Draft Text: 1. Would you have been long or short on Blockbuster stock at the time of the case?
How about Netflix? Why?
In January 2007, the Netflix’s case was addressed and analyzed by Harvard Business School.
In my opinion, I would have been short on Blockbuster Stock because Blockbuster
[POSSESSIVE FORM] business was out of touch with industry trends. Their model of in-store
DVD rentals was inconvenient and their late fee charges were a major source of client
dissatisfaction. The store had a complicated membership situation (you had to have a
membership to rent and when you applied for a membership you had to provide all of your
personal information) that made it difficult for customers. Moreover customers were frustrated
by the fact that they would often go to the store to look for a specific new release (the core focus
of the company) and find that all of the DVDs had run out of stock. Even when Blockbuster
offered an on-line service to compete with Netflix [COMMA AFTER DEP. CLAUSE] they were
too late to compete with Netflix [POSSESSIVE FORM] online customer base. Having an on-line
and an in-store account was confusing to most consumers. Also, Blockbuster’s core competency
was in-store customers where customers wanted DVDs in hand. Blockbuster had lost its core
competency to compete in trends they were not good at. Blockbuster also faced many
complaints about their unsatisfactory customer service.
On the other hand, I would have been long on Netflix stocks knowing what was known at the
time. Netflix had a simple membership form that was fast and straightforward. It also had a far
superior customer database and customer service. Netflix has the most amazing movie selection.
Almost every movie imaginable could be found in their inventory. The convenience of fast
shipping and fast returns through mail order was the strongest competition point for Netflix. At
Blockbuster, a consumer would have to drive to the store, find a movie (if it was even available),
wait in a frequently long line. Consumers then had to have another trip to the store to return the
movie. To watch one DVD a consumer could frequently waste more than one hour in store
transit (check out and return) and in-store time. By contrast, Netflix allowed consumers to
preview and read consumer reviews before adding them to a queue. Movies were also suggested
to consumers based on their recently watched movies and movie preferences. Once a movie was
selected, the movie was shipped directly to the home of a customer with a return envelope and no
late fees attached. To compete with in-hand DVDs, Netflix had begun to offer VOD (video on
demand) to its customers at no additional charge. Netflix was already the market leader in online
DVD distribution. The huge potential for this company to grow into a market leader for all home
entertainment would have driven me to go long on their stock. Blockbuster was beginning to
fade out of the industry and was losing its core competencies while still insisting that Netflix was
a niche market rather than an industry leader.
2. Did Netflix do the same jobs for consumers that Blockbuster did? How did this evolve over
time?
Netflix did not do the same job for consumers that Blockbuster did. Netflix began by creating
web-based DVD rentals with no-hassle customer service. They offered customers quick and easy
online applications and penalty-free service cancellation (while retaining your queue for resubscription). They created a database of movie preferences. Netflix offered instant 24/7
customer service with instant response. As consumers switched to online DVD rental Netflix’s
movie selection evolved into one of the largest databases of titles that included older releases and
hard to find independent movies. Also the company began to offer VOD on demand to meet
customer demand for instant entertainment.
Blockbuster offered unsatisfactory customer service while allowing consumers to look at
many walls of popular new releases. This allowed customers to stop in and instantly place a new
release in their hand. The company’s late fees, long lines, out-of-stock inventory often made this
experience inconvenient and disappointing. Blockbuster was overconfident about being the
market leader with total market saturation and did not pay attention to the problems customers
were having with their service. Over time, Blockbuster began to borrow Netflix’s model for
online DVD rental and even began offering a no-late-fees subscription service. This was too late
to compete with Netflix.