Blockbuster's Offensive Against Netflix Flops

bigtallmofo writes "With over four million subscribers, Netflix was an obvious target for rival Blockbuster. In 2005, target them they did. Introducing their own DVD-by-mail service and (for a while) undercutting Netflix's price point, Blockbuster went for the jugular. A year later Netflix shows a market value of $1.5 billion with no debt compared to Blockbuster's $684 million worth with $1.0 billion in debt. Is there still a DVD-by-mail war or has Netflix won?"

Comments

They each have thier own issues to deal with...

[Chris Bradshaw]

Not to bring the whole "throttling" thing into this, but it really seems that the war now is between Netflix and themselves. If they can keep from shooting themselves in the foot again, i.e., lawsuits, etc... Then theoretically, They shouldn't have anything to worry about(considering their market share). I can say from personal experience that they are trying to protect and keep their existing user base, and are quite apologetic when called on it now. I am currently enjoying a a free month + two months at half price after calling them on it. Bottom line is this, they both obviously have deeper personal issues to deal with... I'd say the war is on temporary hold until they can both get their crap together

well-positioned for downloadable movies...

[SethJohnson]

Netflix has already partnered with Tivo, which already has tivo-to-go that works for the video iPod.... potentially they're ready to roll-out downloadable movies...

Seth

The classic online vs B&M model

[wmajik]

I used Netflix when they first came out, as I thought it was a very novel idea and one worth trying. It worked great until I ran into the same problems that everyone else did - delays with new movies, being pushed into the far reaches of the queue and other inconveniences. I quit Netflix due to their growing pains, but didn't have a ton of animosity toward them. Having been in the business world, I understand that sometimes you can shoot yourself in the foot with success when demand exceeds capacity.

Recently, I was given a Netflix subscription again and noticed that they've gone through substantial upgrades, added new features and have none of the same queue problems that I exeprienced before. To me, this shows the maturation of the company, because they have the resources now to meet their customer base, given that they are now a very profitable company with the means.

I don't think Blockbuster is going to go kaput over the issue, because there will always be people who prefer a brick and mortar video store or you'll have an occasion where you can't wait a few days in the mail for a video. For this, Blockbuster is king. However, the cost of running a B&M operation like Blockbuster far surpasses an online only entity like Netflix, where store space, rent, maintenance, employees and the like are no longer issues. This means that Netflixs' margins are simply leaps ahead of what Blockbuster could even hope to achieve in their wildest dreams.

So can Blockbuster compete with Netflix? I think the answer is on the walls to everyone. I think this is exactly why Blockbuster tossed everything (and the kitchen sink) against Netflix, because they saw the picture and it didn't look pretty.

Do I think Blockbuster is going to bite the bullet? Not at all. Do I think Netflix will take a giant cut of of their market and force Blockbuster to resign itself to a B&M only operation with limited expansion abilities? Very much so.

Does Netflix have a future?

[GabrielF]

Netflix has been very good to me, I bought the stock at about $10 and now its at $27. However, with good video on demand coming soon I have to wonder if NetFlix has a future. I doubt that Netflix could compete with the likes of Apple and Google when it comes to video on demand. I'm very curious to hear whether Slashdotters have abandoned their Netflix accounts in favor of services such as Comcast's OnDemand and would you prefer a download service to NetFlix?

Re:Netflix...DVD's on wheels.

[Nugget]

But I don't want to watch a car full of DVDs tonight -- I just want to watch one movie, and haven't decided which one yet.

It's not a bandwidth issue, it's a flexibility issue.

Re:There's more to it than that

[wfberg]

Market value and debt don't really tell enough. Earnings and cashflow are bigger tools to gauge the success of the companies.

How about some good old-fashioned "profit"? (And we'll have none of the EBITDA crap either!). A quick look at the charts on Yahoo reveals a $603.30M loss.

Inexplicably their market cap is also about $600M, with a $1200M debt. Now, I have a debt that's more than my income or savings, sure, but it's a mortgage, so my creditors can sell my house and reclaim the money. If they sold the company in parts, assuming that strip-raiding it adds 25% in value over market cap, that still leaves $450M in bad debt.

Of course, it might be that all debt is really from one division (say, the DVD posting division) that they're looking to get rid of. But still, things look pretty bleak, seeing as that debt isn't doing anything right now, and their last investment pretty much failed. This kind of company is usually propped up by their creditors to salvage what potential is left.

Death to Blockbuster

[MBCook]

I used to like them. For movies, they can't hold a candle to Netflix's selection, etc in their brick and mortar stores. I don't know about their online service, but Netflix is great (there is a distribution center within about 40 miles of me so my turnaround is very fast).

But I don't like blockbuster. We'll ignore all the scratched discs and such that the stores would give me (almost no problems in that way from Netflix). I recieved 2 broken discs from BB in about 3 years of renting, compared to 1 in 2 years at Netflix. And if you consider how you get the discs, that doesn't look too good.

But what are their prices now? I'll ignore the "2 day rental" scam they run on popular movies. They used to be $4 for everything. Now they are like $6 for a movie and $8 for a game. EIGHT DOLLARS TO RENT A GAME. I also enjoy how they sell anything you keep out too long to you. That is how their no late fees program works. You can reverse the charge within 30 days and pay a restocking fee, but the fact they don't advertise this fact in that no late fees campaign ticks me off.

Mostly it is the price raises that they keep doing. If it wasn't for video games (I don't get enough time to play them to make Gamefly worth my while otherwise I would HAPPILY subscribe) I wouldn't go near the place.

So, from my point of view, here is what happened:

• I left BB because their service/selection was terrible
• I joined Netflix
• I found I LOVED Netflix
• BB Gets mad they are no longer the big-cahoona in town
• So they make a competing service and expect people (who all seem to hate them as much as me) to switch from a company they love (Netflix) or no mail rentals to BB's mail rental service
• People either laugh at them or ignore them
• Netflix proffits.

Never tried BB's program. Never thought of it. I'm surprised it lasted this long. Is Wal*Mart still doing this, no, they sold out to Netflix didn't they?

That's right, WAL*MART FAILED. Surely BB could do it where WAL*MART couldn't.

I've only talked to 2 people who tried BB's program. They both (former and current Netflix subscribers who tried it because of the price) said the selection was worse, the availability was worse, the turnaround was worse. Only the price was better.

And at $2 a month (wasn't that the difference?) no one cared. Netflix later dropped their rates in response anyway, IIRC.

Time to die BB. You're like Radio Shack and Toys R Us. You are not even a shadow of your former self. You're a dead man walking. You can try to switch industries (like RS did) and stay as a bit of a joke (and with their GameRush crud, this looks like their plan), or slowly wither and die (like Toys R Us is doing).

Long live Netflix. They (along with TiVo) have completely changed the way I watch TV. They have a great price for the service, and only continue to impress me.

Re:Death to Blockbuster

[egburr]

I can tell you have had some pretty bad experiences with Blockbuster, but ...

That is how their no late fees program works. You can reverse the charge within 30 days and pay a restocking fee, but the fact they don't advertise this fact in that no late fees campaign ticks me off."

The very first time I heard about the "no late fees" my first thought was "there has to be a catch". Bo on their website and in their stores, every ad or pamphlet I picked up had fine print describing exactly what would happen and when. I never thought any of it was misleading. "No late fees" is completely accurate. You will not be charged a late fee, but if you keep it more than a week past due, then by the rental agreement they asume you intend to purchase it (I don't have a receipt with me, but I am pretty sure it clearly states the purchase price and date that will occur).

I always used to have trouble getting my wife to get movies she rents back on time, incurring horrendous late fees; now I am able to take care of returning them on the weekends without worrying about it. I have never yet fallen into the purchase/return scenario, because I understand that there is a return deadline, that it isn't a brick and mortar version of NetFlix.

Blockbuster made no attempt to hide what would happen. They may not have made a great effort to call attention to the part that wasn't the main focus of the deal, but it was always available for anyone who took 30 seconds to look. Are that many people really too lazy or illiterate to spend 30 seconds reading the fine print on a deal that sounds too good to be true?

Re:Death to Blockbuster

[MBCook]

Yes, it was in the fine print as always. I just find disgusting that their solution to late fees is to just sell you the movie instead of charing you.

I have kept a movie too long and had to "sell it back" and pay the $1.25 restocking fee (or whatever it was). If that part didn't exist, I would be thoroughly sick. My family is terrible about returning things on time also (but, that was how they made almost all their money). Even if you waited too long to "sell it back" (30 days after they "sold it to you"), you can then sell it back like you can sell used tapes to them. You'll get some of your money and end up losing only $3-5 (they are also fair, charing you $8 for that old movie instead of the $20 a "new movie" costs).

But they advertised it like it was Netflix: no late fees ever (yeah, a little asterisk but still). The campaign got pulled because some Attorney Generals threatened to sue the for misleading advertising.

My point was more that their "solution" was just as bad, they went about it in a way that wasn't fully honest ("no late fees if you bring it back within a week of the due date, otherwise you bought it" in readable type on the commercials would have been fine). They are the largest video rental company (as far as I know) and I just see them as having lost all focus on the customer.

Holy Un-"Settlement" Batman!

[raehl]

I need to become a lawyer. This lawsuit rocks!

- Sue a company for something they didn't really do wrong in the first place
- Negotiate a "Settlement" that's really a marketing campaign for that company
- Pocket massive legal fees!

Did anyone read this settlement? If you sign up for it, you get a free month of a one-level upgrade of Netflix service. Then, and here's the cool part for netflix...

After that month, THEY CONTINUE TO BILL YOU AT THE HIGHER PACKAGE PRICE!

What kind of "penalty" is that? Trade a couple rentals to get your customers to upgrade packages? That's cheap advertising is what that is!

Re:The Jugular? *snork*

[Spokehedz]

The only problem I have with the library is that the DVD's are usually scratched... which means that I have to watch them on my computer. Which is not my 52" TV with surround sound. So I usually end up copying the movie, burning it to a DVD, and watching it on my TV... Which unfortunately breaks so many laws, it's a shame.

Well... There is geexbox... but I really want my remote control...

Re:The Red Envelope

[Parham]

I just want to point out that while in the US, they are franchised, they aren't in Canada. And as far as I know, Canada doesn't plan on dropping their "no late charges" policy (at least anytime soon). They seem to be grabbing a lot of customers from Rogers Video.

It's only a matter of time...

[Ingolfke]

Before any DVD you want will be either available on demand over the Internet, or available for immediate burn at your local blockbuster (or kiosk). A Coke Machine sized vending machine could easily store hundreds of DVDs and have a high speed connection to the Internet to download more of them as needed. Why not order a pizza and have a DVD of your choice delivered w/ it? Netflix idea fits a niche right now, but I don't think it's viable over the next 5-10 years.

I've tried both

[pajor]

I've tried both Netflix and Blockbuster online rentals. I had netflix for a long time and quit them when they raised their prices from 14.95. Later on I signed up with blockbuster because they were cheaper. Blockbuster raised their prices too, but they were slick about it and gave me a free used dvd coupon with it. I stick with blockbuster because I find their selection to be perfectly adequate (I've never had trouble renting something I wanted, maybe I'm just incredibly mainstream), and because I find the two free instore rentals indispensible. It's nice as a movie junkie to have a big queue of movies coming to watch stuff, but sometimes you need a movie for a date or something and having two free in store rentals is awesome. I use them every month. Also you can get video games with them.

I think if blockbuster leveraged it's brick and mortar more, they'd cut into netflix's market share quite a bit.

was there ever really a war?

[sTalking_Goat]

Blockbuster was at a disadvantage from the get go. I bet a large percentage of Netflix's first customers were disgruntled Blockbuster customers, so they didn't have a chance of getting those people back. I'll not be unhappy to see Blockbuster close up shop. Netflix et al will get the mass market and the Mom and Pop Brick and Mortars will cover the specialty market and everone (mostly) will be happy and (mostly) un-ripped off.

Re:Netflix...

[hubt]

I think there will always be a bandwidth problem. There might be enough bandwidth now for downloadable video, but it's definitely a stretch. And as we upgrade the network, we'll just want better content. HD content will required 4x as much bandwidth as we need for regular TV and once you see things in HD, you never go back.