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Netflix beat Blockbuster Video

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 4509 words Published: 10th Jun 2020

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Once stated by Jiang Wen, ‘Some say, why will people pay for cinema when they can watch cheaper DVD’s at home? But I say, everyone has a kitchen at home, yet there are still many restaurants’ (Wang, 2019).  Since 1985, the conception of the video rental market has allowed for a booming local film culture accessible whether sharing it with a loved one or with a family. This report aims to demonstrate through the examination beyond a double of how “Netflix beat Blockbuster Video” through the exploration of the Strategic Position, Strategic Choice and Strategy in Action along with outcomes. To help address and answer the question of how Netflix beat blockbuster video, the report will focus on technological diffusion, first movers and followers, innovation and whether Netflix will continue to remain as the dominant online streaming provider in the US. The structure of the report will be broken down into four main sections to best demonstrate and produce evidence that can be drawn upon to make proper conclusions. First the report will look at ‘The Context’; Secondary the Diffusion Theory findings; Thirdly, the report will deliver a situational analysis of Netflix and Blockbuster; Fourthly the report discusses how did Netflix beat blockbuster and its future’ and lastly the report will be concluded.

The Context

Netflix in 2000, was losing money due the extensive requirement for postage and offered to be acquired by Blockbuster for $50 million. Netflix proposed it could be renamed as Blockbuster.com, and they would become a unit under their banner handling the online business, while Blockbuster would take care of the DVDs, making them less dependent on the U.S. Postal Service. The Blockbuster offer was declined. Next, Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5.5 million shares of common stock at the price of US$15.00 per share, with an added share offering of 825,000 shares two weeks later on June 14, 2002, helping to raise $94.875 million. This was a great opportunity for the, step into the light through one of the major deciding factors being that customers were looking down on the fact that there was a late fee for returning a movie after the return period.

Organisational History

History of Blockbuster

Started in 1978, by David Cook of Cook Data Services, now Blockbuster Limited, formerly known as Blockbuster Entertainment Incorporate., and also known as Blockbuster Video or simply Blockbuster, is an American-based provider of home movie and video game rental services through a video rental shop, DVD-by-mail, streaming, video on demand, and cinema theatre Blockbuster expanded internationally throughout the 1990s. As of November 2004, Blockbuster, was employing 84,300 people worldwide, including about 58,500 in the United States and about 25,800 in other countries, and had 9,094 stores in total, with more than 4,500 of these in the US. Today, Blockbuster has been retained by the DISH Network Corporation expanding and diverging from its failing side in which closed its approximate 300 remaining U.S.-based retail stores, as well as its distribution centres by early January 2014.  DISH Network has provided a life after death resurrection of the Blockbuster brand through moving toward the rebranding to Blockbuster Digital @Home service offers over 15 movie channels including STARZ® Cinema, EPIX®, Sony Movie Channel, and Hallmark Movie Channel, plus over 20,000 movies and TV shows streamed to TVs, computers or iPads®. The digital service includes access to the Blockbuster @Home ‘app’ currently available to the millions of TVs served by DISH’s Hopper® Whole-Home HD DVR set-top box. Inclusive of this is Blockbuster On Demand is a transactional streaming video service offering thousands of movies viewable on connected devices including PCs, tablets, smartphones, Slingbox, Roku and select Samsung TVs and Blu-ray players. Since 2000, Blockbuster was started to lose focus on the needs of their audience and started to cecum to services like the emerging competition by mail-order service, kiosks, and video on demand services delivering major factors to the brands eventual demise.

History of Netflix

In the burning ashes in the continuing demise of the global blockbuster grip came the next competitor Netflix starting its life on August 29, 1997 by Marc Randolph and Reed Hastings in Scotts Valley California. The launch of Netflix started April 14, 1998, saw the world’s first online DVD rental store , employing 30 staff and holding 925 titles,  through a pay-per-rent model with rates and due dates that were similar to its bricks-and-mortar rivals. The main break for Netflix came in came in early 2000 when it introduced its monthly subscription models in which it had 300,000 subscribers losing money due to it relying on the U.S Postal Service for the delivery of its DVDs. However, by 2002 it was reported by the New York Times that 190,000 discs per day were being mailed to over 670,0000 subscribers. However, from the end of 2002 the growth rose from one million subscribers to 2006 with 5.6 million and in 2010 reaching 14 million households due to the rapid and widespread use of DVD players in households. Netflix since it conception has adopted its as not only being a media company but also a technology company in attitude allowing it to maintain its edge against competitors that are either existent or helping to look at future proofing its survivability by maintaining partnerships, compelling content and then delivering this on smartphones and tablets, and  even video game consoles like Xbox.

Diffusion Theory Identification

Diffusion theory is used to describe how the Netflix innovation was adopted by the population, in how much time does the innovation spread, and helps to explain how the innovation succeeds in bringing a change or how it could fail. The base model of diffusion provides a differential equation to how Netflix was able to get adopted when introduced to the market and then adopted by influencers through their naturalised advertising through word-of-mouth and through their guerrilla marketing, in turn convincing imitators to purchase the product. Due to the proliferation of Netflix being a newly introduced on the information, entertainment, and communication products have helped to develop market trends globally and increased competition in which Netflix has lead to a diffusion of processes that has lead Netflix to hold since 2013 a globalised single market monopoly and fully connected social system. Netflix has been able to hold on to its due to a number of factors in which it was a first mover when internet streaming took off immediately getting on board creating a website where their customers could go online on any laptop or PC and stream their favorited movies and shows, moving away from its traditional base of dvd postage service. With this immediate flip in business model it was able to provide a far superior service providing to people due to them finding most people are limited on time and would much rather get it on demand their and then, rather than get it shipped straight to their doorstep having to wait days instead of seconds. Once this took off becoming standard practice for video rentals, Blockbuster filed for bankruptcy in 2010 leading to the evidential demise and overall extinction of its rental store fronts; being bought out by DISH Network Corporation being rebadged into  Blockbuster Digital @Home service offers over 15 movie channels including STARZ® Cinema, EPIX®, Sony Movie Channel, and Hallmark Movie Channel, plus over 20,000 movies and TV shows streamed to TVs, computers or iPads®.

Situational Analysis

Changing Technologies

Netflix has gone to great expense in providing the public with not just new an exciting capabilities but also with the highest capabilities in filming new episodes or movies with an example given like Jessica Jones roughly an hour long and is captured in 6K resolution, calculating capture being at 293GB of raw, unedited footage being able to be shrunk down to from 720kbps to a minimum of 270 kbps ensuring that its watchers can enjoy at all internet speeds and streaming speed.  With these improvements it means Netflix is able to grow its business reach in regions such as Africa, Southeast Asia and South America. The technology that is being used by Netflix for content creation policy which has been established by the company is to provide filmmakers it works with the necessary tools and platform "to create content at a high level, then distribute that around the world." Whilst players like HBO Go, WWE Network and MLB.tv. Disney are set to launch in 2019 becoming major competitors to Netflix being cheaper with libraries full of popular titles and BAMTech’s 60fps and in 4K engine under the hood helping to deliver pictures in 4K, but due to the capability of shooting its videos in 6K this has allowed the company to stay ahead of the curve and future-proof its content. Netflix unlike other systems are build on an adaptive bitrate streaming technology to adjust the video and audio quality to match a customer's broadband connection speed and realtime network conditions. In saying this the engine under the Netflix hood is leveraged from and provides open source technology focused on providing the leading Internet television network which has provided the capability of immersive experiences across all internet-connected screens. The technology platform due to its open source capability has allowed for fast and easy continuous build and integration into their worldwide deployments serving members in over 50 countries with a real-time load to 62 million members (Netflix, 2016).

Retail outlets vs Operating Online

Not so long ago there was an era of bricks and not clicks in which Blockbuster was the immovable and invincible of its time holding a staggering market capitalisation of $7.35 Billion. However, with them moving toward the execution of a bricks-and-clicks strategy in which they tried to manage two very different kinds of business with dissimilar domains and trying to meet the challenge to integrate the two separate systems. Netflix on the other hand came out with steaming services in which it allowed its customers to watch a tv show or movie on computer, TV screen, tablet, phone or gaming device. With the innovation of on-demand made the service superior to physical stores and television providing the customer with a when they wanted and how they wanted without limitation service. This in turn meant the end of video rental making it important to for cable companies and television networks to begin offering on-demand content of their own, but with this content of their own Netflix took this to the next step not offering series one episode release at a time but offered series producers and showrunners upfront contracts to create an entire season or two, along with providing creative leeway to develop their programs without notes or approval from Netflix. One of the major downsides for Blockbuster which led to its eventual demise was its three year lateness of integrating its bricks with its clicks , with its “Total Access” program that had started in 2006 which started off as high volume profitability due to its low flat rates but could not ultimately compete with subscription pricing for unlimited exchange (Stross, 2010). Netflix did not just compete with Blockbuster but also TV Networks/cable directly for original content but took this one step further also competing with movie companies through the creation of its own content helping to create a loyal user base making it a key source of success transferring into  appreciation of its stock rates. During this time Blockbuster decided not to take the plunge into the on demand market instead tried to beef up sales by expanding their stores into outlets for books, toys and other merchandise such as series like Pokémon or movie series like Lord of the Rings and Back to the Future. Where as Netflix took a technology strategy approach to avoid the burden of retail fronts, warehouses for dvd or video storage and offices, virtually choosing to become a virtual organisation with no retail stores and no sales staff. The staff that worked within the Netflix environment are authorised vactions, sick days, and fixed work hours having the flexibility to choose when they want to work as long as their jobs are done, along with titles and even compensation being left up to the individual.

Netflix Pricing Strategy

Netflix is a subscription-based model which moved away from the Blockbuster model of service and outmoded pricing of charging $6 to $8 for each movie with the dreaded late return fees. Netflix co-founding Reed Hastings realised this through market research that a monthly subscription that allows unlimited rentals and no late fees providing a convenient service. To help achieve greater strength to their pricing and convenience they offered a $1 million prize to anyone able to improve the rating system. Through this new pricing strategy hitting the Netflix savaged the movie business thinking big but starting small, At the Goldman Sachs 25th Annual Communacopia Brokers Conference  Netflix admitted that while it was under-priced compared to its peers, it believes this under-pricing has been “balanced to some degree in terms of the price that consumers have been anchored on Netflix” (Netflix Inc, 2016). One of the challenges that Netflix faced in 2016 was the increase in service churn rates which is said may have been due to the perceived news of an impending new price increase rather than the completion of two years of grandfathering which saw Netflix plans such as “Basic" tier increasing from $8 to $9/month, the popular HD "Standard" tier increasing from $11 to $13/month, and the 4K "Premium" tier increasing from $14 to $16/month. Against its competitors Netflix’s plans average around $10 per month, whereas other competitors such as
  1. Hulu online television is approximately $35 per month; and even
  2. Time Warner’s HBO Now or Dish Network’s (Blockbuster) Sling TV are priced at $15 and $20 per month
Combined with this low pricing strategy has help not only to position but also help to advance the Netflix innovation path which has been both within cultural constructs and technological innovations.

Netflix and Social Construct Innovations

The Netflix revolution has seen several innovations occur for the organisation helping increase greater influence for the brand globally, and culturally . The innovations which has stemmed from the Netflix brand are:
  1. The Original Netflix
The original concept of Netflix was perhaps the biggest innovations the company had walked down leading to the global giant of today stemming from a single idea from Reed Hastings after paying huge late feed for a movie. The company traverse a path leading from a pure rental model that came associated with late fees to a year later becoming a complete subscriber model which helped push its sending of movies out per day to 1,000,000 movies a day which not even blockbuster could not match in its peak day of 9,000 stores and 60,000 employees.
  1. The Netflix Subscription Model
Through the switch to the subscriber model help to create the second biggest innovation made to the entertainment industry which at first was a gamble but within the first year of its launch became clear of being the future of video rentals and quickly eclipsed the original business model.  This model saw users given the ability to watch a move whenever they wanted, as many times as they wanted, with no deadlines and no late fees.
  1. The Personalized Recommendation System
The business model maybe subscription based but due to Netflix not just seeing itself as this but also as a technology company I built and moved to the recommendations system for product personalisation through the use of a variety of algorithms to match content to user preference. The system would he based on their history, reviews and cross matched with other people’s recommendations and movies matches turning video selection into a ranked by preference providing uniquely personalised experiences.
  1. Move to Video Streaming
The move of Netflix to provide and become the leader in international television streaming and other content has given them the ability to dominate the market due to its combination of content and subscription model giving the ability for a single account to have multiple user profiles. The one limitation that Netflix streaming has is that it is limited by copyright, local and international law blocking certain content in certain areas by which not all content is allowed in every country, or provided through Netflix, and are blocked.
  1. Exclusive Content and Original Programming
Netflix innovated the concept of exclusive content when it started to buy, and then develop, its own original programming in which it has had the ability to produce new shows cheaper than mainstream media and deliver it in a fashion that has been able to meet view demand. One example of this was the first project it ever embarked on “House of Cards” in 2013 which paved the way due to its success to partner with companies such as DreamWorks Animation and Marvel TV which lead the resulting ability for partners to launch in 190 countries simultaneously.
  1. Blocking VPNs
Due to local and international law, copyrights and censorship not all content is available worldwide, VPNs help have helped video streamers evade these restrictions for many years. Netflix to help comply and protect its brand image within government circles in which Netflix started to block VPN’s altogether. This has lead to a statement put out by VP David Fullagar which has summed up this impact due to governmental restriction nicely when he said, “If all of our content were globally available, there wouldn’t be a reason for members to use proxies or unblockers”. However, Netflix has not just provided the world with a new technology platform for watching you favourite series but also a cultural icon such as:
  1. Netflix and Chill
The term that has been coined as ‘Netflix and Chill’ holds the distinct meaning of to watch Netflix with a romantic prospect, with the eventual expectation of sexual activity. However, Netflix has unveiled “The Netflix and Chill Switch” a single button that, when pressed, will dim the lights, activate your phone’s “do not disturb” mode, orders your favourite take out, and queues up Netflix for an evening of binge-watching.
  1. Binge Watching
Ever since Netflix launched and started to list whole seasons of television series at once allowing their viewers the opportunity to watch as many episodes at a time, on demand as they liked it has led to the culture of serialised TV. This has become evident through a Netflix survey in which all respondents said they watched between two to six episodes of a show in one siting, being sparked by shows within the original content arena such as House Of Cards and Orange Is The New Black.


How did Netflix beat Blockbuster?

There is no denying that Netflix has changed the face of the entertainment industry and that Blockbuster has become a dying giant from its past self being bought out and reshaped after its 2010 bankruptcy filing. But the real question is not how Netflix beat Blockbuster, but how did blockbuster make such a significant business blunder leading to its demise. The first biggest mistake was that Blockbuster John Antioco, thought that Netflix was a “very small niche business,” ended the negotiations and didn’t buy Netflix, which at the time was a DVD mailing service (Chong, 2018; Graser, 2013). Secondary they did not see potential as explained by John Antioco stating, “Management and vision are two separate things. [Netflix was] losing money” (Chong, 2018). Thirdly, in 2008 the Blockbuster CEO Jim Keyes made a $1 billion bid to buy Circuit City electronics retailer which closed its doors in 2009 after going bankrupt, in which a year later after a 1.1 billion dollar loss blockbuster followed suit (Graser, 2013). Should this not show the real power of proper innovative forecasting even if placed on a equal foots such as being given by DISH Network rebranding Blockbuster into Blockbuster Digital @Home service the juggernaut called Netflix has been able to set both globalised reach, technological innovation and cultural embedding within numerous societal factors as seen in its cultural statement “Netflix and Chill”, ‘ Uniquely personalised Movie and Tv Show Recommendation System’ and even its subscription model and account profiling options. Netflix also innovated the concept of exclusive content when it started to buy, and then develop, its own original programming providing the ability to produce new shows cheaper than mainstream media and deliver it in a fashion that has been able to meet view demand. This change in how content is being created and delivered for viewers to consume is forcing a domino effect on many industries helping Netflix to ascertain its dominance over cable, TV and even movie companies to deliver consumer focused product in the way consumers now demand, on demand. Above all, Netflix has gone against the norm of showing hundreds of pilots of which in traditional television will only have possibly half a dozen to a dozen go on to be shows that within a few years will fail, instead looking for compelling content and contracts it for an entire season.

The Future of Netflix

In the era where streaming incubators such as Netflix are facing threats from new competitors such as Disney, Apple and Comcast-owned NBCUniversal that have announced their entry into the market as of 2019 (Bursztynsky, 2019). The company when looking at their strategic moves individually is interesting by looking at them as a whole can be seen to point to a larger, longer term game plan holding a twofold rationality such as (Weprin, 2019): 1)      Showing movies stars, content writers, and producers that it can and will get people to watch the tv shows and movies that are made for the streaming service; and 2)      Showing investors on Wall Street that they can make relatively inexpensive programming successful around the world and build a scalable delivery mechanism for its partners. Netflix has built its service around how it ultimately impacts the subscriber by which its own research has seen consumers' have a willingness to spend on subscription streaming media an average of $38 per month. It has seen that while it has a need to increase price few people will jettison the service and some of those that do will return in due course (Weprin, 2019).


To conclude, Netflix has changed the face of the entertainment industry not just through the providing of numerous business, technological, and cultural innovations which have affected numerous industries globally. The biggest has been on the cultural embrace toward the concept with younger adults being “Netflix and Chilling”. This report does not only demonstrate through its examination on how Netflix beat Blockbuster video but also shows the feelings that many individuals shared and the changing swing in cultural collectiveness toward the ease of accessibility. The report also shows that Blockbuster although it has been decimated from its former jug naught status, it has continued to find a home within the DISH Network living on as a @Home Service rebrand. Furthermore, the report shows that Netflix did not just competing with Blockbuster but also TV Networks/cable directly for original content but took this one step further also competing with movie companies through the creation of its own content helping to create a loyal user base making it a key source of success transferring into  appreciation of its stock rates. At the end the final statement that can be said about the future of Netflix is ‘Netflix has built its service around how it ultimately impacts the subscriber’ and that showing that it can and will get people to watch the tv shows and movies that are made for the streaming service will continue to help generate new and compelling tv shows and movies.


  • Bursztynsky, J. (2019, April 16). Netflix investor isn’t worried about the rise of Disney, Apple streaming services — Netflix is ‘the future of film’. Retrieved from CNBC: https://www.cnbc.com/2019/04/16/netflix-investor-isnt-worried-about-the-rise-of-streaming-services.html
  • Chong, C. (2018, July 18). Blockbuster's CEO once passed up a chance to buy Netflix for only $50 million. Retrieved from Business Insider Australia: https://www.businessinsider.com.au/blockbuster-ceo-passed-up-chance-to-buy-netflix-for-50-million-2015-7?r=US&IR=T
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  • Stross, R. (2010, September 18). Why Bricks and Clicks Don’t Always Mix. Retrieved from New York Times: https://www.nytimes.com/2010/09/19/business/19digi.html
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  • Weprin, A. (2019, January 22). Netflix Positions Itself For The Future. Retrieved from VideoInsider: https://www.mediapost.com/publications/article/330756/netflix-positions-itself-for-the-future.html


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