Netflix Inc.: Streaming Away from DVDs case study tackles the differences between the strategies of Netflix and Blockbuster, two of the prominent video rental services in the United States. It also discusses the threats faced by companies in the same industry and how Netflix addressed those challenges.
Luis Alfonso Dau and David T.A. Wesley
Harvard Business Review (W12850-PDF-ENG)
April 05, 2012
Case questions answered:
- Why was Netflix Inc. successful in attracting more and more subscribers in the early 2000s? What was the reason behind Blockbuster’s fall?
- In your opinion, why did Netflix decide to separate streaming and DVD rentals?
- Consumers did not welcome the changes that Netflix announced in 2011. Did Netflix make a mistake announcing such changes? Should it have kept the old business model?
- Describe the alternative long-term growth strategies that Netflix could have chosen in 2011. Which strategy would you recommend the company to follow?
- What is next for Netflix?
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Case answers for Netflix Inc.: Streaming Away from DVDs
1. Why was Netflix Inc. successful in attracting more and more subscribers in the early 2000s? What was the reason behind Blockbuster’s fall?
The launch of Netflix Inc. in the late 90s was the time of the so-called “dot-com boom” when most IT companies and startups started their rise in the global market (Google, Amazon, Napster).
Netflix positioned itself as a company that rents DVDs (sending them mail services) to customers via the website. Moreover, their strategy was to ease the overall process of rental: users choose the needed films on a website and will receive them via the mail.
Since that time, the vision of the company – to make the life of customers much easier – did not change and deviated. In the 2000s, Netflix gained huge leverage in the market as one of the biggest DVD retailers.
Moreover, they have transformed the traditional DVD renting process, and on the basis of it, they built a strong brand identity that was respectfully recognizable.
The accompanying factors for that were following:
● Ordering was done online (one click on the website, and you’re done with it)
● Monthly subscriptions (customers could keep up to 7 DVD discs – all of it for one monthly subscription at a flat rate)
● No late fees (the most influential factor as this increased the level of loyalty among customers)
In 2004, the fierce battle between Netflix and Blockbuster began. Both of these companies offered DVD-by-mail services. Lately, both of them have launched online streaming services. There were key differences between their approach to customers.
Netflix Inc. offered monthly subscriptions, and customers could have access to all films available on the online library. Blockbuster, on the contrary, offered pay-on-demand service (each item was rented or purchased individually).
Elaborating more on that, other differences were as follows:
In 2011, Blockbuster filed for bankruptcy. Netflix did not kill Blockbuster, but they surely did steal the market segment Blockbuster needed to move into. The following concluding findings can be drawn from that competition:
1) Blockbuster forgot what their core business is – it is delivering entertainment to the customers. Instead, they tried to re-focus on the stock pricing of the company and applied a product-centric approach.
2) You need to adapt according to modern market trends. The late actions of Blockbuster have shown that they tried to persuade their initial strategy without any update. As a result, they filed for bankruptcy.
3) Modern history shows that customer-centric strategies are the ones that are winning moves to companies. The recent examples of Amazon and Netflix prove one more time this basic yet fundamental variety
2. In your opinion, why did Netflix decide to separate streaming and DVD rentals?
In 2009, Netflix Inc. launched its own streaming services, despite the fact that its core business was DVD rentals. According to Netflix CEO Reed Hastings interviews, the company’s vision…