With more news in the video rental space, I couldn't resist to explore the strategy of Netflix. When Netflix is mentioned, most people think of a red envelope that includes a DVD found in the mail (see left). The number of DVDs mailed per Netflix Subscriber has been declining over the past few years, with a dramatic decrease during 2010. Even more surprising is the fact that Netflix is encouraging this decrease. Their logic makes more sense upon understanding their strategy to make way for its digital streaming channel. While content acquisition costs remain high, Netflix is confident that its digital library will become a profit pool for them as the number of subscribers increase. Not only is postage not necessary, but the digital library is much easier to manage then actual DVDs that need to be shipped across the country through its several distribution centers. Apparently this strategy is working for them as they just announced that they added 3 million subscribers during the past quarter, giving it a total of 20 million. From the business aspect, it seems as though there strategy has few flaws; however, as a current Netflix subscriber, I would be quick to cancel their service if the red envelopes stopped coming in the mail. In other words, I think they have a long way to go before they dominate the market with their small digital library.
Wednesday, January 26, 2011
Netflix
With more news in the video rental space, I couldn't resist to explore the strategy of Netflix. When Netflix is mentioned, most people think of a red envelope that includes a DVD found in the mail (see left). The number of DVDs mailed per Netflix Subscriber has been declining over the past few years, with a dramatic decrease during 2010. Even more surprising is the fact that Netflix is encouraging this decrease. Their logic makes more sense upon understanding their strategy to make way for its digital streaming channel. While content acquisition costs remain high, Netflix is confident that its digital library will become a profit pool for them as the number of subscribers increase. Not only is postage not necessary, but the digital library is much easier to manage then actual DVDs that need to be shipped across the country through its several distribution centers. Apparently this strategy is working for them as they just announced that they added 3 million subscribers during the past quarter, giving it a total of 20 million. From the business aspect, it seems as though there strategy has few flaws; however, as a current Netflix subscriber, I would be quick to cancel their service if the red envelopes stopped coming in the mail. In other words, I think they have a long way to go before they dominate the market with their small digital library.
Thursday, January 20, 2011
Blockbuster Inc.
Blockbuster filed for chapter 11 reorganization on September of 2010. Over $800 million dollars of debt was wiped from their balance sheet. Blockbuster's outline or its reorganization plan has received extension after extension and now they are asking creditors for more money. Some creditors appear willing while others are fed up and looking to put the movie rental company for sale.
Five years ago, Blockbuster's future appeared stable as they were crushing Hollywood Video, their main competitor. Blockbuster seemed to ignore the warning signs of decreasing revenues or the fact that their customers began to think of them as a "dinosaur". They failed to realize that Hollywood Video went out of business because nobody wanted to drive to a store to rent movies anymore, not because Blockbuster had bullied them to bankruptcy. While a major shift in the way people rent movies was about to take place, Blockbuster maintained the attitude that they would continue down the same path because it worked in the past.
Redbox and Netflix were the "one-two punch" to knock Blockbuster into bankruptcy. However, leaks of their new plan have some creditors willing to inject more capital. It appears that they have finally realized that they are able to deliver new releases to customers up to 28 days faster than any other company due to their close relationships with studios. They have a game plan to be able to deliver a movie via kiosks, stores, by mail, and digitally where they can focus on the needs of all of their customers. With Blockbuster's new position as the only company in the world to offer movies through all four channels and with the ability to get new releases to its customers even faster, expect a full turnaround.
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