comparison of two firms

1. Netflix, Blockbuster and
Never-Ending Competition
MGT 320 – Fall 2011

2. Comparison of Business Models

3. Subscription Plans

5. Implications of Revenue Sharing
• Traditional video rental model based on sales to rental
company. This meant large up-front costs which
limited the number of titles purchased and available to
the customer.
• Revenue-sharing means:
– Lower up-front costs for rental company
– Delayed revenue capture by movie producers
– More title selection for customers
– More rentals
• Strategic understanding: given more titles, the
customer would rent more.
• Would not work without 3rd-party independent
tracking of rentals via an MIS system: Rentrak.

6. Netflix – Rapid Growth due to new Business Model
Netflix
Figure 1. Netflix subscription and Revenue growth. Source: Business 2.0
“How Netflix is Fixing Hollywood”

7. Recent Netflix Stock Price

8. Blockbuster’s Response
• Expanded online offerings
– More games and Wii
• More revenue-sharing agreements
– Convinced major studios to not sell new movies for 28
days after release. This increases the number and
prices for rentals.
• Better utilizing stores:
– Technology “try-out” centers
– Repair and setup of Wii and game machines
– Advice and assistance to digital device users
– Sales of used/new DVDs, games and equipment

9. Netflix’s Mistakes
Problem is the increased adoption by customers of
internet streaming. DVD rentals are declining
and will disappear.
• Offered free streaming to subscription holders.
– Undercuts competitors who only offer streaming
– Creates unfullfillable expectations in the customers
• When Netflix added price for streaming, customers
left.

10. References
http://seekingalpha.com/article/302579-netflix-s-classic-mistake-is-irreversible-and-life-threatening?source=ya
How Blockbuster is Updating Its IT Infrastructure:
http://www.cio.com/article/481813/How_Blockbuster_is_Updating_Its_IT_Infrastructure
http://www.forbes.com/sites/panosmourdoukoutas/2011/10/26/the-return-of-the-customer/?partner=yahoof
http://finance.yahoo.com/q/bc?s=NFLX&t=1y&l=on&z=m&q=l&c=
http://businessmodelinstitute.com/how-the-mighty-can-fall/
http://mgmtclarity.files.wordpress.com/2010/04/capstone_final_report.pdf
http://www.woodlandmarketingmanagement.com/Portfolio/Strategic%20Planning.pdf
Netflix Distribution Channel:
http://electronics.howstuffworks.com/netflix2.htm