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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.
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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.
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...
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.
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.
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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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.