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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?"
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
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I think Netflix is too entrenched to be taken out by another company. However, I do think faster broadband and downloadable (legal) movies like those available on itunes are going to slowly chip away at netflix.
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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
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Yeah a number of people might subscribe to Blockbuster's deal. It might suit them fine. But in this case, Netflix has won the mindshare. Blockbuster is the video store on the corner, and well-established at that; but on the internet, Netflix is the common word. The red envelopes are signature. They've won the highly-important mindshare game, and they appear to be winning the business game, too.
Sure, there are always advantages of one over the other. Blockbuster has instant gratification---I can get the movie I want within minutes. Netflix has wider selection---I can't walk into a BB and find much anime. They also have convenience---I decide on a movie, I can click it and it'll be there tomorrow. And I can procrastinate and watch it when I feel like, returning it when I want. And it's cheaper than the corner store if I watch a lot of movies.
I can't really speak to BB's online service; they might have similar selection and pricing, but they also have the same disadvantages. And after dealing with Netflix ("oh, the movie never came? here, we'll ship you another free of charge") vs Blockbuster ("oh, you returned the movies in the morning, but we didn't notice til after noon... that's $6 please"), I would definitely rather do business with the former.
Don't think of it as a flame---it's more like an argument that does 3d6 fire damage
I've stress tested both. Netflix was able to push out 9 movies a week for 6 weeks, and then throttled down. Blockbuster managed 4 movies a week, for the less that a month I kept them.
Now I just borrow what I want from the library system. Reserve online, get it all pulled and sent to a library near where I am during the day. No limit on the number of DVDs I take out.
Based on my Blockbuster experience, I would not even consider them again.
Market value and debt don't really tell enough. Earnings and cashflow are bigger tools to gauge the success of the companies. If Blockbuster is making enough money to service the debt (and other obligations), then they're doing fine. If Netflix has enough cash reserves that they don't need debt to keep operating, then they're doing fine. Debt is just a tool that businesses use.
-h-
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.
Blockbuster's 2 free rentals a month are sweet; I used to use them for video game rentals (which are now $7 each at my local store).
That said, with all of the comments on which service is better I'd like to weigh in on a few specific points:
First, each service does a good job of what you want it to. Keep a large quantity of movies queued up and they show up in the order you want and you've always got something to watch. Look into who has a better catalog of what you like to watch and stick with them.
Second, each service FAILS when you use it to the limits. I've heard people saying they average 18-23 movies a month with netflix/blockbuster. 18-23 movies!!@?? That's WAY below a dollar a movie, and don't forget shipping back and forth (at least $.60). The idea here isn't to scam the company into a loss on you, the idea is to use a service and have a reasonable good time using it.
Now, I'm all for fairness in advertising (i.e.: unlimited should mean unlimited) but don't complain when you only get 15 movies in one month, for $17. And ESPICIALLY don't complain to me when I know that the majority of the people who are doing this crazy 8 movies a week thing are simply burning every movie right when it comes and then shipping it back the next morning. It is all but impossible to watch three movies a night three nights a week. That is SURELY not what these services were meant to be. You're raising my rates, and it's totally illegal as well.
Couple unlimited rentals with the ability to download the jacket to any movie ever made... Well I'm sure you get the point.
I'm not fat, just big boned...
That's exactly what Netflix is concerned with. They beat Wal-Mart AND Blockbuster in the online market. But the execs at Netflix are concerned with the content-over-broadband market. They view that as their primary threat.
Rupert Murdoch's DirecTV will begin delivering content from Murdoch's empire, and anything else they can get their hands on, over the DirecTV lines to their DVR, both as trickle download and OnDemand.
Comcast is working on OnDemand.
And then there is the Netflix-TiVO-Comcast arrangement, in which TiVO programs the trickle download so Netflix subscribers can rent movies onto their TiVO box. After all, the only better way to rent a movie from Netflix would be to have it available, nearly instantly, on your TiVO box. And that is what is coming. You'll be able to view a few movies from your TiVO box. When you delete them, the next ones will be able to be viewed. TiVO's engineers are using their broadband boxes to download the moves, 6-8 hours each.
Now, OnDemand can beat that turn-around time, but only with limited content. Netflix can deliver ANY of their content. And, with content protection, the consumer will see ZERO download times (unless you delete 2-3 Netflix movies rapidly, then you will need to wait for the download).
The Future? Who knows? But OnDemand and trickle download models are emerging, and a lot of money is being spent trying to determine the video equivalent of the iPod.
So let's not forget them. The new video iPods can store 15 movies. You could download from iTunes store and carry it with you. Neat-o.
Blockbuster still has one ace up its sleeve - porn. Most of the mom-and-pop shops that survived Blockbusters intense expansion did so by renting and selling hard-core porn. That option is certainly a tough one for Blockbuster, as many franchise owners will object, but for the corporate locations it may be the only option to keep them open.
Of course, this wouldn't kill Netflix - it would just turn Blockbuster into the world's largest chain of sex shops. But being a chain of sex shops is a better option than going bankrupt.
As the old saying goes 'never underestimate the bandwidth of a station wagon full of magnetic tapes'. In this case it can be updated to 'never underestimate the bandwidth of a bunch of DVDs in the mail'. Netflix's days are numbered so long as bandwidth continues to increase. They've probably got a good few years yet though until they are overtaken, especially if HD disks become popular; demand for higher quality should give their delivery system better bandwidth than online connection for some time. In the meantime they'll continue to make a lot of money.
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Blockbuster gives two in store coupons every month good for a game or movie rental. With their game rentals hovering in the $8 range, it pretty much pays for itself every month. Blockbuster also credits the value of the coupon against the 'keep it' price for any video or game rented at the store. Good deal (for me at least).
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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.
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:
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.
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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!
paintball
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...
Blockbuster has probably only ever regarded Netflix as a minor pest. You all are seriously misjudging the size of Netflix's business by looking at market value. Blockbuster is doomed and bleeding money, but still pulls in 10x Netflix's revenue. Only three or four years ago, Blockbuster was still collecting a billion dollars in late fees per quarter or something like that.
No, Blockbuster's latest moves -- mail rentals, changing late fees, rental subscriptions -- have all been lame attempts to fend off a monster called Comcast. This is the same monster that will always keep Netflix a fringe player.
You have to essentially watch 4 movies or more per month to make Netflix a better deal than Pay Per View (PPV). Generally speaking, Netflix is for people who know what they want to watch in advance and watch a ton of movies. That's not most of the public. Most people realize they are going to be bored that day and see what's on. They want instant gradification.
How many of you subscribe to netflix and then let the movies sit for a long time without watching them? Most people I know with Netflix do that, then are basically paying $18 a month for watching less movies than they could watch on PPV for less money.
Face it, Netflix is a fringe player for obscure DVDs and movie junkies. Blockbuster was wasting their time trying to do it. Comcast rules the entertainment market, everyone should be extremely scared of them. Movie studios, theater owners, Blockbuster, Netflix, and those dudes on the streets of NYC selling Kramer-like recordings of movies. Comcast is poised to pwn them.
I've stopped buying DVDs because I don't want to re-buy once HD DVDs become available - Netflix is a terrific alternative to building your own video collection.
I have had some annoyances with Netflix though - damaged (out right broken or cracked DVDs) are about 15% of what I recieve, and sometimes I have to wait several days to get a movie from across the country. But all in all it is super convenient compared to the alternatives, and very inexpensive for what you get.
I suspect that Netflix is in a great position now because it would cost a heck of a lot of money to start up a competitive service.
We stopped using both Netflix and Blockbuster. BB because of its insane fees and costs, and Netflix just because renting a movie for us is an impulse action. Instead we use Hollywood Video. Its cheap. Quality. And I can find nothing that BB does better.
The problem is that BB has a reputation for fake late fees. I know what finally made me stop renting from them years ago was that they would charge late fees on movies that were returned on time. This combined with their editing of movies, and the fact that it was clear they were trying to trick their customers by offering 3 'night' rentals, and counting both the rental and return nights as full nights, just made me give up on them. When they started their 'no late fees' scam, I didn't even bother to look into them. Apparently that was the right move.
Hello its slashdot. Its the people Kurt Cobain was writing about when he wrote Smells Like Teen Spirit. The want everything for free except for the stuff they do, then they want paid for that. So much for my Karma.
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I'm sorry, but 18-23 movies isn't even one movie a night. And there are at least some users (like my DAD) who are retired, and like to have something to do during the day when everyone else is at work/school/out whatever. The 5 out a month barely supplies enough to keep him in stuff to watch unless he gets the TV series discs which have ~5hrs of content, so 2-3 days per disk rather than one for movies.
And for many rural people (who seem to be a large market segment) we don't get much over TV, and the quality is random - sometimes quite snowy. Also, like many others I prefer no commercials, so I like to watch DVDs of a show vs broadcast. And watching one TV episode a night can eat up the slack (I mean, with several people in a household - you might need 2 discs at a time, due to different tastes and more than one TV/DVD player in a house).
So the idea that 18-23 DVDs a month is for piracy is certainly not necessarily the case, especially for a household of 4. Now if you are a single guy with a full time job, and you're doing that you either have no life beyond work and DVDs, or you are pirating them as fast as you can.
But there are many reasons you could turn around 18-23 DVDs in a month as listed above. Especially if one family member (if not all) are somewhat TV addicted(not unusual in the US).
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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 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.
Gnuyen
I had a discussion with a friend sometime ago and I had some suggestions on what Blockbuster could do to have save more money and make customers more happier.
Offer customers both the option of sending it back by mail or returning it back to a local store. That's an advantage of having a local store in almost every city which Netflix doesn't. Of course, if convenience is your thing, you're still allowed to drop it in your mailbox and have the postal service ship it back. But by offering both return methods, both parties will benefit from the user returning to the store. The user's queue will be emptied by the following day (instead of waiting ~3 days for the mail to be delivered and scanned), therefore that means more movies per month. Blockbuster saves money by shipping all the dvds back to the central office together, saving on shipping.
Another feature they can offer customers is the option to allow the subscriber to have 1 dvd out from the local store at any given time. They can even subtract that 1 dvd from the # of dvds they can have out at a time. They can even restrict it to 3+ months old movies, where if the subscriber wants to watch newer movies, they'll have to go through the online store. I mean, every Blockbuster has a bunch of movies that hardly ever circulate much. There's really no point in letting them sit there to collect dust. By allowing users to have access to the local store, this will make them happier and actually give those old dvds some worth in the store. Sometimes you might want to watch a movie that night, but neither netflix or blockbuster would fix that. If the 1 dvd out at a time is too much, you can restrict it to x dvds from local store / month.
Just my 2 cents.
HD Trailers
Let's see... A billion dollars of revenue and big losses, or a tenth of the revenue and millions in profit...
Or people who want to watch their movies uncensored. Or people who care about video quality, and don't want to pay out the ass for HD. Or people who actually like the extra material found on DVDs. Or people who feel they already pay too damn much money to the cable company, who keep jacking up their fees every quarter, unlike Netflix.
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It's called fraud when you sell one thing and deliver another.
Had Netflix sent a letter out to their customers saying "We have to cap the number of DVDs you can rent on plan Y to X per month. If you want to see more than X DVDs then we have these upgrades available," the suit wouldn't have had any basis. However, Netflix advertised they offered "unlimited rentals" on their least expensive service when, in fact, they didn't.
Your post implies you think that honesty in day to day business is too much to ask for. It'll be too bad if that becomes a common sentiment.
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.
My days of not taking you seriously are certainly coming to a middle...
Man, you score +1 for attitude, but you're still brutally wrong when it comes to actually having a valid point.
For the vast majority of consumers, no video rental mechanism is bandwidth-throttled. Consumers don't want an entire station wagon full of movies delivered every night, so the higher bandwidth potential of USPS-delivered movies versus downloaded movies is not relevant to them.
The pacific ocean has a lot more water than lake michigan, but you can't fill up a bucket faster in the ocean than in the lake.
I also think that you'd have a tough time demonstrating that b&m video stores are still in business because they offer the ability to rent more movies at once. b&m video stores thrive because they provide lower latency than the alternatives -- you can walk in without having already decided what movie you want to watch that night. With netflix or other USPS-delivered rental options you have to decide days in advance what you plan to watch.
A download model will combine the best of both worlds -- allowing low latency flexibility of choice along with the convenience of not having to leave the house.
Good show on the attitude, though. I'm sure in some circles that can be an effective alternative to having a well-reasoned position.