Netflix Case Sudy

CASE TEACHING NOTE 5

Competition in the Movie Rental Industry

in 2008: Netflix & Blockbuster Battle

for Market Leadership

Overview

SINCE 2000, THE INTRODUCTION OF NEW TECHNOLOGIES AND ELECTRONICS PRODUCTS HAD RAPIDLY MULTIPLIED CONSUMER OPPORTUNITIES TO VIEW MOVIES. IT WAS COMMONPLACE IN 2008 FOR MOVIES TO BE VIEWED AT THEATERS, ON AIRLINE FLIGHTS, IN HOTELS, FROM THE REAR SEATS OF MOTOR VEHICLES EQUIPPED WITH VIDEO CONSOLES, IN HOMES, OR MOST ANYWHERE ON A LAPTOP PC OR SMALL HANDHELD DEVICE LIKE A VIDEO IPOD. HOME VIEWING WAS POSSIBLE ON PCS, TELEVISIONS, AND VIDEO GAME CONSOLES. THE DIGITAL VIDEO DISC (DVD) PLAYER WAS ONE OF THE MOST SUCCESSFUL CONSUMER ELECTRONIC PRODUCTS OF ALL TIME; AS OF 2008, MORE THAN 85 PERCENT OF U.S. HOUSEHOLDS HAD DVD PLAYERS (MANY HAD MORE THAN ONE) AND INCREASING NUMBERS OF HOUSEHOLDS HAD COMBINATION DVD PLAYERS/RECORDERS. MOREOVER, CONSUMERS WERE INCREASINGLY INTERESTED IN WATCHING MOVIES ON THEIR BIG-SCREEN HIGH-DEFINITION TVS AND WERE UPGRADING TO BLU-RAY DVD PLAYERS OR PLAYERS-RECORDERS; BOTH BLU-RAY AND HIGH-DEFINITION TECHNOLOGIES ENABLED MORE SPECTACULAR PICTURES AND A SIGNIFICANTLY HIGHER CALIBER IN-HOME MOVIE-VIEWING EXPERIENCE.

Consumers could obtain movie DVDs through a wide variety of channels. They could purchase movie DVDs from such retailers as Wal-Mart, Target, Best Buy, and Amazon.com or rent movie DVDs from a host of local video outlets that frequently included Blockbuster and/or Movie Gallery. They could rent movie DVDs online from Netflix, Blockbuster, and several other subscription services and have them mailed directly to their own homes. They could subscribe to any of several cable movie channels (such as HBO, Showtime, and Starz), download movies from Apple iTunes and other Internet sites, watch movies streamed to their PCs or TVs from a host of Internet sites (including those of Netflix and Blockbuster), use their cable or satellite TV remotes to order movies instantly streamed directly to their...