Blockbuster vs. Netflix: Which Will Win Out?

Essay by askas1College, UndergraduateA-, October 2009

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1. What is Blockbuster’s business model? How successful has it been?When Blockbuster first started, their original business model was to rent out videos to consumers in one of its 9,100 store location. Rather than creating another traditional mom-and-pop-style store, blockbuster decided to adopt a brand that is now known across the globe in 25 different countries. From the very beginning, Blockbuster's business model was to establish itself as the market leader in video rentals, a goal in which they succeed in 2004 when they had 40% of the market share. They were able to achieve this result by creating unique custom software that were design to simplify the rental and sale transaction of the videos. However, the creation of Netflix forced Blockbuster to change their business model by adding in a monthly subscription at a lower price than Netflix. Furthermore, Blockbuster tries to entice customers with coupons and the famous "no more late fee".

How successful is the business model? One can argue both ways. In the first case, the business model had been very successful because by 2004, Blockbuster possessed a 40% share of rental market. However, during the post 2004 era, Blockbuster's new business model has been meet with mixed result. The research firm SG Cowen has declared that "Blockbuster online DVD rental is still inferior to Netflix" Moreover, with the abolishment of the late fees, Blockbuster also abolished one of its main sources of revenue, in which experts estimated to be around $290 to $345 million annually.

2. What industry and technology forces have challenged that business model? What problems have they created?In an industry sense, Blockbuster's role of being an established leader in video store rentals was challenged by the emergence of new entrants into the market along with the introduction of new technology. An...