Blockbuster vs. Netflix: Which will win out?

1. Blockbuster’s business model is based on rental and sales of DVD’s. Since its operation onset in 1985, Blockbuster has enjoyed a very successful monopoly, opening 9100 stores in 25 countries within 20 years. This established Blockbuster as the market leader. But with the emergence of a new competitor - Netflix in 1998, Blockbusters business was adversely affected.


2. Netflix had challenged the business model of Blockbuster by launching online video rentals. The whole process of accessing video selections, delivery and returns were consolidated into an easy to understand procedure. Anyone can order anytime, anywhere without retail store prices and just mail back in a postage paid envelope.

As such, Netflix forced Blockbuster to reassess its place in the video rental business, creating the list of problems below:
a)This increasing rivalry from Netflix forced Blockbuster to initiate its own online rental market, incurring additional expenses on top of the retail stores.
b)It forced Blockbuster to reduce their subscriber price to $14.99, as compared to NetFlixs’ $19.99.
c)Blockbuster acquired only 1 million subscribers, but Netflix had 3 million by the end of year. This showed a continued downward trend of customers.
d)Blockbuster has to restructure the business model, implementing the new campaign of “No more late fees”, which failed to offset its cost.

4. Since starting the trend of online rental, in 1998, Netflix has attracted more customers and earned higher revenue than Blockbuster. Although Netflix has only 35 distribution centers around the world as compared to 30 such facilities from Blockbuster it generated almost 2 million more customers. Within 5 years of being in business Netflix had gained 2 to 7 percent in market shares, projecting the revenue to reach 1 billion in 2005 and $3 billion by 2009.

With the increasing new technology like cable subscription of movies (VOD), online rentals by Amazon.com and Apple entering into such business model pushes Blockbuster and Netflix to the edge.