How Netflix disrupted the movie industry

By Sofia Arts Romero and Manon Goirand

We all know about Netflix and the empire that this used-to-be startup has built around the movie industry. But how many people remember or even know about Blockbuster? In today’s journal, we will look at how Netflix grew exponentially in recent years and how it was able to crush Blockbuster, its main competitor, and ultimately dominating the movie industry. Firstly, we will start with a brief overview of both companies and thereafter compare their progress and pitfalls over the years.

First and foremost, what is Blockbuster? Founded in 1985, it was a well-known American-based service provider offering movies and video games for rent, which eventually expanded internationally during the 1990s to over ten countries. Blockbuster was known to be the industry leader for at-home movie entertainment, reaching its peak in 2004 with 9,000 physical stores worldwide and almost $6 billion in revenues that year. Nevertheless, with the rise of Netflix, they encountered difficulties when facing an increasingly competitive market and eventually started closing their stores, filing for bankruptcy in 2010. Today, there is one remaining physical store located in Oregon, U.S., but the business is practically obsolete (Olito, 2020).

Netflix, on the other hand, came much later in 1997. It started as a small start-up firm and saw an opportunity to compete with Blockbuster by offering a monthly DVD subscription service by mail. The company later on changed its primary business offering to a subscription-based online streaming service, for which it is now known worldwide, providing a wide range of movies, documentaries, and tv shows. Consequently, Netflix began to expand internationally in 2010 and has now reached more than 190 countries. The company has significantly grown in the last few years and has even started producing their own film and television series known as “Netflix Original”, ultimately dominating the movie industry.

The question to ponder is what could have Blockbuster done differently to prevent Netflix from creating such a monopoly? The main difference between the two competitors is their core business models. While Blockbuster offered rental services, Netflix offers subscription services. Blockbuster customers were annoyed by the late fees imposed by the firm when they did not return movies on time, the time-consuming store visits, and the lack of movie recommendations for a more personalized selection. Netflix saw this as an opportunity to offer a singular subscription fee with unlimited rentals, instant access from the comfort of one’s home on any smart device, and with a personalized movie recommendation system. However, what made the difference between the two companies was their development process. With the development of the internet, Netflix decided to expand and invest in online programming, which they further innovated as the internet was continuously changing. While Netflix was adapting its business model to this rapidly changing environment by offering new content to fit its customers’ needs, Blockbuster kept their business model unchanged, not seeing Netflix as a threat given their undisputed lead in the market for years (Fairfax, 2019). Because of a lack of good leadership, the firm was not able to react properly to the rising progress of Netflix and took actions much too late to remedy the situation. The company decided to launch Blockbuster online, also through a subscription service, but it was already years behind Netflix.

To summarize, what led Blockbuster to its demise was its inability to adapt to a quickly evolving environment. The legacy business model and lack of proper response to competition and a rapidly changing environment led Blockbuster to become obsolete, allowing new entrants, such as Netflix, to ultimately dominate, and even disrupt, the movie entertainment industry. Now, Netflix is facing new competitors such as Amazon prime, Hulu, HBO etc., and it would not be a surprise if other new entrants use creative destruction to defeat Netflix and further disrupt the movie industry in the future.

References:

Fairfax, W. 2019. Adapt or Die: How Netflix Took Down Blockbuster. Crucible Leadership. [online] Available at: <https://crucibleleadership.com/2019/09/adapt-or-die-how-netflix-took-down-blockbuster/#:~:text=1.,was%20continually%20willing%20to%20innovate>
 

Olito, F. 2020. The rise and fall of Blockbuster. Business Insider. [online] Available at: <https://www.businessinsider.nl/rise-and-fall-of-blockbuster?international=true&r=US#:~:text=Despite%20the%20rise%20of%20Netflix,at%20its%20peak%20in%202004.&text=That%20year%2C%20Blockbuster%20had%209%2C000,earned%20%245.9%20billion%20in%20revenue.>