Question: Netflix was launched about twelve years ago. Netflix was originally nothing more than an online version of a traditional video rental store. Customers could visit the Netflix website and choose which items they wished to rent. Each rental cost $4, along with a $2 shipping fee, plus late fees, if applicable. This model was not very price competitive or efficient compared to brick-and-mortar video rental retailers. To gain a competitive advantage, the company slowly transformed itself. Two years later, Netflix evolved into its current form. It has focused on technological advances and improved product offering to be competitive. Today, Netflix has over 8.6 million subscribers. As with other rental companies, Netflix is membership based. What differs is that members subscribe to various packages based on the number of movies they want to rent per month. Packages vary from two movies per month to four-at-a-time unlimited rentals.
Members create a list of movies they would like to see in order of preference, and Netflix delivers them. Customers can keep the movie as long as they like with no late fees, but they are not sent a new one until the old one has been received at their local Netflix distribution center. As the company became more popular, Netflix expanded its film and television show collection to include Blu-Ray disks. In order to stay ahead of the competition, Netflix added a Play Instantly feature, which allows subscribers to download movies from the Netflix website and watch them on their computer. This service gives people instant access to a wide selection of films. The additional benefit to the company is that it saves on shipping fees. However, many people have opted not to utilize this service, given low computer resolution or problems with the speed of Internet access. Recently, Netflix started offering a direct-to-television streaming box rental option. To gain access to more than 12,000 movies and television shows from the Netflix library, customers must purchase a box that hooks up to a television set.
The box costs around $100 and streams video directly to television via high-speed Internet. Customers must sign up for a plan, but rather than wait for DVDs in the mail, they can watch them instantly on their televisions. Apple and Vudu offer similar products, but their boxes cost two to three times Netflix's price. Also, Netflix recently formed a partnership with Microsoft to stream movies through Xbox systems to the television. Most recently, Netflix partnered with TiVo to provide movies straight through the Internet. Netflix subscribers that also subscribe to TiVo (and have a Series 3 or HD DVR connected to broadband) can use this service. Netflix has a number of competitive advantages over companies such as Movielink, Blockbuster, and Wal-Mart. First and foremost, Netflix offers more selections, including more independent and foreign films, documentaries, and television shows, than anyone else.
Wal-Mart attempted to compete with Netflix starting in 2002, but admitted that Netflix had won and bowed out of the race less than three years later. Blockbuster, a company that lost market share as some customers moved away from traditional brick-and-mortar video stores, continues to be Netflix's strongest competitor. The company, which remains the largest in-store movie rental chain in the world, entered the online rental competition about five years ago. Although Blockbuster originally tried to compete with Netflix on price, the two companies eventually settled on similar prices. Their competitive battle also went to court when Netflix sued Blockbuster for infringing on two of its patents. The suit was settled a year later. Competition between these two organizations remains fierce.14 For more information about this company, go to www.netflix .com.
1. What type of retailer is Netflix?
2. To compete more efficiently with Blockbuster, should Netflix open brick-and-mortar retail stores? Why or why not?
3. Are there other forms of nonstore retailing that Netflix should consider using along with its current distribution activities?