chain Management

Economies of scale: a case study with netflix.

Read this book section describing Netflix's journey from a startup company to a worldwide brand. Pay particular attention to how Netflix was able to leverage its technology to gain customers and very quickly beat its competition - specifically Blockbuster. Their continuing evolution from DVD, to streaming service, to content developer has created a unique competitive advantage. The article speaks to Netflix's economies of scope, where they could have diversified in many different directions. However, their specific focus directed their strategy to a few key areas. How did their strategic revenue streams generate money for the company?

Netflix: Tech and Timing

Learning objectives.

After studying this section you should be able to do the following:

  • Understand the basics of the Netflix business model.
  • Appreciate why other firms found Netflix's market attractive, and why many analysts incorrectly suspected Netflix was doomed.
  • Understand the  long tail  concept, and how it relates to Netflix's ability to offer the customer a huge (the industry's largest) selection of movies.
  • Understand the role that market entry timing has played in Netflix's success.
  • Understand the role Amazon Web Services play in Netflix's business.

Netflix is an American media-services provider headquartered in Los Gatos, California, founded in 1997 by Reed Hastings and Marc Randolph in Scotts Valley, California. Netflix allows subscribers to stream movies and TV shows on their devices for a flat subscription fee. The company started as an over the mail DVD rental company in 1997, its streaming service in 2007 and has since become one of the highest valued media service providers.

Studying Netflix gives us a chance to examine how technology helps firms craft and reinforce competitive advantage. We'll look at the components of the firm's strategy and learn how technology played a starring role in placing the firm atop its industry. We also realize that while Netflix emerged the victorious underdog at the end of the first show, there will be at least one sequel, with the final scene yet to be determined. We'll finish the case with a look at the very significant challenges the firm faces as new technology continues to shift the competitive landscape.

Highlights from Netflix's History

Reed Hastings, a former Peace Corps volunteer with a master's in computer science, got the idea for Netflix when he was late in returning the movie  Apollo 13  to his local Blockbuster store. The forty-dollar late fee was enough to have bought the video outright with money left over. Hastings felt ripped off, and out of this initial outrage, Netflix was born – or at least this was the myth created by the founders to fuel sentiment against the then market leader that charged those huge late fees.

The model the firm originally settled on was a DVD-by-mail service that charged a flat-rate monthly subscription rather than a per-disc rental fee. Customers did not pay for mailing expenses, and there were no late fees. Videos arrived in red Mylar envelopes. After tearing off the cover to remove the DVD, customers revealed prepaid postage and a return address. When done watching videos, consumers just slipped the DVD back into the envelope, resealed it with a peel-back sticky-strip, and dropped the disc in the mail. Users made their video choices in their "request queue" at

In 2007, Netflix started its streaming service and offered a variety of subscription options. While 2.7 million DVD-by-mail subscribers still remain, by early 2019 "Netflix has over 148 million paying streaming subscribers worldwide as well as over 6.56 million free trial customers. Of these subscribers, 60.23 million were from the United States".

In 2013, Netflix debuted original content like  House of Cards  and  Orange is the New Black , both series went on to win multiple traditional television awards. While Netflix continues to stream TV shows and movies from a variety of content providers, as of late 2018/19, they invest around $8 billion in original content with "1,000 originals total on the service by the end of 2018. […] More than 90% of Netflix's customers regularly watch original programming".

netflix blockbuster case study

The Top 20 TV Shows Streamed In 2018: Only One Isn't On Netflix  (#5 airs on Hulu).

It may be hard to imagine from today's perspective, but Netflix wasn't always considered a success. Businesses are supposed to want to go public. When a firm sells stock for the first time, the company gains a ton of cash to fuel expansion and its founders get rich. Going public is the dream in the back of the mind of every tech entrepreneur. But in 2007, Netflix founder and CEO Reed Hastings told  Fortune  that if he could change one strategic decision, it would have been to delay the firm's initial public stock offering (IPO): "If we had stayed private for another two to four years, not as many people would have understood how big a business this could be". Once Netflix was a public company, financial disclosure rules forced the firm to reveal that it was on a money-minting growth tear. Once the secret was out, rivals showed up.

Hollywood's best couldn't have scripted a more menacing group of rivals for Hastings to face. First in line with its own DVD-by-mail offering was Blockbuster, a name synonymous with video rental. In 2007, 40 million U.S. families were already card-carrying Blockbuster customers, and the firm's efforts promised to link DVD-by-mail with the nation's largest network of video stores. Following close behind was Wal-Mart – not just  a  big  Fortune  500 company but  the  largest firm in the United States ranked by sales at the time. In Netflix, Hastings had built a great firm, but at the time, an Internet "pure play" company without a storefront and with an overall customer base that seemed microscopic compared to Blockbuster and Wal-Mart. Yet, Wal-Mart eventually had cut and run, dumping their experiment in DVD-by-mail. Ultimately, Blockbuster had been mortally wounded, hemorrhaging billions of dollars in a string of quarterly losses. And Netflix? Not only had the firm held customers, but it also grew bigger, recording record profits.

Selection: The Long Tail in Action

During the DVD rental era, customers have flocked to Netflix in part because of the firm's staggering selection. A traditional video store (and in the late '90s and early 2000s Blockbuster had some 7,800 of them) stocked roughly three thousand DVD titles on its shelves. For comparison, Netflix was able to offer its customers a selection of over one hundred thousand DVD titles. At traditional brick-and-mortar retailers, shelf space is the biggest constraint limiting a firm's ability to offer customers what they want when they want it. Which films, documentaries, concerts, cartoons, TV shows, and other things that made it inside of a Blockbuster store, what they carried was dictated by what the average consumer was most likely to be interested in.

For any store, finding the right product mix and store size can be tricky. Offer too many titles in a bigger storefront and there may not be enough paying customers to justify stocking less popular titles (remember, it's not just the cost of a product, as firms also pay for the real estate of a larger store, the workers, the energy to power the facility, etc.). There's a breakeven point that is arrived at by considering the geographic constraint of the number of customers that can reach a location, factored in with store size, store inventory, the payback from that inventory, and the cost to own and operate the store. Anyone who has visited a physical store understands that shelves and show floors can only hold so many products.

Many pure-play (online only) businesses are able to run around these limits of geography and shelf space. Internet firms that ship products can get away with having highly automated warehouses, each stocking just about all the products in a particular category. And for firms that distribute products digitally (iTunes, Hulu, Office Online), the efficiencies are even greater because there's no warehouse or physical product at all.

Offer a nearly limitless selection and something interesting happens: there's actually  more money  to be made selling the obscure stuff than the hits. In the early 2000s at Netflix, roughly 75 percent of DVD titles shipped were from back-catalog titles, not new releases. At Blockbuster outlets the equation is nearly flipped, with some 70 percent of their business coming from (then) new releases. In 2019, Netflix streams obscure things and massive hits. Blockbuster is gone and In 2019, Netflix accounts for 15% of the world's, 19% of the US' internet traffic.

netflix blockbuster case study

While most stores make money from the area under the curve from the vertical axis to the dotted line, long tail firms can also sell the less popular stuff. Each item under the right part of the curve may experience less demand than the most popular products, but someone somewhere likely wants it. The total demand for the obscure stuff is often much larger than what can be profitably sold through traditional stores alone. While some debate the size of the tail (e.g., whether obscure titles collectively are more profitable for most firms), two facts are critical to keep above this debate: (1) selection attracts customers, and (2) the Internet allows large-selection inventory efficiencies that offline firms can't match.

The long tail works because the cost of production and distribution drops to a point where it becomes economically viable to offer a huge selection. For Netflix, the cost to stock and ship or stream an obscure foreign film is the same as sending out or streaming the latest blockbuster. The long tail gives the firm a selection advantage (or one based on scale) that traditional stores simply cannot match.

Technology Creates a Data Asset That Delivers Profits

Netflix proves there's both demand and money to be made from the vast back catalog of film and TV show content. But for the model to work best, the firm needed to address the biggest inefficiency in the movie industry – "audience finding," that is, matching content with customers. To do this, Netflix leveraged some of the industry's most sophisticated technology, a proprietary recommendation system. Each time a customer visited Netflix after sending back a DVD, the service essentially asked "So, how did you like the movie?" Today we have a single click ("Like" or "Dislike") as opposed to the original five-star rating system.

Netflix algorithms generally develop a map of user ratings and steer you toward titles preferred by people with tastes that are most like yours. This is called collaborative filtering and refers to a classification of software that monitors trends among customers and uses this data to personalize an individual customer's experience. Input from collaborative filtering software can be used to customize the display of a Web page for each user so that an individual is greeted only with those items the software predicts they'll most likely be interested in. The kind of data mining done by collaborative filtering isn't just used by Netflix; other sites use similar systems to recommend music, books, and even news stories. While other firms also employ collaborative filtering, Netflix has been at this game for years and is constantly tweaking its efforts. The results are considered the industry gold standard.

Collaborative filtering software is powerful stuff, but is it a source of competitive advantage? Ultimately it's just math. Difficult math, to be sure, but nothing prevents other firms from working hard in the lab, running and refining tests, and coming up with software that's as good, or perhaps one day even better than Netflix's offering. But what the software has created for the early-moving Netflix is an enormous data advantage that is valuable, results yielding, and impossible for rivals to match. More ratings make the system seem smarter, and with more info to go on, Netflix can make more accurate recommendations than rivals.

Understanding Scale and Timing

netflix blockbuster case study

Running a nationwide sales network costs an estimated $300 million a year. But Netflix has several times more subscribers than Blockbuster. History confirms the basic math of which firm's economies scaled better.

For Blockbuster, the arrival of Netflix played out like a horror film where it was the victim. Pressure from Netflix forced Blockbuster to drop late fees costing it about $400 million. The Blockbuster store network once had the advantage of scale, but eventually, its many locations were seen as an inefficient and bloated liability. By 2008, Blockbuster had been in the red, meaning it did not make a profit for ten of the prior eleven years. During a three-year period that included the launch of its Total Access DVD-by-mail effort, Blockbuster lost over $4 billion. Blockbuster tried to outspend Netflix on advertising, even running Super Bowl ads for Total Access in 2007, but a money loser can't outspend its more profitable rival for long. Blockbuster also couldn't sustain subscription rates below Netflix's, so it had to give up its price advantage.

For Netflix, what delivered the triple scale advantage of the largest selection; the largest network of distribution centers; the largest customer base; and the firm's industry-leading strength in brand and data assets? Moving first. Timing and technology don't always yield a sustainable competitive advantage, but in this case, Netflix leveraged both to craft what seems to be an extraordinarily valuable pool of assets that continue to grow and strengthen over time.

The Case of Netflix and Amazon Web Services

Watch the Following and Note Key Points About Scale

Discuss How Porter's Theory About Competitive Advantage Comes Into Play in the Streaming Media Field.

netflix blockbuster case study

  • Which is the best provider and why?
  • What factors influence your choice as a buyer?
  • What are potential threats to your top pick?
  • How does rivalry help the buyer?
  • What is the role of the supplier here?

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Please note you do not have access to teaching notes, movie rental business: blockbuster, netflix, and redbox.

Publication date: 20 January 2017

Teaching notes

Jim Keyes, CEO of Dallas-based Blockbuster Inc., was facing the biggest challenge of his career. In March 2010 Keyes was meeting with Hollywood studios in an effort to negotiate better terms for the $1 billion worth of merchandise Blockbuster had purchased the year before. In recent years, Blockbuster's share of the video rental market had been sharply decreasing in the face of competitors such as the low-cost, convenient Redbox vending machines and mail-order and video-on-demand service Netflix. While Blockbuster's market capitalization had dropped 47 percent to $62 million in 2009, Netflix's had shot up 55 percent to $3.9 billion that year. The only hope for Blockbuster, as Keyes saw it, was to shift its business model from primarily brick-and-mortar physical DVD rentals to increased digital and mail-order video delivery. In Keyes's favor, the studios were more than willing to provide him with that help. Hollywood wanted to see Blockbuster win the video-rental wars. Consumers still made frequent purchases of DVDs at its store—purchases which were much more profitable for studios than the rentals that remained Blockbuster's primary business. Blockbuster had made efforts at making its business model more nimble, but the results had been disappointing, and its debt continued to skyrocket. By the end of 2009, the company's debt had climbed to $856 million, its share of the $6.5 billion video rental business had fallen to 27 percent, and its revenues had tumbled 23 percent to $4.1 billion.

The objective of this case is to discuss how different business models and supply chain structures impact the financials of the firms in the DVD rental business. In particular, the goal is to convey that the characteristics of the movie (recent/big hit or old/eclectic) affect whether it is best rented from a centralized or decentralized model. In addition, as streaming gains market share, the impact will be different for movie types and business models.

  • Inventory Control
  • Distribution Channels
  • Operations Management
  • Supply Chain Management

Chopra, S. and Veeraiyan, M. (2017), "Movie Rental Business: Blockbuster, Netflix, and Redbox", .

Kellogg School of Management

Copyright © 2012, The Kellogg School of Management at Northwestern University

You do not currently have access to these teaching notes. Teaching notes are available for teaching faculty at subscribing institutions. Teaching notes accompany case studies with suggested learning objectives, classroom methods and potential assignment questions. They support dynamic classroom discussion to help develop student's analytical skills.

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Disruptive Innovation: A Case Study on How Netflix is Transforming the Living Room

Student thesis : Master thesis

Innovation has always been a crucial factor in business strategy across various market segments. In light of the digitalization revolution, the entertainment industry has been affected greatly, both in positive and negative ways. Long standing market incumbents such as Blockbuster have felt the disruptive shift of a new market player, Netflix. Its disruptively innovative strategy was simple enough to cater to small consumer segments, while rapidly gaining market traction. Eventually Netflix disrupted not only the market giant Blockbuster, but also consumers’ living rooms. Clayton M. Christiansen’s theory on disruptive innovation provides context and guidelines in better understanding the differences between sustaining innovation and disruptive innovation. Furthermore, it reflects over “The Innovators Dilemma” where, innovators must decide how to best invest their resources so as not to loose market share. This Thesis aims to better understand the effects of disruptive innovation within the entertainment content industry. The research utilizes a case study approach, using Netflix as the case company. Due to technological advancements the TV and entertainment content industry has drastically changed with new methods of consuming content, and new business models to disrupt the market. Having disrupted the market, Netflix remains a leading force among consumers. Moreover, in recent years, the competition within the market has radically increased. The project goes on to explore Netflix’s possible outcomes for future markets.

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Case Study: Netflix vs. Blockbuster

netflix blockbuster case study

There are many relevant, and certainly constructive, case studies that shed light on the challenges faced in digital transformation and the pitfalls in underestimating its importance to how we do business and engage customers. One of the more famous stories of digital disruption and the battle for market leadership involves Netflix and Blockbuster. It was a classic battle of old versus new technology, of flexibility versus rigidity of business models, and, ultimately, of corporate culture. Blockbuster, once the largest video rental company in the US with a hefty international presence and worldwide revenues of $6 billion, lost big and a major reason was due to Netflix’s visionary digital strategy.

Founded in 1997, Netflix began operations by offering DVD rentals and sales. At the time, DVDs were a new format. Rather than establishing brick and mortar retail locations with VHS tapes, Netflix delivered movies by mail, which was both a disrupting idea and well-suited to the new, sturdy and slim DVD format. To deliver its DVDs into the hands of its customers, Netflix invested in warehousing and distribution. By early 2000, Netflix’s traditional pay-per-rent business model, the same model used by rival Blockbuster, was replaced by a monthly subscription-based revenue model where you placed movie titles in a queue, receiving unlimited DVDs throughout the month with the sole limit on the number of DVDs you could borrow at any one time. Netflix allowed you to keep the discs for as long as you wanted. Their revolutionary idea was that customers received new movies when the old ones were returned – with no due dates or late fees. This further cemented Netflix’s reputation as an industry disrupter, breaking with the industry’s way of doing business on a pay-per-rental basis, effectively taking on the home video sales and rental industry. In one fell swoop, by eliminating due dates and late fees, Netflix found a way to give customers what they truly longed for, setting the stage for future growth and dominance of the entire industry.

In 2000, the founder of Netflix flew to meet Blockbuster’s CEO and team. During the meeting, Netflix proposed that it be acquired by Blockbuster for $50 million [1] , recommending the companies join forces. Netflix would manage Blockbuster’s online brand and Blockbuster would promote Netflix in stores. At the time, Blockbuster was at the top of the video rental industry and the company balked at the idea of partnering with an upstart. They refused to move away from physical retail stores (in the years that followed they doubled down on their retail store strategy) and they rejected the idea of eliminating their late fees. Perhaps more tellingly, they rebuffed the idea of moving toward a digital platform. The company hadn’t yet understood how vital the digital platform would be to its survival. [2]

Just a few years later in 2004, Blockbuster’s CEO at the time, John Antioco, finally recognized that Netflix and others had altered the movie rental landscape and decided to invest heavily in the digital platform, planning to spend $200 million to launch Blockbuster Online. Under Antioco, Blockbuster likewise planned to eliminate late fees, at another $200 million investment. [3] Up until this point in time, even though late fees were a major customer irritant, Blockbuster, with its thousands of retail locations, millions of customers and massive marketing budget, had until then relied on these fees as a key source of revenue. It’s easy to see how these planned investments would have negatively impacted Blockbuster’s bottom line in the short term. The company’s board moved against Antioco. He lost their confidence and left the company by July 2007. The new CEO reversed Antioco’s changes, in an unsuccessful attempt to increase profitability, but Blockbuster, the once unbeatable company, declared bankruptcy in 2010.

Netflix, in contrast, continued to invest in digital technology, eventually moving to video on demand via the internet, betting big on broadband adoption and customer appetite for streaming digital content. Netflix’s streaming business was such a success that it rebranded itself around video on demand. Today, Netflix, worth $71B in market cap [4] , is “the world’s leading internet television network with over 100 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day… Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen.” [5]

Lessons Learned

Much has been written on Blockbuster’s demise and there are certainly several important lessons to be learned. We see Blockbuster’s biggest failure to be its initial refusal to see how digital transformation would impact its future. That, coupled with the company’s failure to identify and provide what its customers truly wanted (a better experience with no late fees), paved the way for its nimble opponent, Netflix to disrupt the industry and become the market leader. Digital transformation of an entire industry can happen quickly, and Blockbuster’s misreading of the trend for video rentals to go digital was fatal. Once Blockbuster missed the mark, it was unable to recover.

It’s easy to understand how Blockbuster was overly entrenched in its traditional business model to see that the future was not in a strong store network, but rather in bypassing the retail store experience and in delivering movies to its customers directly in their homes. With its market leadership and billions in revenues sourced from a soon-to-be obsolete strategy, Blockbuster was unable to assess correctly the new opportunities and threats that Netflix presented.  As a globally successful brand and video rental incumbent, Blockbuster additionally overestimated its ability to compete with Netflix once it did decide to go digital. Having a strong brand does not ensure that your company will be able to compete effectively against digital transformers, no matter what their size – and yours. [6]

So, create a roadmap for your company’s future survival. Changes are swift and unforgiving in the digital age. Be aware how changing technology can meet your customers’ needs better and faster and plan accordingly. Know that some of today’s niche opportunities might become vastly more attractive, even disruptive. In this information age, new ideas can go viral before you have time to react. Be a visionary. Revisit your brand’s strategy regularly. And, don’t let current success blind your ability to assess market opportunities and threats posed by new entrants.




[4] As of June 5, 2017.



Why go Digital?

Myth: We invest in digital already, so we don’t need to go through the pain of a Digital Transformation

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Blockbuster vs. Netflix case study

Speaking of large modern multimedia companies, it is necessary to allocate Netflix as one of the largest suppliers of films and serials in the world. Its audience in 2014 reached the mark of 50 million users. Many leading publications call Netflix the most successful distributor of streaming multi media in history.

Searching for a Niche

The company was founded in 1997 by Reed Hastings and Mark Randolph.

They noticed in the video distribution market a free niche associated with the inconvenience of existing salons and services.  Thinking about this, the future founders of Netflix set about creating a more convenient method for renting movies and TV shows. The model of the work was built in such a way that a person could rent a movie without going to the store or office. Everything was easy to make out with the help of mail and bank payments. The cost of one week was $4.

 Thus, Netflix case study Harvard can be made from the position of searching for an unoccupied place and developing a new model of service, which would be more convenient to customers.

Blockbuster vs. Netflix

There were several major competitors on the market, among which was the Blockbuster network with annual revenues of up to $ 5 billion. They have not worked online yet, but they could start and easily destroy a start-up business.

Hastings understood that in such conditions it is necessary to act quickly. To attract the audience to the site, the founders began to create special promotions for users. In the first year of work, a trip to Los Angeles was donated to a random customer, and those who rented more than two disks received a discount of 30%. Blockbuster vs. Netflix case study shows how to bypass the main competitor in the short term and grow own audience simultaneously.

In the same way, one more problem of the company in the first year of existence was solved – a low percentage of DVD users. As a result, the company went the favorite way of providing bonuses to clients. For this, an agreement was concluded with the Japanese company Toshiba : every buyer of its players in the US received a free rental of three disks. So the company increased not only the number of DVD users but also its own audience.

This unique business can also be learned. It represents a mutually beneficial bilateral deal, each side of which only wins.

Delivery Innovations

At the beginning of its history, the company had to face several problems that could destroy it. One of them was the delivery of disks intact and secure with the help of mail. All the mail was sorted by special machines, working with a huge number of letters, and after this sorting, the disk would be damaged. Therefore, Netflix was faced with the necessity to develop a solution on how to save its product.

The development of a unique envelope began, and about 150 versions of different materials were created. They stopped on a version of the thick paper with a special partition, which protected the disk from damage. This solution shows how a company may act in conditions that cannot be changed but only adopted.

Following IT Trends

Based on the feedback from customers, the scheme of the service was gradually changed. Instead of a weekly lease, a one-month lease was introduced, while the company continued to offer its customers a variety of discounts. Everyone can take 4 DVDs for only $15.

95 for a month.Gradually, a new service option is gaining momentum – an online subscription developed in 1999. Initially, its cost was $ 19.95 per month for four drives, while there were no time limits and the user could take the discs for at least a year. For new customers, there was a trial subscription for six days.

This Netflix case study solution can be researched from the perspective of an adaptation of the business to changing conditions, following trends, the correct definition of the needs of consumers and the formation of a demanded proposal, combining all this with pleasant bonuses and opportunities to test the service.In 2007, Netflix began to distribute streaming video, which turned it into one of the largest companies in the world. The transition to the new model was due to the fact that Hastings understood: DVD is not the only way to distribute content, and with the advent of cloud services, most of the information has been stored on the Internet. There was a new niche that his company could fill. The founders of the company second time caught the current trend and were able to infiltrate into a virtually empty niche.

Also read  Netflix Case Study Assignment

Netflix is a great example of a company with a flexible business model that managed to conquer a selected market. From the very beginning, the service, despite the presence of strong competitors, was able to grope its niche and the advantages that ensured its further development. This applies, for example, to a very loyal system of change, when any change, before entering into force, passes through an audit of the audience. With negative reviews, innovation is mostly canceled. This approach from the very beginning has served the company a good service and continues to be useful until now.

Another important feature of Netflix is the high-quality selection of content, taking into account the user’s interests. Everything is analyzed: from user preferences to the service itself to the most popular movies from pirated sites. As a result, the company perfectly understands its own audience and offers it the most popular products.;

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Case study Blockbuster: Why is it necessary to innovate?

Case study Blockbuster: Why is it necessary to innovate?

Blockbuster was an American video store franchise, specializing in movie and video game rentals through physical stores , mail-order, and on-demand services, during the 1990s and early 2000s. It was very thriving and popular in the audiovisual industry and had very high profits. But one day, it made a bad decision when it had the chance to grow which resulted in bankruptcy.

<<< Case study Sega: When a competitor sweeps >>>

Once again we return to the case studies of very popular and profitable companies that, due to making bad decisions or being induced by very serious economic crises, ended up in bankruptcy. This time, we will talk about the Blockbuster case , its success story, a missed opportunity, and the disastrous consequences of letting it pass.

What was Blockbuster?

Blockbuster was founded in 1985 by David Cook , who ran a software company for oil companies in Texas. After a couple of years, and when that industry had run out of steam in the 1980s, his wife advised him to create a home theater rental franchise , which at the time, movie rentals were a highly profitable business.

To distinguish itself from the competition, its establishment adapted to the demand for a broader catalog of up to 6,500 references , longer rentals so that people could take more films, and greater inventory control through its automated system, with which detected consumer preferences. Quite a novelty for the time, which is why it was positioned as an avant-garde company in terms of video rentals.

From that moment on, its growth in two years was quite rapid , since it managed to open 20 stores and 20 franchises . By then, Blockbuster had become the benchmark for video stores, and as of 1990, it was already expanding into the international markets of Europe and Latin America.

In 1997 , the board of directors appointed John Antioco as CEO, who successfully ran the movie rental business, first on VHS and, later on, DVD for several years. A year later, Blockbuster still controlled 25% of the world market , due to important strategic alliances with renowned production companies.

Strategic alliances to annul the competition.

Starting in 1987 , Blockbuster dedicated itself to absorbing video store chains and ended up ousting the competition , overtaken by a larger catalog. The explanation for this enormous catalog was because, unlike the small video stores, which paid a high amount of money per film and recovered their investment thanks to rentals, Blockbuster reached direct agreements with the production companies , for which they obtained movies at a lower cost.

While it is true that most of the business was with major production companies, class B production companies also provided very good profits, since they represented 70% of rentals during the 1980s.

The offer of movies was similar to that of other video stores, so premieres had higher priority. Over time, the remaining copies and those withdrawn from circulation were put up for sale.

<<< Pan American World Airways: process analytics >>>

The Netflix proposal that Blockbuster rejected.

The popular Netflix , before becoming the most viewed platform worldwide, also operated as a movie rental store , only this one did it online , so, thinking about the future, Netflix was destined to succeed, unlike its rival Blockbuster. But it is time to tell you how the link between the two companies was born and the beginning of the end of Blockbuster.

In the early 2000s , Netflix was a small video rental company , but what set it apart from Blockbuster was that its business model accepted subscription payment and allowed users an unlimited number of movies and TV series . They could order online and there were no penalties for returning films late.

Instead, Blockbuster charged for DVD rentals and made their profits from the fines they collected for late DVD returns.

However, the beginnings of the relationship were not exactly cordial. It all started when the owner of Netflix, Reed Hastings, before creating the company, went to rent a movie from Blockbuster and took longer than indicated to return it , for which the rental store charged him a high surcharge that Hasting did not want to pay. So he decided to create a business , also a movie rental business, that didn't charge customers late fees for returning movies.

By the time Reed Hasting had already established his business, he thought that Blockbuster, being as important as it was, and Netflix should stop being rivals and create a strategic alliance to strengthen the market . But Antioco did not think it was a good deal and turned it down.

Netflix's strategy to establish that alliance was for Blockbuster to acquire it for 50 million . Then, the visionary project that Netflix aimed at was to offer its DVD rental service through email and via streaming. Although Blockbuster had the resources to do this business, it seemed more profitable to continue as it was. This is how Blockbuster lost the chance of a lifetime by resisting change .

A year after this offer, video rentals became obsolete in the United States and, later, in the rest of the world. In the following years, the company lost users due to the success of Netflix , and the streaming service it offered was much more interesting for Blockbuster customers, who preferred to switch to Netflix.

The bankruptcy and definitive closure of Blockbuster.

Since the mid-2000s, Blockbuster has not been able to face the obsolescence of the physical format in the face of new forms of consumption as disparate as cable television, self-service stores, video on demand, and even piracy, before which there was no planned strategy.

In some countries such as Spain and Ecuador, it was immediately withdrawn from the market, while in others such as Mexico and Argentina it had to be readapted.

As a last resort, in 2010 the group reinstated the late penalties it had eliminated five years earlier. However, o n September 23, 2010, Blockbuster declared bankruptcy. At that time, more than 3,000 stores were still open in the United States.

Despite several attempts to restructure its debt, in March 2011 the United States Department of Justice ruled that the company should be liquidated.

Blockbuster was taken over in April 2011 by Dish Network, the largest pay-TV provider in the United States, for $320 million. Its initial goal was to accomplish the gradual closure of the remaining 1,700 stores and retain the brand to launch a video-on-demand service to compete with Netflix.

However, the plans did not prosper and two years later the complete closure of all video stores was announced as of January 2014.

<<< Crisis in the environment: case study Daewoo>>>

The face of defeat.

Other very large companies, despite the bad decisions they made, were able to recover and re-enter the market, such as Nokia and Blackberry , but others weren't so lucky and ended up in bankruptcy, such as Pan American, Daewoo, and Blockbuster, among others.

With the Blockbuster case , we have learned how resistance to change can render a profitable business obsolete and bankrupt. Blockbuster had everything to stay: sufficient financial capital, a recognized brand that customers chose, but it did not see the end of an era, the era of movies on DVDs and Blu Ray and the advent of the digital age.

And it was at that moment when Netflix, its main competitor, the same one that could be an ally to conquer the movie market of digital platforms, took an unattainable advantage that meant its ruin, at least for now. If it comes back in the future to reinvent the brand with something newer than Netflix, only time will tell.

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2020, P. Maina

This case analysis will examine the US home video retail market from the perspective of two companies, Blockbuster, and Netflix. The former collapsed in 2010 while Netflix is the dominant operator in the market. The study will provide insight into the strategies and application of theoretical concepts adopted by both companies. The report will compare the organizational culture of both companies to analyze the failure of one company and the success of the other. It will also explore the strategic positioning of Blockbuster and Netflix and the strategic choices that the companies pursued until the present. An examination of those choices will expose how Netflix gained a competitive advantage over a rival that was highly profitable and with a substantial physical footprint in the video rental market. The analysis provides insight into the right thing that Netflix did while at the same time, looking into its current challenges. The company's future relies on addressing its current challenges and co-opting emerging technologies, just as it did with Blockbuster. The stakes currently are higher because Netflix is competing with companies with proven innovation record.

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This is an English versión of the Paper originally published in Spanish in El Profesional de la información, v. 24, n. 6. To cite this article, please use: Izquierdo-Castillo, Jessica (2015). El nuevo negocio mediático liderado por Netflix: estudio del modelo y proyección en el mercado español. El profesional de la información, v. 24, n. 6, pp. 819-826. http://dx. Abstract: New actors, who link their activity to content distribution, lead the business of online media content. These actors operate adapted to the demands of converging media context, and they propose business models oriented through user benefit. Among them, Netflix notably highlights for the leadership he has in its home market, the United States, and its international expansion. This paper presents in detail the Netflix business model with a case study that focuses on three key areas: the catalogue and monetization's formula, policy relationships with key audiences (users and content and internet providers) and its internationalization strategy. From the results, a discussion on the projection of this model in the Spanish media market is opened.

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Research summary: Firms introducing disruptive innovations into multisided ecosystems confront the disruptor's dilemma: gaining the support of the very incumbents they disrupt. Through a longitudinal study of TiVo, a company that pioneered the Digital Video Recorder, we examine how these firms may address this dilemma. Our analysis reveals how TiVo navigated coopetitive tensions by continually adjusting its strategy, its technology platform, and its relational positioning within the evolving U.S. television industry ecosystem. We theorize how (1) disruption may affect not just specific incumbents, but also the entire ecosystem; (2) coopetition is not just dyadic, but also multilateral and intertemporal, and (3) strategy is both a deliberative and emergent process involving continual adjustments, as the disruptor attempts to balance coopetitive tensions over time. Managerial summary: New entrants confront a dilemma when they introduce a disruptive innovation into an existing business ecosystem, viz., how can they gain the support of the incumbents that their innovation disrupts? Confronting this " disruptor's dilemma " , the disruptor must consider several issues: How might it pitch its innovation to attract end customers and yet reduce the threat of disruption perceived by ecosystem incumbents? How can the innovation be modified to fit into legacy systems while transforming them? Based on an in-depth analysis of TiVo and its entrepreneurial journey, we explore the strategies disruptors can deploy to address these issues.

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