There's been a great deal of discussion recently about how Netflix is struggling with its continued competition with Blockbuster and the online movie streaming sites. With the recent hit Netflix stock took (it hit its lowest point in over two years), lowering it's monthly fees by $1.00 and losing those profits and the recent 12-hour-plus website outage; many have been saying Netflix is in trouble and losing in the DVD rental war. I disagree. Matter of fact, I would argue that Netflix is not only winning the DVD rental war, but has already won. Here's why:
Blockbuster calculates the benefits of Total Access costs at $2 per
subscriber per month. That's not including the $8 to $12 cost of free movies. So
it is likely the company's margins will decline as it rents millions of titles
for free each month.
Blockbuster realizes the Total Access segment is not as
profitable as the rest of its business. However, the company may be in the
process of shooting itself in the foot.
They hope to make up the lower margins by increasing the subscription price, but I don't see how they could stay in the game with higher prices. Blockbuster announced higher prices and more maximum rentals in a month just last month. This will almost certainly cause more and more customers to head back to Netflix. If you don't believe me, read some of the comments on this over at the HackingNetflix blog.Other Netflix Competitive Advantages
Add to this the other competitive advantages Netflix has over Blockbuster. Netflix has watch-now movie streaming which admittedly has a fairly small list of older or less popular movies, but still it is an added value for the customer. Netflix has a much better website and queue system. They are adding features to the site all the time. Just check out the Netflix community blog where they have an open dialogue with their customers on new features and suggestions.
Netflix has a better service overall, they offer more value for your movie renting money and they don't have the massive overhead of the franchise and company owned stores. To quote a commenter on the Hacking Netflix Blog: "Blockbuster is just rearranging the deck chairs on the Titanic".
My prediction is that Blockbuster will either do another very major strategy reorganization or they will go down in flames. Netflix has already won the DVD rental war. Blockbuster just doesn't realize it yet.
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