Blockbuster vs. Netflix: Which Will Win Out?

Block buster was the business leader for movie rentals for a long time until Netflix came up with a new business model and introduced an online Video/DVD rentals for lower cost and no late fees. Netflix was a forerunner (First in business) and rapidly gained ground on movie rental business. Netflix could efficiently reach customers and conveniently deliver movies to their doors with less overhead cost and bigger variety of choices. Putting Blockbuster stores in a tough position to complete. Blockbuster and Wall Mart both tried to complete by following suit but have not been successful.

And now with coming of downloadable movies through other “Network providers” and “Apple” competition has become more complex and vital for Blockbuster. Q4: Netflix has been so far quite successful in its business strategy, compare to ‘mom an pops stores’ and Blockbuster for that matter. However, with rapid improvement of digital technology and movie on demand they may face some challenges and may loose some of their business to newer technology such as offering of downloadable and writable DVDs.

So far Netflix has the brand name recognition, clientele and subscribers that can follow the company with any new method of movie delivery that Netflix can offer. Company just needs to be quick and efficient in offering downloadable movie option, and not to loose much of the market share. Q5: Chances of succeeding for Blockbuster or Netflix on this business depends on how fast they can capture larger market share with the help of the latest technology, who can offer more options and availability of new releases as well as hard to find movies…

They need to be on top of their ‘technology game’ and invest on new means of delivery as well as movie rental per see. IT plays a great role in their business and their viability depends on how adaptive they are and how creative they are in using information technology to their advantage. 1. Blockbuster’s business model is the rental and sale of movies primarily at retail locations. Its main source of distributing its service and products is through its many bricks-and-mortar locations throughout 25 countries.

However, since the emergence of Netflix, it also began an online subscription service in attempt to keep its large share in the movie rental market. The new business model has had mixed reviews. Netflix has more subscribers than Blockbuster’s Movie Pass subscribers and is more user friendly. Blockbuster has also lost revenue from implementing its “No More Late Fees” campaign. 4. Netflix has become quite successful over the past 10 years. It has become the number one online movie rental service. It’s online ordering and delivery through the mail has drastically changed the movie rental industry.

Its business model eliminated the need for physical locations, which eliminates a large fixed cost. Currently, Netflix has over six million subscribers and continues to grow. 5. I think that both businesses will lose revenue from the new movie distributors emerging; VOD technology, Movielink, Apple and Amazon. Blockbuster will suffer the most because it has a large fixed cost from its thousands of physical locations around the world. Blockbuster has already closed several locations and continues to see increased losses. The entrance of these new competitors might be the end to Blockbuster.

Its subscription service is inferior to Netflix and there is little growth potential for this bricks-and-mortar business today. Question 1. Blockbuster has emerged as a video rental business in 1985, and until 2004 its business model has been to open up as many “brick-and-mortar” stores across the country as possible. Until online movie rental companies started coming into play in the late 1990s, Blockbuster’s business model proved to be very successful: according to the case study, Blockbuster possessed a 40% market share of the video rental industry in 2004. Question 2.

Several industry and technology forces have challenged Blockbuster’s business model. First, the appearance of other players with a different business model has created competition in the industry. Netflix came out with a dramatically different concept in 1998 by offering an online subsciption service for a low monthly fee, with no late penalties and by delivering movies directly to the customers via mail. The expansion of Internet and related technologies has also caused other companies, such as Movielink, to get into the downloading business and take away even more customers from Blockbuster.

Users can download a movie onto their computers and watch it on the computer or re-route it to the TV screen with the use of special cables. With the development of these technologies Blockbuster is now facing several problems. It has to find a way to retain existing customers as well as keep attracting new ones. Blockbuster decided to eliminate all late fees and also created its own online rental service that is integrated with its stores. A Blockbuster customer can order a movie through the online service, receive it in the mail and then return it either in the mail or to any Blockbuster store.

If the customer chooses the latter option, he can also rent a movie from a store free of charge. Question 4. I think Netflix has been very successful at its strategy and business model. It has been in business since 1998 and had more than 3 million subscribers by 2005. It offers a simple, convenient and fast way to rent movies and return them at any time. When a movie is received at the distribution center, a new movie from the customer’s “wish list” is sent out. In my opinion, however, Netflix will have to get into the movie downloading segment to remain competitive in the future.

I need your help with an investing decision. The issue involves Blockbuster and Netflix. There are two questions that have been puzzling me, and I could sure use some input. Here are the two questions: 1. Why do more people choose Netflix over Blockbuster even though Blockbuster offers physical store locations in addition to online DVD rentals? 2. Would you be more inclined to use Blockbuster if it offered newly released films 28 days before Netflix or Redbox? Now some background. Recently I opened a Scottrade brokerage account for my SEP IRA account.

Although I’ve been investing in mutual funds for nearly 20 years, the Scottrade account was my first venture into buying and selling individual stocks. But since opening the account, I’ve run into a problem–figuring out exactly what to invest in. Investing in mutual funds is easy. Simply build an asset allocation plan, and then find low cost mutual funds to implement the plan. But with individual stocks, you first have to find stocks to evaluate, and then go about the process of analyzing the company. And that brings me to Blockbuster (Ticker: BBI). Blockbuster has been in trouble for some time now.

Since Viacom spun off the movie rental retailer, it’s been in a heap of debt–about $1 billion of debt to be exact. And the company has been poorly managed. It let Netflix (Ticker: NFLX) beat it to the online market while it stood there and watched. And then it let Redbox (Ticker: CSTR) beat it to the vending machine rental market. While only a few years ago it was king of the hill, Blockbuster is now trying to play catch-up. And that brings me back to one of the questions I asked above: Would you choose Blockbuster over Netflix or Redbox if Blockbuster got access to newly released movies four weeks before its competitors?

This question is not hypothetical. Recently Blockbuster announced a deal with Warner Bros. to offer new releases about one month before its competitors. And as the image that started this post reveals, Blockbuster wasted no time promoting this deal. The Blind Side, starring academy award winner Sandra Bullock, is a Warner Bros. picture that for the next several weeks you can rent at Blockbuster, but not Netflix or Redbox. Sherlock Holmes, also released by Warner Bros. , will also be available at Blockbuster first. While my first reaction to the Warner Bros. deal was less than enthusiastic, I’m starting to change my mind.

According to Warner Bros. as reported in this Motley Fool article, 75% of DVD sales of new titles occur within the first four weeks after release. And just this week, Blockbuster announced similar deals with Twentieth Century Fox Home Entertainment LLC and Sony Pictures Home Entertainment Inc. Looks like Blockbuster will get a head-start on Avatar. Still, Blockbuster has some major challenges. First, it’s way behind Netflix for online subscribers. If you dig into each company’s Form 10-K, you’ll learn that Netflix has over 12 million subscribers, and in 2009 grew at a 31% clip.

Blockbuster, on the other hand, has only 1. 4 million subscribers, down from 2. 1 million a year ago. Can the deal with Warner Bros. stem the tide? Maybe, but it seems like an awfully tall order. Second, Blockbuster is way behind Redbox in the kiosk market. While Redbox has more than 22,000 kiosk locations and has become a household name in its niche, Blockbuster is working with kiosk vendor NCR and has just 4,000 locations. And all of that brings me to the other question I asked at the start of this post: Why do more people choose Netflix over Blockbuster ven though Blockbuster offers physical store locations in addition to online DVD rentals? One possible answer may be that most folks don’t care about physical retail locations. If all things were equal, however, why wouldn’t you care? But maybe that answers the question–all things aren’t equal. In order to have in-store exchanges added to a Blockbuster Total Access subscription, you have to pay a few dollars more a month. Blockbuster’s Total Access without in-store exchanges costs the same as Netflix: $8. 95 for 1 DVD at a time, $13. 9 for 2 at a time, and $16. 99 for 3 at a time. Add 5 monthly in-store exchanges to any of these plans and the cost goes up $3. Is it worth it? I guess most folks don’t believe it is, at least if subscription rates for Netflix and Blockbuster are any indication. So what’s the likely outcome? Initially, I didn’t see Blockbuster as a viable company. It’s saddled with expensive stores and a lot of debt, both of which act has heavy anchors holding the company back. But the deals this week made me realize that the studios don’t want to see Blockbuster go away.

Why? Because if Blockbuster goes away, Netflix will have far too much power in the industry. I would think that studios would much prefer to see healthy competition in the distribution of their pictures, and that means a competitive Blockbuster in some form. All of that said, the question still remains whether to invest in Blockbuster. I love an underdog, so I may take the risk. But I’ll only invest money I’m willing to lose. If you’d like more information on their subscription services, check out our reviews of Netflix and Blockbuster.

And before you sign-up, visit our Netflix promo code and Blockbuster promo code pages, which we regularly update with the latest discounts and coupons for both services. In the brick and mortar movie rental industry, Blockbuster is clearly the leader. With the merger of Hollywood Video and Movie Gallery, that leaves on two major players in the brick and mortar movie rental industry. Essentially, this has created many barriers for traditional mom-and-pop video stores to maintain consistent revenues or expand and open new stores, ultimately driving many out of business.

In the early ’90s, there were some 70,000 stores nationwide that rented movies, compared to 18,000 today (Graham). The appearance of a new brick-and-mortar competitor for Blockbuster is an unlikely event. Online however, Blockbuster faces different circumstances. In general, the internet will reduce barriers to entry for new companies by eliminating the need for an established sales force and existing channels. In addition, the internet makes applications difficult to keep proprietary. The internet has allowed Netflix to enter and become the leader in the online video rental business.

Netflix has lower proportional upfront capital requirements than a chain of traditional movie rental stores. In addition, its distribution centers can be built in low-cost areas, and current distribution centers can cater to distant customers until local penetration rates justify building new ones (Jackson). Netflix, along with smaller players Wal-Mart and Amazon. com, have all become Blockbusters major online competitors. As a result, Blockbuster has used this ease of entry fashioned by the internet to create Blockbuster. com, a site also providing rentals online.

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