How Netflix Beat Blockbuster And Became Huge

What a year 2013 was for Netflix. The company has experienced many changes, including a rise in stock value, an increase in the number of subscriptions, a new emphasis on original programming, and enhancements in technology. The future seems bright for the once struggling streaming video company. But how did Netflix get here? How did Netflix beat out Blockbuster, and what have business leaders learned? To answer those questions, you need to drop back to 2004.

That year, over two-thirds of Americans owned a DVD player. The number was rapidly climbing, and the growth in DVD players led to an increase in DVD movie sales and rentals.  The demand fueled innovative companies such as Netflix, who were working on convenient and new ways to get DVDs into homes. That same year, Blockbuster was negotiating a hostile bid to acquire movie rental giant Hollywood Video. What unfolded over the next few years was quite interesting. On one hand, there was Netflix, a growing business still trying to find its place in a rapidly evolving industry. On the other hand you had Blockbuster, which made a series of business decisions that would not just hinder its growth, but bankrupt the company altogether. Ten years on, Blockbuster is a distant memory and Netflix is sitting tight with a record year in stock value and revenue.

It isn’t exactly clear how Netflix survived such tumultuous times and recorded a record year in 2013 - Netflix’s stock grew over 400% from January to December 2013. The results earned CEO Reed Hastings heaping praise. Hastings has admitted the stock is volatile, but assures investors that the company’s focus has not changed. They have a plan and will stick to it. According to Hastings, Netflix tries not to pay too much attention to stock value, and also admitted its bumper year may be caused by investor momentum.  This humble attitude appears to keep Hastings cautious and attentive, which can be helpful during this period of change in how consumers watch TV or video.

In addition to their recent success in subscription and offering, there’s more great news for consumers - Netflix is committed to adapting in these changing times. Unlike previous providers, which failed to progress, Netflix has grown, failed, and then grown again. It has tasted recent success, but has no plans to rest on its laurels. There’s more road to pave ahead.

The rise of Netflix and the fall of Blockbuster have taught many that success is a moving target. The strategies that led to today’s success may not be applicable or repeatable in the future – even the very near future. From this vantage point, there are two hard lessons that were learned in this David and Goliath story - paying attention and leveraging emerging technologies.

Many companies think they know what consumers want, but paying attention to demand and competition is vital. In 2004, Blockbuster was so focused on acquiring the competition (Hollywood Video) that they completely missed out on a new wave of television and movie viewing. Although they did start an online campaign with monthly subscriptions – causing Netflix to panic and reduce its price – the end result was still grim, given the lack of focused effort. By that time, consumers were already investing in live streaming via media players, and local providers were exploring on-demand services.

While both Blockbuster and Hollywood Video worked out their differences, Netflix continued its pursuit of video rental home delivery service. Their emphasis on convenience played on the weaknesses of traditional video stores like Blockbuster, Hollywood Video, and other local chains. Although it was not quite there yet, Netflix was on to something. Consumers didn’t want to pay late fees, and liked having the movies on-hand to view at their convenience. To counter Netflix’s market penetration, Blockbuster announced a no-late-fee policy in 2005, but by then it was too late to stop what was already in motion.

Today, companies who have experienced success in the television and movie industry have done so by benefiting from emerging technologies. Many local cable providers are exploring on-demand service to attract more subscriptions. The technology had existed for years before companies like Netflix made their push into streaming in 2010, but it has now exploded into the default entertainment platform for much of the world.

Not only did Blockbuster and other movie rental chains fail to develop technology that would drive the growth of their business, they also failed to leverage the technology available to them. Early in Blockbuster’s decline, the company could have changed gears and offered an on-demand rental service, but instead opted to look at other buyouts and even a DVD kiosk rental express service – in 2009, with nearly 6,000 installations across the US. The results were dismal. DVDs were now a second-rate technology thanks to Blu-Ray, and consumers were becoming accustomed to streaming video and mailed DVDs. Moving from mistake to mistake, Blockbuster failure to grow and use available technology. Advancement in app development and internet service have provided Netflix with more opportunity to better their service, product and reach.

Paying attention to consumers and benefitting from emerging technologies are two hugely important lessons for the industry going forward. Even with the fight between Netflix and Blockbuster now over, it is almost certain that a new contender will emerge relatively soon. 2014 will be an exciting year for many who follow and invest in Netflix as they continue to change and adapt to what’s in front of them.

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