Renting and Netflix

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9-607-138 REV: NOVEMBER 19, 2007 ________________________________________________________________________________________________________________ Professors Willy Shih and Stephen Kaufman and David Spinola (MBA2007) prepared this case. HBS cases are developed solely as the basis for class discussion. Certain details have been disguised. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or goto http://www.hbsp.harvard.edu. No part of this…show more content…
Customers rented movies, primarily on VHS cassette, from a retail location for a specified time period, usually between two days and one week, and paid a fee of $3 to $4 for each movie rented. The market leader was rental giant Blockbuster Inc. Blockbuster’s success was based on the insight that movie rentals were largely impulse decisions. To customers deciding at the last minute that a given night was “movie night,” the ability to quickly obtain the newest release was a priority. Statistics showed that new releases represented over 70% of total rentals. Much of Blockbuster’s growth strategy revolved around opening new locations, both to expand geographic coverage and to increase penetration and share in existing markets. In 2006, Blockbuster had 5,194 U.S. locations, of which 4,255 were company owned, with the balance franchised. Locations were chosen based upon a careful review of local data, including customer concentration and proximity to competition, focusing on highly visible stores in high-traffic areas. Management commonly proclaimed that “70% of the U.S. population lives within a 10 minute drive of a Blockbuster,”1 highlighting how its retail network offered unmatched convenience to impulse movie renters. Stores were

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