Renting and Netflix

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.

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Blockbuster implemented a new strategy for customers to access their rentals in “five channels of distribution: in-store, by mail, through vending machines and kiosks, online, and at home (direct to the TV)” (DATAMONITOR, 2009). However, this strategy was a reactive approach to the problem produced ten years behind schedule. Wooldridge et al., (2007) stated that Blockbuster should select and adapt their strategy to respond to the fast changing market and maintain a competitive position. This was an obvious failure for Blockbuster. The changes in the market produced a decline in profit at a faster pace than the strategies that Blockbuster implemented to combat these losses.

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?

The movie studios want customers to be able to get their movies and entertainment as easily as possible. The easier it is for people to acquire their products the more likely it is that they will. By offering many different options for customers to obtain movies and entertainment, Blockbuster has a strategic advantage over its competitors. The convenience that Blockbuster can offer in their ability to distribute the movie studios products is a definite advantage. Another advantage

If Blockbuster had stayed up on trends and realized what was happening with technology, they may have been able to keep the customers that were lost and also gain new ones. Instead someone else took advantage of this and stole business right out of the video giant’s hands.

Concession sales and ticket sales are the two biggest sources of revenue for a movie theater. Both continue to increase in cost to the consumers and may have reached a price point that is starting

Blockbuster is the largest movie rental retailer. With its opening in 1985, Blockbuster has pursued an ambiguous program of growth and expansion. Currently, Blockbuster owns and operates over 9,000 stores both domestically and internationally. In addition, Blockbuster franchises about a quarter of its stores. It is important to note that Blockbuster is undergoing a managerial struggle at the present time. The current CEO, John Antioco, and a major shareholder, Carl Icahn, are disputing Blockbuster’s strategy. Mr. Antioco has threatened to resign if Mr. Icahn succeeds at attaining a position on the Board of Directors1. Mr. Antioco believes that Blockbuster needs to develop new strategy to respond to the current market

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

Blockbuster and Netflix has a core value proposition and a target audience within their business. Blockbuster’s core value proposition was to gain consumers through

1. How might the reward program described in case exhibit 5 affect the movie and event –going behavior of major market segments? At retail, what is the average value of each reward structure for customer’s dollars spent – 5 %, 10%, 15% or 20%? Which reward structure would you choose? Why? (For the sake of simplicity, ignore the one-time fees and rewards)?

Blockbuster was a movie rental company that suffered through lackadaisical leadership, missing out on a golden opportunity to buy out the company that would one day run it into bankruptcy. David Cook opened the first Blockbuster in Dallas, Texas in 1985. He had seen the potential in the movie rental industry when he had researched into acquiring a video store franchise. He laid the groundwork that would one day lead Blockbuster to becoming a rental movie empire that. He built a $6 million distribution facility that made it possible for stores to pop up in instantly. The distribution facility allowed for a “store” to be sent out within 24 hours. The goal was to be able to send three stores out per day; everything the store would need was included in this shipment. A Blockbuster store was home to more than 8,000 movies, the distribution center allowed stores to open very quickly.

At the beginning the company was considered leader of its industry due to its capacity to customize a store to its neighborhood,

While Blockbuster is trying to remain true to its origins and keep its core competence of a physical video rental store, the future seems to be in the roles of companies able to cater to consumer’s busy life styles and need for convenience. Netflix, along with Apple and video-on-demand, is working to make ordering movies and TV shows as simple and fast as possible. Blockbuster needs to create a strategy that keeps at the front of the movie rental technology if it doesn’t want to lose customers to the convenience of not having to leave their homes.

Market Penetration – The company markets existing products to existing customers. In this strategy, the product remains unchanged and there is no effort to pursue new market segments. Efforts are instead focused on increasing market share through promotions or brand repositioning.