1. Blockbuster’s business model is mainly based on having physical stores in many different and convenient locations. Blockbuster has 9,100 stores in 25 countries. In order to compete with competition from Netflix, Blockbuster made some changes to its business model. It added Movie Pass, an online rental service. Blockbuster tried two approaches to maintain its dominance in the marketplace. It focused on its traditional business (having a physical location) and it launched an online store similar to Netflix. Blockbuster’s business model was very successful before Blockbuster had to compete with Netflix. Blockbuster possessed a 40 percent share of the U.S. video rental market by 2004. Blockbuster had video sales of around $16 billion. The changes that Blockbuster had to make to compete with Netflix has decreased its market share. In order to compete with Netflix, Blockbuster added Game Pass, a subscription service for video games, and the “No More Late Fees” program in addition to Movie Pass. The “No More Late Fees” program cost Blockbuster $250 million to $300 million dollars.
2. Netflix is a great challenge to Blockbuster. Netflix is very convenient, movie renters do not have to physically leave their house in order to rent a movie. Netflix also does not give late charges. Renters can keep the movies as long as they want. This was a great challenge to Blockbuster and forced them to adopt the “No more late fees” model. Netflix customers have access to thousands of movies. Netflix forces Blockbuster to maintain an efficient, cheap online subscription model that can compete with the amount of movies that Netflix offers. Video on Demand and TiVo also challenge Blockbuster. These programs could make video rentals obsolete because they are very convenient and require even less than a subscription model. Convenience is the key.
4. Netflix is very successful. Netflix has surpassed three million subscribers and is on its way to four million by the end of the year in 2004. Netflix’s market share rose from 2 to 7 percent between 2003 and 2004. Netflix’s business model forced Blockbuster to change its business model to more closely resemble that of Netflix. It brought customer convenience to the forefront and currently has no match in efficiency and movie titles available.
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