Blockbuster goes bust – the emergence of Netflix
Blockbuster was widely known to be America’s weekend fascination, a place where families go to “rent” videos for daily, weekly or monthly use. Blockbuster’s dominance as a video rental conglomerate was guided by their ubiquity in respect to providing services to customers via 5000 stores and 60,000 employees. Along came Netflix. Using technology as an enabling factor, Netflix did what Dell did to PC’s in the early 90’s. They bypassed the brick and mortar stores and went directly to serve their customers over the internet. Netflix now has over 20 million subscribers generating estimated revenue s of $1.7 billion (2009). Their rapid transition to be the world’s largest Internet subscription service for enjoying movies and TV shows emphasizes the changing dynamics in the video subscription industry especially in relation to the balance of power and distribution strategies.
Netflix has been the only true innovator in the Direct To Home video space, consistently establishing a first mover advantage with abolition of late service charges, monthly plans and incredible user interactivity through their database of videos. The content provider is now America’s largest bandwidth user surpassing Comcast in number of subscribers. They started out as a DVD rentals-by-mail service and business has been booming ever since they introduced a streaming subscription service as well. Blockbuster isn’t the only one feeling threatened by Netflix. Paid television services are also losing subscribers to the cheaper streaming site.HBO has been holding on to provide Netflix with content because of the implications it would have for HBO’s subscriber base.
Netflix has shaken up the entire eco-system by disrupting the business models of distribution, a territory that was initially dominated by the likes of Blockbuster in monopoly practises with studios. Studios consider Netflix growing popularity a direct threat to their business model especially with its ability to distribute content cheaply and to a larger audience than their own established distribution outfits. Studio’s believe that Netflix’s ability to offer a multitude selection of movies “takes scarcity out of the equation” (on demand) leading to lack of encouragement for buying new releases thereby decreasing economic profits. There is a bitter battle that continues to surround Netflix’s emerging dominance (like how retailers and distributors disliked Dell initially) as a content distributor. However Netflix is the now one of the sources that is rescuing the movie industry. Industry insiders who have observed Netflix’s business model indicate that the “long tail strategy” of Netflix has benefitted back catalog titles made by studios (through generation of an audience) by being broadcasted on Netflix and also through Netflix paying higher content licensing fees to studios for shows that run off the air (Glee). As license fees skyrocket and digital distribution continues to evolve, content owners are making syndication deals without throwing digital distribution rights in order to sell them to Netflix who usually offers most compared to other digital distributors.
The ability to offer a magnanimous selection of titles via online distribution, affordable pricing model along with shift in balance of power that provides Netflix with more content is propelling them to become the next media conglomerate along the likes of Viacom, Time Warner and Fox.
Valuable Resources-
http://www.dailytech.com/Hollywood+Executives+Fear+Netflixs+Impact+on+Film+Industry/article21075.htm
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