Discuss about the Journal of the International goods Academy.
The market of video rentals is replaced by online streaming. Internet streaming is considered to be the fastest way of accessing internet-based contents. Streaming is a process that enables the viewers to use online contents before the file has been downloaded. The online data get automatically deleted after it has been viewed. Fast data connection is the main requirement for online streaming of video (Adhikari et al. 2012). Streaming of video cannot be easily copied and this helps in piracy protection. Companies can reach a wide range of audiences by video streaming. Netflix is an online streaming service that is based in U.S. Netflix had started its business with DVD-by-mail service in 1997 (Amatriain 2013). Later on in the year 2007, Netflix launched its video streaming services that led to the decline of physical video rental stores and services. Netflix has become the leader in the market of video streaming and is focusing on original content production.
This report describes how Netflix beat Blockbuster. It discusses the history of Netflix and Blockbuster in brief. The following report shows the role played by the changing technology in the video rental and video streaming market. It compares the characteristics of online operations with the retail outlets and shows how online operations have helped Netflix to achieve success. This report outlines the pricing strategies and the innovations of Netflix. It also predicts whether Netflix will remain the dominant player of video streaming. The following report discusses the reasons behind the demise of Qwikster. It shows how Netflix regained its position by providing original content. This report also shows the future scope of Netflix.
A brief history of Blockbuster
Blockbuster was founded by David Cook in the year 1985 after Cook Data Services had stopped supplying software to the oil and gas industry of Texas. The first retail store of Blockbuster was opened in Dallas, Texas, U.S.A (Freedman 2012). Blockbuster became the largest video rentals in the world. In the year 1987, Blockbuster was sold to three investors. In the year 1992, Blockbuster had more than 2800 stores across the world. In the year 2004, Blockbuster had gained market share with around 9000 retail stores around the world. In 2004, 10 percent of its revenue was from the late fees that customers had paid because they were unable to return the rented movies. In the year 2010, Blockbuster had filed for bankruptcy protection against a debt of $1 billion. With the advanced technological growth and business strategy of Netflix, Blockbuster was facing problem in the video market. The old or traditional business model and strategy of Blockbuster had allowed its competitors to take most of the market share (Davis and Higgins 2013). Dish Network had bought the retail stores and other assets of the company in 2011. In the year 2013, Dish Network had announced to close all the retail stores in U.S.A. Blockbuster has been able to operate at least 10 stores across U.S.A.
A brief history of Netflix
Netflix was founded in the year 1997 when Internet retailing was gaining importance over traditional retail stores. Netflix had offered the delivery of DVDs to the customers via mails (Cook 2014). Initially, Netflix had concentrated on the early-technology adopters with a marketing strategy of developing cross-promotional programs with the sellers and manufacturers of DVD players. Netflix had charged $4 for each movie along with $2 handling and shipping charges. Netflix had a cash-induced strategy. Customer complaints regarding high price and slow delivery of the DVDs led to the formation of the prepaid subscription strategy and service in the year 1999. A recommendation system was offered to the customers based on customer surveys. In 2002, Netflix had allowed the customers to unsubscribe over the Internet by completing a survey form for explaining the reason for unsubscribing. Netflix attempted to split the streaming businesses and DVD by creating Qwikster in 2011. This idea did not work well and was dropped within one month. The explicit strategy of Netflix led to its growth and success. In the year 2013, Netflix had moved to original programming with the “House of Cards” series.
How Netflix beat Blockbuster
Netflix could beat Blockbuster by effectively utilizing the functionalities of emerging technologies. Its executives and leaders had understood the importance of the emerging and advanced technologies and had supported the idea of Internet streaming (McDonald and Smith-Rowsey 2016). Netflix had adopted a strategy of Internet streaming that allowed its customers to access movies over a virtual platform. It was more convenient for the customers as they did not have to visit the stores (Hiller 2017). Netflix could deliver high level customer service. Reed Hastings could predict that the renting of movie and video cassettes would come to an end. The role of compression technology helped Netflix to achieve success (Lusted 2012). People were gaining access to the Internet services, and this enabled the streaming of video files over the Internet. Netflix could change its strategy to video streaming from its strategy of sending DVDs through mail by utilizing the functionalities of Internet and compressed technology. Netflix had adopted an open-source strategy and approach for distributing movies on computers, DVD players, mobile phones, laptops and TVs. The subscription strategy allowed the customers of Netflix to watch movies and videos based on their demand (Sherman and Waterman 2016). Netflix had adopted a pay-per-view programming approach. The search engine of Netflix had helped the customers to search and sort by the name of the movie, actor and genre. Netflix developed a recommendation system based on customer preferences that used an algorithm to give proper suggestions to the users (Hallinan and Striphas 2016). Customers of Netflix were asked to go through a survey after they created a new account. Based on the survey as well as the searches of the users, the proprietary algorithm of Netflix could give appropriate movie and series recommendations to the users. This recommendation system based on machine learning as well as algorithm had proved to be convenient for the customers. The adoption of advanced technologies and algorithms had helped Netflix to flourish and beat Blockbuster.
Retail outlet versus operating online
Netflix could beat Blockbuster because of the advantages that it provided by operating online. Blockbuster had retail outlets where the customers had to visit. The online operations of Netflix had allowed the customers to watch movies and series over the Internet in real-time. This online approach was convenient for the users. The users did not have to visit the retail video rental stores for hiring video cassettes. The online video streaming concept had saved the cost and time of the customers. Netflix could save the cost of operating retail outlets and maintaining sales executives (Summers et al. 2016). Netflix could operate its business at a low cost as compared to Blockbuster. Blockbuster was still using the traditional strategy of operating retail stores. Netflix could offer several advantages to the customers. Netflix offered several choices of movies to the users over its online platform. Users having high-speed connection of Internet could easily watch web series and movies in real-time. Users could get access to video games and movies at their doorsteps. Netflix could offer customized packages based on customer preferences that were not available in any retail video rental stores. The recommendation system of Netflix had helped the customers to choose movies and series easily. The original contents provided by Netflix had played a major role in its success (Villarroel, Taylor and Tucci 2013). Netflix could update the online programs and channels on a regular basis. The various features and facilities offered by Netflix through the online operations have helped in beating the retail stores of Blockbuster.
Netflix had initially adopted a traditional pricing model where the customers had to pay for each rented movie, and this charge also included the shipping as well as handling charges. The customers had to return the DVDs before a specific date or else they had to pay extra charges. This strategy was not appreciated by the customers as Netflix had a slow delivery service as compared to its competitors.
Netflix had adopted a prepaid subscription pricing model to overcome the limitations of slow delivery services. This subscription model had allowed the customers to get four movies at once and receive four new movies every month. This new pricing strategy had turned the disadvantage of the slow delivery service into an advantage as the users could watch the other movies. Later on Netflix had further improved its pricing strategy (Allen, Feils and Disbrow 2014). The next pricing model of Netflix was to offer unlimited rentals at the first time. Subscribers were allowed to have three movies at one time. The subscribers could exchange the movies as many times as they wanted to. This pricing strategy of offering unlimited rentals had attracted new customers and users. Netflix did not charge any late fee to the customers. The main focus of Netflix was to provide convenience to the customers. Blockbuster used to rent movies and charge for late fee when the customers were unable to return the video cassettes within a specified time. The overall expense of the customers was more when they used to hire video cassettes from the retail stores of Blockbuster (Baccarne, Evens and Schuurman 2013). The subscription plan of Netflix was effective and customers had found it to be more convenient as compared to that of Blockbuster. The subscription pricing strategy or model of Netflix had played a significant role in beating Blockbuster in the video rental market.
Innovations of Netflix
Netflix is considered to be one of the most innovative companies across the world. Unlike other broadcasters, Netflix does not aim to reach a broad range of audiences. Netflix aims to effectively cater to the needs of niches (Euchner and Ganguly 2014). The key innovation of Netflix was to build streaming video demand by providing free service along with the DVD that was delivered by mail. It keeps on upgrading and adding innovative ideas for growing its business. The innovative idea of video streaming had led to the close down of the traditional video renting businesses. The subscription plan of Netflix was also considered to be creative. Netflix had used the concept of online library and recommendation systems for providing convenience to the customers (Gomez-Uribe and Hunt 2016). Initially, Netflix had used a different and innovative approach to rent movies to its customers via mail. Later on the idea was modified and the features of Internet were utilized for streaming the videos online. Netflix believed in disruptive innovations. The recommendation system of Netflix used an algorithm to get an insight into the customer choices and preferences. Netflix had also offered a “Netflix Prize” of $1 million to the public for getting a better and advanced algorithm for its recommendation system (Hallinan and Striphas 2016). Netflix had also used innovative ideas to bring the concept of original programming where it broadcasted original web series such as “House of Cards” (Tryon 2015). Netflix has recently updated its static images on the user-interface platform to custom-created videos. The innovations and creativity of Netflix also allows the users to download the videos and watch them offline (Villarroel, Taylor and Tucci 2013). The main strategy of Netflix is to add devices for allowing subscribers to stream content. The creative approach of Netflix was mainly responsible for beating Blockbuster.
Will Netflix remain the dominant provider of online video streaming
Netflix stumbles: the demise of Qwikster
Netflix had announced a hike in price for its combined streaming as well as DVD service in the month of July in 2011. Netflix had realized that DVD-by-mail service was completely different from streaming businesses. They had different marketing as well as cost structures. Netflix had identified that both the businesses could be run independently. Netflix wanted to resolve this issue by separating the two businesses into two different entities. Netflix had decided that the DVD-by-mail business would be conducted by Qwikster. Qwikster was planned in response to the negative reaction of the price hike that was announced by Netflix. There were several reasons behind the failure of the Qwikster plan. The split of the website made it inconvenient for the users to manage the different queues and accounts in the separate websites (Som.yale.edu 2018). Separate ratings, separate preferences and separate bills for Qwikster and Netflix would create problem for the users. This plan had showed that Netflix was focusing on its own benefits rather than the benefits of the customers. Netflix wanted to focus on the streaming business as this was considered to be beneficial for the company in the future. It had seemed to the investors that Netflix wanted to focus on its own benefits by separating the business of DVD-by-mail service and the video streaming service. DVD-by-mail service had to incur high cost because of the acquisition of pay-for-postage and physical discs. The operational cost of the business associated with the DVD-by-mail service would be high, and this business would become obsolete in future. No investor would show interest in buying a cost-intensive company that would become obsolete in the near future. The business strategy developed by Netflix was outraged by its customers and it had lost several customers along with a fall in its share price. Netflix could have used a smarter strategy by increasing the price of the subscription plan by a small amount for few years, and after reaching a certain limit it could have split the businesses. Netflix had lost a huge number of members with the hike in price and the Qwikster plan.
Netflix rebuilds: The rise of original content
After the demise of the Qwikster plan, Netflix decided to invest in content production and original programming. Netflix had contracted with an independent studio for creating 26 episodes of the “House of Cards” series. The series was a success and it had set a success standard for original programs and ventures (Tryon 2015). Netflix had focused on original programming for developing a competitive edge in the video streaming business (Stelter 2013). Netflix had spent a major portion of the budget on original content production. The unique approach and strategy of Netflix had helped it to gain several subscribers. Netflix focused on delivering high quality content for its growth. The company started focusing on balancing the mix of original contents and licensed series for gaining competitive advantage in the streaming market (CNN 2018). The concept of original programming was considered to be a key to the success of Netflix. Netflix had collected customer information and data for producing original contents that could satisfy the needs of the subscribers (Goldfayn 2012). The customer data was initially used for improving the recommendation system of Netflix. Later on the details were used for creating appropriate original contents that would satisfy the users. Netflix could beat its competitors: Amazon Prime and Hulu by providing better quality contents (Adhikari et al. 2015). The concept of original programming and content had helped Netflix to succeed and become the leader in the video streaming market.
The future of Netflix
Netflix is supposed to spend around $8 million on original programming in the year 2018. It will also announce a hike in the price of the subscription plan. This plan would edge the price towards the price offered by other competitors such as HBO (Harvard Business Review 2018). This can be a challenging factor for Netflix in the future. The rise in competition in the market can affect the business of Netflix. Netflix will get international growth opportunities in the future. Netflix has observed substantial growth in the international markets such as Brazil, Canada and Mexico and expects to have further growth in the international market (Tippie.biz.uiowa.edu 2018). International competition is considered to be lighter as compared to domestic competition, and it will enable the expansion of Netflix in the future. As the number of competitors is expected to increase in the domestic market, Netflix will need to invest more in the production of original contents. With the spending of $8 million on original content, Netflix is expected to run with a negative free cash flow in 2018. The original content can play a significant role in contributing to the additional growth of the subscriber and increase the future earnings of Netflix (Tryon 2015). If there is continuous growth in economy, then Netflix will be able minimize the negative effects due to increased competition. The main focus of Netflix is to invest in original content in the future. Netflix will add more original programs and contents to its library for maintaining its position in the streaming market. The library of Netflix is expected to consist 50 percent of original content such as original films and TV series by the end of 2018. Netflix is expected to remain the dominant leader of online video streaming by using its innovative strategies.
This report concludes that utilization of emerging technology has helped Netflix to achieve success in the video streaming market and beat the business of Blockbuster. Blockbuster had the leading video rental business in 1987. It had around 9000 retail stores across the world. The traditional business strategy had led to the downfall of the business of Blockbuster. Netflix had offered DVD-by-mail service to the users. Netflix had adopted an advanced business strategy, and had focused on streaming video by utilizing the features of compressed technology. The recommendation system of Netflix had helped it to improve customer experience by giving appropriate movie and series suggestions. Online operations had provided more convenience to the customers, and they had started to prefer online streaming and operations over retail outlets. This report pointed out that the prepaid subscription pricing strategy and model of Netflix was one of the main factors behind the success of its business. According to this report, innovations of Netflix include custom-created videos on the user-interface, original programming and the use of recommendation system. This report highlighted certain reasons for the demise of Qwikster such as high operating costs and chance of becoming obsolete in the future. It showed how the idea of original content had helped Netflix to regain its position in the market. This report said that Netflix is planning to invest $8 million on the original content production in 2018. It concludes that Netflix will be able to maintain its position in the market and remain the dominant leader in the streaming industry by focusing on the production of original content.
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