Red Box, founded in 2003, would be the finishing knockout punch to Blockbuster. Already reeling from customer losses to Netflix, Blockbuster management failed, once again, to realize the potential of a new delivery system, the kiosk. Blockbuster had investigated kiosk delivery systems even before Red Box was introduced. They chose to instead believe that human interaction would keep their customer base intact. Red box’s initial price of $1 a day rentals was a big consumer draw in comparison to Blockbusters $5 fee. Blockbuster tried to roll out trials of a new price
The movie rental industry is a living industry; there are constant changes with advances in technology, rights management, and the slow, but steady, move away from physical Media. Companies such as Netflix, Hulu, RedBox, and Blockbuster are being forced to look at new business models and try to keep up with these changes.
Blockbuster Entertainment, Inc. was once a highly successful and profitable brick and mortar home movie and video game rental store. At its peak in 2004, Blockbuster had up to 60,000 employees and more than 9,000 stores. The idea behind Netflix came from an unsatisfied, embarrassed customer of Blockbuster, Mr. Reed Hastings, now CEO of Netflix, paid a $40 late fee because he returned the movie Apollo 13 six weeks later (Zarafshar, 2013). He began to contemplate ingeniously about a notion to change the movie-leasing pattern into a more pioneering industry. In 1997 Netflix was started as a DVD rental-by-mail business without subscriptions. In 1999, taking a stride additional in the direction of evolving the industry, Hastings began the subscription-based business mode based on renting DVDs by mail with plans reliant on the quantity of titles taken at a time. Netflix put forward 120,000 titles for limitless monthly DVD rental with free shipping no late and per title fees. Since that time Netflix has become one of the most popular subscription services in the world, and is now valued at over $28 billion and steadily increasing. What factors contributed to the success and failure of these two companies?
Blockbuster was a provider of home movie and video game rental services through rental stores, DVD by mail, streaming, video on demand, and Cinema Theater. Everyone was a fan of Blockbuster in the 1990s. It was founded by David Cook in 1985; he opened his first store in Dallas, Texas. When this company first started, that had a limited video selection, but they still grew rapidly. They became one of the world’s largest providers of in-home movies and game entertainment. Blockbuster had more 8,000 VHS tapes in more than 6,500 titles. What made the store different from the others is that they displayed their movies on the shelves, they kept the doors open later than any regular video store, and they didn’t sell any adult films because it was
Blockbuster and Neflix are two companies that are in the home video rental market, which accomplished enormously contrasting effects. While, Neflix enormously heightened its company value, Blockbuster lost it’s powerful and influential market position, and in 2010 slipped into bankruptcy. With this paper I will attempt to discuss important insight into the many aspects of Blockbuster and Netflix, and other media entertainment industries, including each company’s success and failure. In this paper, you will find that on average Blockbuster’s did not have a substantial impact on it company value nor success, while Netflix’s, on the other hand, increased its company value and success. Furthermore, Netflix’s in the areas of service enhancement
The strategy canvas shown in Figure 1 captures how Netflix’s strategy differs from Blockbuster’s and their areas of differentiation. Netflix shifted their focus to alternative new offerings, building on critical success factors that could not be matched by Blockbuster, even when they entered the online video rental.
Step 1: Identify the specific competitive pressures associated with each of the five forces Step 2: Evaluate the strength of each competitive force Step 3: Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits. (Thompson, Strickland and Gamble 2008:54) Competitive rivalry Blockbuster reached a peak of 9,094 company-operated and franchised movie rental stores worldwide. However, when Blockbuster launched an online subscription service in 2004, it met the strong competitor, Netflix, which already had more than 2 million subscribers. Netflix offered a wider choice of subscription plans from $8.99 to $47.99. And it also developed proprietary software to provide subscribers with detailed information about each title in the Netflix library. Netflix offered a high quality service by giving one-business-day delivery capability for most of the subscribers. These kinds of service and performance cause the rivalry to be
The presence of Netflix and Blockbuster in the movie rental industry has assisted me in developing this analysis of each corporation’s strength, weaknesses, opportunities, and threats as followed:
Not only does Redbox provide a unique service, they provide it at a low cost at convenient locations. Most movie rental stores charge $4-5 to rent a new release for approximately 3 days, whereas Redbox provides a similar service for $1.29 per night. This is extremely cheap considering most consumers watch their movie rental the same day they rent it. Furthermore, Redbox gets this low cost movie rental product to the consumer through a channel of distribution historically associated with snack foods and soda. By providing movie rentals through vending machines called kiosks located at shopping locations where consumers already go to shop, they have eliminated much of the costs associated with conventional movie rental stores and the need for consumers to make an additional stop just to rent a movie. Since Redbox’s inception, it has experienced enormous growth and profit, but they will need to evolve in order to get ahead of the curve.
The competitive forces in the movie rental industry are quite strong, as I will explain through the five forces model. There are a vast amount of substitutes for watching a movie. You can go to a play, sporting event, concert, out the lake/beach, go for a run, watch regular television, go shopping; I could go on and on. Also, torrenting or pirating movies is growing increasingly popular. Buyers have a strong presence in this industry mainly because they are picky about how much they will pay to rent or stream a movie. With the amount of substitutes and their pickiness, they make this
One the one hand, the fertility of the industry opened the doors to corporations that sighted substantial growth potential. New entrants with big pockets such as Walmart could pose a certain threat to Netflix, by exploiting a playing card based on cost reduction. On the other hand, barriers to entry became relatively significant as established video rental retailers such as Netflix have the experience and the knowhow to market movies to people. In this industry, firms that do not have a technological advantage can’t compete. The best example is Netflix’s CineMatch program that offered personalized film recommendations based on customer’s rental patterns. This way, Netflix was able to better serve its subscribers. From a cost perspective, the movie rental industry requires high capital expenditures, and the major expenses are highly related to acquisitions of DVD library and investments in technology (exhibit 2 continued). Thus, we may say that entry is difficult in this industry as the competing firms have reputation, experience and recognizable brand names.