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Netflix Versus Blockbuster Versus Video-On-Demand

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Netflix versus Blockbuster versus Video-on-Demand

Read Hastings founded Netflix in 1997 when the popularity of online movies rentals was sky rocketing. He is motto was “No one is going to out-hare Netflix. Our danger is in a tortoise attack”. Netflix partnership with Wal-Mart in 2005 was a big boost to their shares and it eliminated the competition threat. On the other hand, Blockbuster was founded in 1985 when videocassettes, DVD, and video game rentals were popular. The company was world-renowned leader in the movie rental business. It had grown to over 9000 franchise stores in United States. Blockbuster did a partnership with DIRECTV in 2001.

Strategic Issues:

o Video-on-Demand was a threat to Netflix because it could kill the market for DVD rentals.

o By dropping prices of their monthly subscription in the starting of 2005, stock prices went down from $35per share to $10-$12 per share.

o Netflix provided their customers with “Cinematch software” which enables their customers to personalize their movie lists. Data shows that in December 2005 more then 1 billion movies rating from customers in their database.

o Netflix also dropped their monthly prices from $21.99 to $17.99 and it increased their subscription but they were only able to break-even at $48 per year revenue loss.

o Blockbuster paid their shareholders one time dividend of $5 per share instead of paying quarterly dividends.

o Blockbusters capital spending cut by $100 million and reduced overhead expenses to 40%.

Action Agenda:

o By providing movies, online Netflix will have more of the market share in movie rental industry and it will be convenient for customers.

o Partnership with Wal-Mart was a good move for Netflix because it increased share value to $25-$30 per share.

o Blockbuster partnership with DIRECTV was a good move because they entrant into pay-per-view segment.

o There is no comparison in these companies except they want to give more to their customers by providing them with convenience and quality



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