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About the International Journal Business Innovation

Question:

Discuss About The International Journal Business Innovation?

Home videos are the pre-recorded videos meant for home-based entertainment. Home videos are either sold or rented or streamed in digital media. The home video market is distributed over films, television-films and various television series in the form of pre-recorded videos in multiple formats to the worldwide public. A video rental market is a market for the home videos. Along with time, people have tended towards the entertainment media more, and the demand in video rental marketing is increasing. Around the decade of 80-90, Blockbuster video had been the crownless king in the world of the home video rental market in the United States, and the worldwide distribution of the home videos had dominated the whole market. Around in the year of 1997, new start-up company Netflix came up on online video rental service and slowly started dominating the market and outshined Blockbuster soon, followed by the bankruptcy and downfall of once famous Blockbuster LLC (Netflix Media Center 2018).  The report takes the case study of Blockbuster LLC and Netflix and analyses the probable reasons for Netflix’s rapid growth and Blockbuster’s rapid downfall to interpret how Netflix was able to beat Blockbuster. The report contains a brief description of both the companies. It elaborates on the probable reasons for Netflix outshining Blockbuster video from four different aspects of technological changes, offline and online retailing strategy, the difference in pricing and the innovations incorporated in Netflix time-to-time. The report further discusses the ups and downs witnessed by Netflix at the time of introducing new DVD rental strategy and also elaborates on the new content introduced by the company named Netflix original. The report also discusses the future of Netflix.

Blockbuster LLC, previously known as Blockbuster Entertainment, Inc., is an American based home entertainment provider. Blockbuster provides home-based entertainment and video games through video shops, streaming in digital media, video-on-demand and various theatres. Blockbuster had started its journey along with another company named Cook Data services founded by David Cook with the objective of supplying software services to the oil and gas industries. In 1985, the old software service was sold and in place of that, the video rental business was found (Greenberg 2010). Blockbuster kept on growing and eventually became a multibillion-dollar company within the year of 1993. In 2010, blockbuster owned almost 6500 stores all over the world. However, in that year only, the company was reported to be bankrupt, and many of the stores were closed. In the year of 2011, Dish Network bought the company at the worth of $329 million (Dishnow.com, 2018). Dish network continued streaming blockbuster video-on-demand services and tried to revive the market of the company by incorporating new technologies and strategies. However, blockbuster survived, and the official website currently has identified 51-franchise location active in the United States, and although the Blockbuster-video on-demand package has been shut down, the television package is still running under the banner of the new name of Dish network.

Blockbuster LLC: A History

Netflix is a popular video rental service provider purposed for mainly home entertainment services. It is an American company established in Scotts Valley of California by Reed Hastings and Marc Randolph in the year of 1997, August. In the year of 1998, the first official rental site of the company has been launched, and the service incorporated the pay-per-rent model similar to the rival companies (Netflix Media Center 2018). It introduced a change in the marketing strategy and introduced monthly subscription service after a year. Incorporation of new technologies along with the different revised approaches let the company witness the growth in a swift way, and Netflix started reigning in the video rental market soon. The company started introducing video recommendation scheme and maintained an extensive personalization system. In the year of 2007, it incorporated the idea of streaming on the internet along with the concept of video on demand. Netflix also introduced ‘Netflix Originals’, the content which is entirely produced and distributed exclusively by the company itself. By the time the company spread its wings throughout the world and became popular in the countries like Austria, Belgium, France, Germany, Latin America, Caribbean, Canada, Switzerland, Luxemburg, Australia, New-Zealand, Spain, Portugal, Japan, Italy and it has almost 50 million members in a global count.

When Netflix came up first in the video rental market, Blockbuster was the crownless king in the world of video rental services. Still, within a decade where Netflix witnessed a significant uplift, Blockbuster lost its existence followed by bankruptcy. The reasons that have been observed behind this change are addressed in the following sections. 

Technology in Blockbuster: The first reason that is observed to be responsible for the fall of Blockbuster is its inability to adapt and evolve with the ever-changing technological trends. Blockbuster had emphasized mainly on the brick-and-mortar model. Before 2004, Blockbuster had operated mostly in the physical stores for video rental service. Though online DVD subscription was introduced in 2004, primarily to compete with the then-growing company Netflix, the primary target was always the physical market rather than the virtual market (Brescia et al 2014). Along with time, the lack of flexibility in the technical ground and inability to adapt in the era of digitalization using strategic reformatting strategy compelled blockbuster to lag behind in the accounting despite its desperate trails to revive using new online strategy.

Technology in Netflix:  Netflix had started as a simple DVD rental service. However, it became adaptive with the technological trend and evolved digitally to grow in the market. From the first, Netflix offered online DVD rental service via mail rather than a brick-and-mortar structure. With the growth in the area of the internet, Netflix started the service of screaming using Microsoft technologies and codecs. Adaptive bitrate streaming is incorporated into Netflix to adjust the quality of audio-visual synchronization to match the broadband speed of the customer (McDonald and Smith-Rowsey 2016). Netflix maintains a user-friendly public application-programming interface (API). Along with time, Netflix has developed several technologies to evolve itself in the field of IT. With the latest trend of data analytics, Netflix has incorporated robust algorithms of the movie-recommendation system (Hallinan and Striphas 2016).

Netflix Inc.: A Brief Description

Therefore, from the aspect of technical evolution with time, Blockbuster has lagged far behind from Netflix.

Retail marketing in blockbuster: Blockbuster video was mainly based on retail outlets rather than trying to step in the digitalization. It has been reported that blockbuster video had rejected several offers of buying Netflix for $50 million back in 2005 when the company was still a less-known and simple rental by mail subscription service trying to spread online (Phillips 2015). Rather than working on the online retailing more, Blockbuster concentrated on developing the bricks and mortar market by increasing the stock of books, toys and merchandise. Though the physical shops and retail marketing have some benefits like availability, in the era of technological development it faces certain difficulties as well. Some of those disadvantages that affected Blockbuster videos badly are:

Location-based marketing: When the online retailing is available, not more of the customers want to visit shop locations and to spend more money to buy a video while the option of watching the same videos from home (Kohijoki and Marjanen 2013). The company did not ponder over this point and did not revolve accordingly.

Lower profit margin: Blockbuster’s profit margin was not enough to sustain the worldwide-distributed market facilities and staffing levels (Dunne, Lusch and Carver 2013). It became a hurdle to maintain the broad distribution.

Customer management: Due to the impersonal communication between the customer and the retailers, the management of Blockbuster could not maintain the synchronization with the customer feedback and because of that, the business could not improve itself according to the trend of the customer (Pauwels and Neslin 2015).

Online operation of Netflix: Netflix started its business from the basic mail rental service for videos, and along with time, the company concentrated on the online service. There are certain advantages of online retailing that helped Netflix to grow up more. The benefits of retailing online that profited Netflix in various aspects are:

Easy access to market: The customers found it easier to get their home-based entertainment right in the home via online media than to go to the location-based market to get the videos. This way, online retailing and rental service via mail helped Netflix to grow up at a fast pace.

Reduced overheads: Netflix enabled the online operation of handling consumers that could remove expenses of staff management and other location-market based management along with opening the facilities of better visualization for customers in online interfaces via smart e-commerce technology (Laudon and Traver 2013).

Blockbuster vs Netflix: The Battle for Video Rental Supremacy

The potential for rapid growth: One of the main reasons for Netflix’s rapid growth in the video rental market is its online retailing. The mechanism of marketing and retailing on the internet gives the facility of overcoming the traditional constraints of brick and mortar market (Liu, Li and Hu 2013). Online marketing management gives a better opportunity for making a proper digital marketing strategy and scales up order fulfilling systems to the company, which boosts the profit.

Extensive Market: One of the major advantages of the online operation of Netflix over the conventional location-based retailing system is the ability to expand the market for the target customer in the whole world in a high speed and to overcome the constraints of restricting in the limit of the local customers (Kacen, Hess and Chiang 2013). The management got an opportunity to invent as demand for the same type of videos in other countries, which the company could respond to by targeted marketing, introducing and recommending different types of videos, which are compatible with the particular country’s cultural and social background and matches with the mindset of the audience.

Customer Dealing with Intelligence: Netflix enabled online marketing tools along with their targeted audience as well as customers. The management also could take advantage of website analysis tools to understand the mindset of the target audience and to fill their need accordingly (Rafiq, Fulford and Lu 2013).

The difference between the pricing strategies of the two companies played a significant role in the growth of Netflix followed by a downfall of Blockbuster. Blockbusters pricing old and conventional pricing strategy did not attract the customers more when they found a better choice in front of them at a comparatively reasonable price.

Blockbuster pricing: The conventional business model that Blockbuster had adapted in the first days was to pay a hefty flat fee per video unit purchased or rented. The price used to be $65 on average. There had been various offers of unlimited rental for the lifetime. In the mid of 1980, a new revenue policy was introduced, and Blockbuster started obtaining videos for lesser cost and started keeping 60% of rental fee, and 40% was paid in the studio (Dana and Dana 2017).  The company also ventured on the fact that movies are not available to purchase before the release, hence the customers were compelled to rent first and to wait for release or to buy the film on tape in higher cost suggested by the manufacturer. Sometimes, the cost had been $70 to $100 per movie title. The rate was indeed high for the typical target audience.

Technological Changes: Blockbuster Lags Behind

Netflix pricing: Earlier in 1998, Netflix had adopted a per rental charge model along with the shipping charges in their DVD-by-Mail services. It was observed that this model is spending almost $100 to $200 to the customer for no reason (Nagle, Hogan and Zale 2016). To solve this problem, a prepaid subscription-based model was introduced by the company. In the new model, the company offered the facility of unlimited videos per month in a specific price subscription, which became a big hit among the users. After that Netflix came up with a new model named “all you can eat” which included the late fee subscription and became an alternative to the payment per day fee structure.

In the US, currently, Netflix has enabled three-price tier model. While the basic plan of the tier model costs $7.99 per month, the standard plan costs $9.99 and the premium package is priced $11.99 each. For the international target audience, the price plans cost from $6 to $19 per month (McGoogan 2018). With the change of taxes, Netflix is compelled to increase the price sometimes. However, for the typical audience, Netflix’s pricing strategy is highly reasonable, and hence it can attract more subscribers.

One of the main reasons for the rapid increase in the market of Netflix is the innovation strategy. Netflix is a disruptive, innovative organization, which introduces new technologies periodically to keep on growing more. Back in 2001, almost $10 million a year had been allotted to the research team (Forbes.com 2018). Even today, a large amount of Netflix’s revenue is spent on the research team to develop new algorithms mainly on recommendation system (Gomez-Uribe and Hunt 2016). The latest approach that has been incorporated is the technology of fixing the level of compression based on the content of a particular scene by applying dynamic optimization technique to the video processing (Cousins 2015).

During the first days of Netflix, it was a mail-based retailer. Along with time and further online application developments, Netflix kept on running the mail rental service too. However, in the year of 2011, Netflix decided to split out and rebrand the DVD renting by demand-on-mail service as Qwikster service. It was declared that the re-branded service with the new name Qwikster would even introduce video game rental service. The combined subscription of both the services was divided into two separate plans at $7.99 each from the integrated subscription cost of $9.99 (Ryan 2013).  However, the idea was never praised, rather the decision of splitting the services was criticized by different eminent business personalities. It was noticed that the split website Netflix would generate two sites that can be completely autonomous from each other and will create a mismatch in case of ratings, reviews, and queues maintained for customer service (Venkatesan et al. 2017). It would also have required separate user accounts, which might become an extra hazard for the customers. Additionally, it was also observed that the different websites might need separate subscriptions for a single user, which means the DVD-by-mail and streaming service would now cost US$16 per month as a total instead of than $10 (Ryan 2013). The sudden increase in price for the change in marketing strategy was obviously not going to entertain the users. Moreover, customers were comfortable with the old set-up, and the sudden change in no reason created confusions among the customers, which were not at all a good sign for the marketing. 

Retail Marketing: Blockbuster's Weakness

After Qwikster, the new scheme of DVD renting was released, the revenue graph of Netflix suddenly dropped. The stock of the company started stumbling. At the end of the year, it was noticed that more than 70% of the share price of Netflix was down in share market, which was quite a shocking report for the management (Allen, Feils, and Disbrow 2014).

On October 10, 2011, seeing the downfall of the newly released project, Netflix announced that the management would not continue with the planned re-branding of the DVD rental service and both the DVD-by-mail and streaming services would keep on working through a single website under the same Netflix brand like before (Cronin 2014). However, the hike in pricing was never resolved resulting in the loss of subscribers. Netflix further stated that it had lost almost 800,000 subscribers in the fourth quarter of 2011, and the introduction of Qwicker was responsible for it (Hoffman 2013).

In March of 2011, Netflix started its new venture on Netflix original; the content produced and distributed by the company itself exclusively. The first original show in Netflix was an hour-long political drama named ‘House of Cards’, which became popular among viewers (Netflix Media Center 2018). Along with time, the standard of the content and the popularity of the original shows kept on increasing, and from a recent survey it had been reported that Netflix won the voting pole as the best original media content. Netflix acquired almost 29% vote of the audience, while the other media was in the range of 5%-18% (Forbes.com 2018).  It is understandable that how the original content in Netflix will help the company to increase the number of the subscribers. It has been reported from an investment bank survey that almost 58% of the total subscribers of Netflix pay for the original shows (Forbes.com 2018). It has been reported that Netflix has spent about $5 billion on their original content in 2016 and it will be investing more on its original shows in future and will increase the subscription charges for the significant numbers of audiences of the original shows at the end of their two-year grace period (Forbes.com 2018).

The company is analysing the status of the market currently and is preparing itself accordingly for future to take the risk and evolve so that it survives the changes in the market. Since the competition in the video rental market is increasing along with time, and various rental service companies have taken the same policy of Netflix’s business model, Netflix is going to make another vast change in its business-law . It has been noted that Netflix has decided to shift from the online streaming service company to a full-fledged entertainment channel, which will be operating across multiple mediums (Lobato 2017). Along with the normal full-length movies and other popular series, Netflix has started opting for anime series and has already invested a lot behind it. It has been also reported, that Netflix is thinking to launch 20 reality TV-based unscripted shows soon in order to expand the business internationally (Forbes.com 2018). To grow more globally, Netflix already incorporated 20 different languages of different countries through proper subtitles or via dubbing. While the network of Netflix in Latin America is growing rapidly and the network in Europe is also showing a healthy growth, currently Netflix is targeting to grab the large market of Asia.

Difference in Pricing: Netflix Pulls Ahead

Conclusion:

From the above discussion, it can be stated as a conclusion that the main reason for the demise of Blockbuster is their inability to adapt to the changing world of digitalization. Blockbuster emphasized more on their brick and mortar structure than the online marketing, which slowly distracted the viewers with the trend of internet entertainment becoming popular in the market while the revised online marketing strategy of Netflix helped it to grow fast. The incorporation of new technologies and innovations of Netflix became a market booster. Along with it, the report also states how the pricing strategy of Netflix helped in increasing the subscribers while Blockbuster’s traditional pricing method started losing the customers. Along with this, the report has mentioned about the pitfalls of newly Qwikster project of Netflix, which became a pitfall for the company and have discussed on how the introduction of Netflix videos have increased the subscriber and opened a new horizon of opportunity for the development of the company. In the end, the report has stated that Netflix is going to shift their focus from the streaming service to an entertainment channel as their new model of a revised business strategy.  

References:

Allen, G., Feils, D. and Disbrow, H., 2014. The rise and fall of Netflix: what happened and where will it go from here?. Journal of the International Academy for Case Studies, 20(1), p.135.

Brescia, R.H., McCarthy, W., McDonald, A., Potts, K. and Rivais, C., 2014. economics disruption: how technological change in the delivery of legal services can improve access to justice. Alb. L. Rev., 78, p.553.

Cousins, M., 2015, July. Changing the Game: A Guide to Cost-Efficient Software-Based HEVC Video Processing Deployment. In Persistence of Vision-Defining the Future, SMPTE15: (pp. 1-17). SMPTE.

Cronin, M.J., 2014. Netflix Switches Channels. In Top Down Innovation (pp. 25-35). Springer International Publishing.

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Forbes.com. (2018). Forbes Welcome. [online] Available at: https://www.forbes.com/sites/greatspeculations/2016/04/18/is-netflixs-investment-in-original-programming-paying-off/#5c5bece874dd [Accessed 24 Jan. 2018].

Gomez-Uribe, C.A. and Hunt, N., 2016. The netflix recommender system: Algorithms, business value, and innovation. ACM Transactions on Management Information Systems (TMIS), 6(4), p.13.

Greenberg, J.M., 2010. From BetaMax to Blockbuster: Video stores and the invention of movies on video. MIT Press.

Hallinan, B. and Striphas, T., 2016. Recommended for you: The Netflix Prize and the production of algorithmic culture. New Media & Society, 18(1), pp.117-137.

Hoffman, A., 2013. Netflix: Rebranding and Price increase Debacle.

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Ryan, L., 2013. Leading change through creative destruction: how Netflix’s self-destruction strategy created its own market. International Journal of Business Innovation and Research, 7(4), pp.429-445.

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