Netflix vs. Blockbuster

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Table of Contents

Introduction
Analysis
Recommendations
Conclusion
References

Introduction

The movie rental industry especially DVD by mail enables people to rent various film media online. The media include DVD’s, Blu-ray discs, and video games delivered to the consumer by mail. Most of the interaction takes place online through signing up to the respective rental service. The most dominant companies offering the above service include Blockbuster Video Online, Netflix, Lovefilm and eHit.

Though the movie rental industry still records impressive performance, there is some decline in some quarters attributed mainly to technological developments that have diminished the need for movie renting. Thanks to technology, online download and purchases and availability of substitutes like cable television and the internet pose a serious challenge to the long-term survival and relevance of the movie rental industry.

This analysis will focus on two of the companies mentioned above. The analysis will focus on various aspects of the companies mentioned to determine which is one is more successful than the other.

Additionally, there will be a brief analysis on the primary reasons for the different outcomes associated with the two companies. The discussion will contain two recommendations for the less successful company on ways of improving their fortunes.

Analysis

Both companies have their headquarters in the US. Netflix is the younger of the two having been in the business for slightly over fourteen years compared to Blockbuster’s twenty five years. Both entities display distinct business approaches that are clearly evident in their financial performance.

Blockbuster, by virtue of it s age has a larger network spread over seventeen countries with approximately 1700 stores (Ireland et al., 2011, p. 105). Netflix on the other hand has a smaller area of operation compared to its older competitor, with stores in the US, Canada, and a handful of countries in Latin America. However, the company has in place plans to expand to Europe specifically Spain, UK and Ireland.

Both companies offer more or less the same services. Even so, Netflix appears to offer a wider variety of services compared to Blockbuster (Schermerhon, 2011, p. 21). Besides disc rentals, Netflix also offers internet vide streaming as well as original programming.

Additionally, the company offers device support services by availing hardware and software support, video game consoles, set-top boxes for better quality digital transmission, Blu-ray disk players and hand-held services.

Block buster on its part is only involved in online rentals and retail operations such as GameRush stores and Blockbuster Express (Schermerhon, 2011, p. 27). Given the above status of services offered by both companies it is clear that Netflix has diversified its sources of revenue more than Blockbuster.

Unlike Netflix whose ownership has been steady, Blockbuster has had to change ownership a couple of times. The company stock’s tumble in 1994 led to a takeover by Viacom. Blockbuster however de-merged from Viacom in 2004 and immediately introduced the Game Pass nationally. At the same time, the company introduced Blockbuster Online, an online DVD subscription.

The takeover and apparent boardroom fights have had an adverse effect on Blockbuster, something its competitor Netflix has been successful in avoiding.

Netflix’s cautious approach to expansion and successful avoidance of the business twists that come along with takeovers and change of leadership are evident in their financial results (Hill & Gareth, 2008, p.50). At the same time, the effect of the above trends is clear in the financial performance of Blockbuster.

Near bankruptcy has led to the closure of numerous stores in Europe and a chapter 11 bankruptcy protection filing saw Blockbuster purchased by Dish Network. The company sought protection due to apparent failure to service its $900 million debt as well as mounting losses. Management by the new owners has seen the closure of hundreds of stores in its areas of operation including a wind up of the Canadian unit.

While Blockbuster is struggling with bankruptcy issues, its competitor Netflix recorded a net income of US$ 160 million in 2010. The company’s total revenue totaled US$ 2.17 billion while its operating income totaled US$ 283 million in the year 2010. Its total assets in the same year totaled US$982 million while total equity totaled US$ 290 million in the same year (Light, 2011, p. 56).

Blockbuster got delisted from the New York Stock Exchange on July 2010 due to a failure by its stockholders to pass a reverse stock split. This is in contrast to Netflix’s stock price increase by 219% in the same year. The share price was even better in 2011 registering $1.07 earnings per share in April 2011.

Additionally, the company added 8 million new subscribers to attain a total of 20 million subscribers (Light, 2011, p. 56). In 2009, Blockbuster’s leadership declined to release figures about its subscriber’s base. By 2007 however, the company’s base had hit 3 million, a far cry though from Netflix’s 20 million.

Financial performance, customer perception and stability of a business entity determine success of business (Klein, 2010, p. 45). On this front, it is clear that Netflix is more successful than Blockbuster. Blockbuster is experiencing boardroom feuds, poor financial performance and significant contraction while Netflix on the other hand is recording phenomenal growth, employing a cautious approach in expansion worldwide.

Numerous reasons ranging from leadership and expansion and penetration strategies can help explain the above company situations. The section below briefly outlines the three most probable explanations for the above situations.

It is possible that Blockbuster‘s leadership failed to capitalize on its initial dominance to establish a solid and loyal clientele, critical at a time like today. Presence in numerous other countries besides the US failed to net enough subscribers necessary for survival during hard economic times.

Furthermore, the company appears to have engaged in reckless expansion with little or no proper projection on return on investment. It is therefore possible that the company spent more on deliveries than what it netted out of the subscriptions. Besides, there appears are flaws on its franchise arrangements, access to credit and unsound business decisions probably due to multiple change of ownership.

Netflix on the other hand did what Blockbuster failed to do. It is apparent that the company seized the opportunity by implementing sound financial and business expansion strategies (Hitt, 2009, p. 275). Besides, Netflix embraced innovation and the use of technology to spur its subscriptions.

Recommendations

To improve its fortunes, blockbuster video needs to:

Concentrate on the primary market in the US before any diversification takes place. The current approach taken by Dish Network involving closure of stores is necessary to achieve the above.
To embrace innovation and carry out improvements based on the weaknesses of its competitors as well as market trends.

Conclusion

The comparisons given above are by any means not exhaustive. Though Blockbuster recorded many successes, it is easy to spot its failures especially on the backdrop of successful peers like Netflix.

The success of Netflix is comparable to that of Google and Facebook, entities that embraced technology and used then to their advantage. It will be premature however for any business entity in the same industry to write off Blockbuster. It is possible for the company to make a comeback and still claim its lost success.

References

Hill, C. & Gareth, J. (2008). Essentials of Strategic Management. London: Springer.

Hitt, A.M. (2009). Strategic management: competitiveness and globalization : cases. NJ: Infobase Publishers.

Ireland, D.R. et al. (2011). Understanding Business Strategy: Concepts and Cases. New York: Routledge.

Klein, T.D. (2010). Built for Change: Essential Traits of Transformative Companies. New York: Routledge.

Light, L. (2011). Taming the Beast: Wall Street’s Imperfect Answers to Making Money. Berlin: Springer Verlag.

Schermerhon, J.R. (2011). Exploring Management. New York: John Wiley & Sons.

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