Netflix and Blockbuster

Introduction

Video streaming services make available TV shows and movies on the internet. They are

meant to substitute cable and satellite as they are relatively inexpensive. One is required to pay

some small fee either for every video viewed or as a subscription for a given period, say

monthly. Video streaming services are cloud-based. Different videos are presented to people

from different regions, of course at varying prices. Video streaming services are supported by a

number of devices, including PCs, handsets, tablets, and smart TVs. Other video streaming

services are customized for specific devices. For instance, iTunes is meant for Apple gadgets.

Some video streaming services do not require any subscription fee - they capitalize on ad

revenue. A good example is the Google video. For others, one can access some movies for free,

but then be required to pay for full feature movies (Rouse, 2013).

Netflix

Netflix is a notable pioneer in the video streaming services industry. It was founded some

20 years back as a DVD service. Subscribers would be mailed DVDs of their choice and watch

from the comfort of their homes. Come 2007, Netflix started its online video streaming service.

Thousands of people subscribed to these services and were able to follow their favorite movies

and TV shows without the nuisance of ads. As of now, Netflix is still the leading video

streaming service. The number of paid subscribers has risen to 151 million. These are spread

across 190 countries in the world. However, over the years, many competitors have sprung up,

including Hulu and Amazon Prime. These have since applied for exclusive rights in a bid to

narrow the options for Netflix. Nonetheless, Netflix still stays ahead of all others, with the widest
collection of TV shows and movies, for whatever the language (Voigt, Buliga, and Michl, 2017).

The main persons behind Netflix were Marc Randolph and Reed Hastings. In 1997, they

founded the company in Scotts Valley, California. This is what has expanded to what is now the

number one entertainment company in the entire world. In 1997, Marc Randolph was still

employed by Reed Hasting in His company Pure Atria as a marketing director. Marc is also

credited with helping to found the MicroWarhouse - one of the largest digital mail companies

(Voigt, Buliga $ Michl, 2017).

By 2007, Netflix had already started renting out DVDs as asked by the subscribers. Later

on, they ventured into video-on-demand to access more markets. As of now, Netflix boasts of

being the leading online video provider. By 2013, Netflix had a whopping 40 million subscribers.

This was an equivalent of 89% of all users of video streaming services. Apart from streaming

typical videos and TV shows, Netflix also produces its own movies. The Video on Request

business has numerous stakeholders and varies in operation from one company to the other.

Investors in this business capitalize on the uniqueness of their product and strive to satisfy the

customers to their level best. Take for instance the aforementioned company, Hulu. They take a

50-50 approach in making public their revenues. They also engage Amazon to help avail their

products to the public (Voigt, Buliga & Michl, 2017)

Netflix has largely adopted Porter’s Model of business strategy so as to always stay ahead

of the competition. For continual growth, Netflix makes use of the Ansoff Matrix. These two

models have skyrocketed the company to the top position as far as video streaming is concerned.

Netflix concentrates on three main items - i.e. movies, series, and shooting their own videos. For

subscribers, they present a flat rate which the subscribers must pay in order to watch the videos.
They do not include advertisements in their products. To grow to such a humongous corporation,

it has taken exceptional management, not just the basics of streaming movies (Moore, 2019)

The main income-generating project for Netflix is the online streaming of videos.

Moviemakers are able to reach a very large number of customers through online streaming.

Netflix takes care to filter content so as to remain within the general community guidelines on

video content. Videos are availed to the customers on a single platform. The platform business

model is what has made Netflix successful. The idea behind a single platform is cost-

effectiveness. Disseminating of digital products across the globe has never been so easy.

Regarding the production of new original content, Netflix employs the pipeline business model.

This makes it possible for the company to control the creation of original movies in a

straightforward manner. In line with this is the platform business model which is utilized for

expansion of the company.

Netflix streams its own movies on its online platform. This has the advantage of getting

rid of brokers. This way, Netflix has gained some degree of competitive advantage above the rest

of the companies. This business model allows several other movie producers to avail their

content to the public across the globe. This also works to the advantage of Netflix as it reaches

the new audiences. Traditionally, brokers take part in the circulation of movies, with quite a

portion of the sales revenue going to them. By getting rid of the brokers, Netflix gets even more

revenue (Moore, 2019).

Netflix has capitalized on cost leadership. This basically involves keeping the operational

costs as low as possible, so that the retail price is favorable to the consumers. Such generic

strategy works to the advantage of Netflix. Consumers will always go for services they can
afford. Of course, Netflix is not the cheapest video streaming service one can subscribe to but

they are affordable. Netflix continuously looks for new markets worldwide. This is in

contradiction to the focus strategy wherein companies narrow down to a particular section of the

market. In addition to cost leadership, Netflix also capitalizes on the personalization of its

products. It is a fact that all video streaming services deal with videos, but the question they try

to answer is how different their service is from the rest of the providers (Moore, 2019).

Netflix majors on market infiltration for growth. The company continuously strives to

reach new customers from every corner of the globe. To achieve this, Netflix has cleverly

strategized on how they will keep their customers and not lose them to other video streaming

service providers. Market development comes second after the generic strategy, as regards

growth of Netflix Inc. Market development takes two angles - providing online streaming service

to the existing consumers and availing new content unexplored markets. In addition to market

development, Netflix employs product development to expand its business. In this regard, they

always aim to produce new content for their existing customers. Netflix has not tried its hand in

the diversification of its products and operations. Diversification comes with its fair share of

risks. If Netflix were to employ diversification, they would basically be seeking to expand the

business through other operations apart from the video streaming services and shooting of

movies (Moore, 2019).

Netflix has really mastered the art of operational competence and minimizing business

costs. To cater to customers spread across the globe, Netflix has to energetically market its

products. They have been able to achieve this through their ingenuine business model, which

majors on keeping costs as low as possible and exploring new markets. Netflix has to see to it

that their streaming services are supported on different digital devices so that almost anybody
can access their services. The above mentioned are the main strategies used by Netflix to remain

the leading video streaming service provider.

Blockbuster Inc.

Blockbuster Inc. is the top video disk rental company in the world. Currently, it controls

about 27 % of the market in the US. The company has a total of about 6,500 video stores across

the country. Their customer base totals to about 87 million in the US and the 25 other countries it

has managed to penetrate. The idea of Blockbuster was conceived in the mid-1980s. It was

initially meant to rent videos to users just within the locality. Little did the founders know that it

would one day grow to a nationwide chain. In addition to renting video disks, the company has

also ventured into music retailing. Viacom Inc. purchased Blockbuster in the year 1994. Viacom

was thus in a good position financially to bid for Paramount Communications. Blockbuster

remained a subsidiary of Viacom for about 6 years, up to 1999. During this year, Viacom made

its initial public offer of Blockbuster’s stock - this totaled to about 31 million shares, which is

about 18% of the totals shares.

In 1982, the idea behind Blockbuster Entertainment Corporation was conceived in

Delaware. It took another 3 years before their first video store was opened - going by the name

“Blockbuster Video”. This was specifically on the 19th of October, 1985. The following years

saw its exponential growth into a multi-billion dollar company. In 1994, Viacom purchased

Blockbuster for a whopping $ 8.4 billion. Moving on to 1996, it was agreed that the name

“Blockbuster, Inc” should replace the original one, “Blockbuster Entertainment Corporation”.

Their retail stores were also renamed “Blockbuster” from their initial “Blockbuster Video”.

Come 1999, Blockbuster was listed under the New York Stock Exchange as “BBI”. The merger
between Viacom and Blockbuster did not last long. In 2004, Viacom called it quits. Up to now,

Blockbuster operates a 100% independent company. Its headquarters is in Renaissance Tower in

downtown Dallas, Texas (Holmgren, 2006).

Blockbuster had opened 15 retail stores as well as franchised 20 other by mid-1987. This

was the beginning of the exponential growth of the company. Huizenga worked very hard

towards the growth of the company. One thing he championed was Cook’s policy of opening the

stores at 10.00 a.m. every day and closing at 12.00 midnight. Video disks could only be rented

for a maximum of 3 days. Customers were therefore allowed to rent 2 or more video disks at

once. That time, it was widely thought that such a business could only make a good income

through hits. Blockbuster proved this notion wrong. They made about three-quarters of their

income from non-hit movies. They could obtain the non-hit movies at fairly low prices from the

distributors. Blockbuster also did not buy the idea of X-rated adult films as a top revenue

generator. They chose to deal with family-friendly films, making them even more popular

(Rourke, 2019).

Blockbuster employs an ingenuine business approach that sets them ahead of other

similar chains. Their mission is to avail a wide selection of movies to the public and offer as

many copies as possible. They ensure their stores are easily accessible by the target audience and

are visually captivating so as to capture the full attention of the public. They also strive to treat

their customers well. Their prices are adjusted to match the local market conditions for different

localities. Blockbuster markets its brand on a national level, with specific emphasis on how

different they are from other competitors. With a large customer base, they are able market their

products to new audiences. Such large scale operation has been proven to lower costs and

improve efficiency (Holmgren, 2006).

retailers who rent similar video disks in every other town. In addition, many customers opt to

watch movies through the internet, satellite or cable TV. Worse still is the practice of piracy that

has now become a norm. With the current technological state, it is very easy to download movies

from the internet and burn them to disks and make copies. Other sources of competition include

movie theatres, online gaming sites, private movie collections, sports, and live theatres

(Holmgren, 2006).

Blockbuster has realized the need to evolve with technology, but still maintain their initial

mission. The company is doing all it can to become the go-to entertainment firm for customers.

Whether the customers want to purchase or rent videos through a physical store or online,

Blockbuster has got them covered. Blockbuster has crafted the 'Total Access' strategy to see to it

that customers get whatever they want in a good time. Once a customer gets a movie from

Blockbuster, he can return it to any store and use it as a ticket for discounted movies at that store.

Blockbuster capitalizes on the traditional setting of visiting the local movie store. This is

different from Netflix whose main platform is the internet. This way, Blockbuster is still likely to

get some fortune in their online ventures (Holmgren, 2006).

Blockbuster has not only concentrated on the US market. In recent years, the company

has marketed its products in foreign countries. Two notable countries in which the company has

succeeded are the UK and Japan. The company is also exploring markets in several other

countries on the continents of Europe, Australia, and Latin America. By the end of November

1991, Blockbuster had set up 30 stores in Britain. They thereafter took to expanding their

operations in the country to become the top video rental vendor. Around the same time, the

Dutch-based Philips Electronics N.V. put in $ 66 million to the company for expansion. In
retaliation, Blockbuster decided to advertise the latest CD systems and software by Philips in

their stores. After another 5 months, Philips bought six million more shares, bringing its total

investment in Blockbuster to $ 149 million (Rourke, 2019).

It came a time that Blockbuster needed a central location for corporate management.

They purchased a sizeable office block in Florida and brought together the 5 offices spread

across different states. At the same time, Wall Street scholars went on theorizing the fall of

Blockbuster. They claimed that new technology would soon make useless the video rental

business. In 1991, Blockbuster recorded a total sales of $ 1.5 billion, which translated to a profit

of $ 89 million. Coming to the close of 1991, Blockbuster had outlets in Chile, Japan, Puerto

Rico, Venezuela, Australia, Spain, Guam, and New Zealand.

Soon afterward, Blockbuster made a bold move and purchased Citivision plc, the leading

video rental company in Britain. This was done for a total of $ 135 million. This was in the hope

that their operations in the UK would be greatly expanded, and therefore a good starting point

into the larger European market. They also pursued several joint ventures with the hope of

increased returns. Their aim was to get around 25% of their revenue from such joint ventures.

They soon had a total of 952 outlets spread across 9 foreign nations. This was just the beginning

of their exponential growth across the globe (Rourke, 2019).

Future business models for Netflix and Blockbuster, Inc.

Prediction of subscriber numbers for Netflix

Recommendations
 Currently, Netflix remains the top video streaming service provider across the globe. In

its formative years, they won the hearts of the public by offering unrestricted DVD rentals for a

given price tag, as well as allowing them to return later than the agreed date of return. The world

had never before seen such a business strategy. Blockbuster was the only company close to

Netflix as regards business operations. By 2004, Netflix was already netting in close to $ 500

million. This incited Blockbuster to start the mail renting service dubbed Total Access. It was

envisaged that they would reclaim the portion of their customers that had defected to Netflix.

Indeed, the Total Access move led to a slight decline in the growth of Netflix. Blockbuster

would, however, be grounded only 3 years later through a serious case of bankruptcy. Following

these examples, the following proposals can be effective in maintaining the competitiveness of

companies in the market.

The success of service-based businesses greatly relies on their design. Similar to product-

based business, a service company will lose a lot of customers when their product is largely

erratic. To stay in business, their service must satisfy the wants of the customers. It is upon the

managers to see to it that their service is properly designed. This may require a completely

different outlook on things. For product companies, their main goal is to craft a product with

desirable features that the customers will like. However, for service companies, the main aim

should be to offer the customers the best experience possible. In this connection, customers will

end up relating your brand to excellent customer care. If your business is close to their homes,

offers a wide range of services, and operates for more hours every day, the customers will

definitely opt for your services in lieu of the competitors.

For the service to be really appreciated by the public, the managers of the service

company must identify the traits that they should concentrate on for greatness and which ones to
work on, although they do not greatly affect the perception of the public on the service provided.

These traits are determined by consumers. Customer opinion should be greatly upheld by

managers (Frei, 2008).

It takes hard work to propel a company to the top. The price of the product greatly

determines the success of the company. Customers will normally opt for budget-friendly options.

Premium offers are seldom chosen by customers. Pricing goes beyond the simple retail price of

the product. Some companies introduce subscription fees to offer consumers more value for their

money. With free trials, even potential customer can get to enjoy services by the company (Frei,

2008).

Prudent managers find ways to serve improve customer experience without necessarily

spending a lot of money. However, competitors will very soon copy this and the initiator will no

longer be seen better than the rest. Other unique strategies may, however, last for years.

Customer support is of great importance when it comes to software. However, given the varying

needs of customers, it is wise to charge them some small fee for support (Frei, 2008).
References

Frei, F. X. (2008). The Four Things a Service Business Must Get Right. Harvard Business

Review, (April). Retrieved from https://hbr.org/2008/04/the-four-things-a-service-

business-must-get-right

Holmgren, L. (2006). An Inside Look at Blockbuster, Inc: Honors-Enhanced Semester Project.

The University of Michigan- Dearborn

Moore, A. (2019, November 10). Netflix's Generic Strategy, Business Model & Intensive Growth

Strategies. Retrieved November 28, 2019, from https://www.rancord.org/netflix-

business-model-generic-strategy-intensive-growth-strategies-competitive-advantage.

Rourke, E. (2019, November 2). Blockbuster Inc. Retrieved November 28, 2019, from

https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-

labor/businesses-and-occupations/blockbuster-inc.

Rouse, M. (2013). What is video streaming service? - Definition from WhatIs.com. Retrieved

November 28, 2019, from https://whatis.techtarget.com/definition/video-streaming-

service.

Voigt, K. I., Buliga, O., & Michl, K. (2017). Entertainment on Demand: The Case of Netflix. In

Business Model Pioneers (pp. 127-141). Springer, Cham.