Q1

Blockbuster was the incumbent player. It adopted a market domination strategy and opened huge
stores across USA. It had a video rental tracking system which optimized video renting. Because of its
huge size it was able to negotiate huge discounts with movie studios and built a revenue sharing
model.
Netflix was the innovator. It recognized the pain point in Blockbuster’s system and provided a low
cost and convenient alternative. While Blockbuster waited for customers to return the videos,
Netflix created a system where it was in the customer’s interest to return the videos. The flat fee
system with unlimited video rental helped Netflix establish a loyal customer base. It introduced a lot
of improvements in its system such as queue.
Blockbuster woke up late to the challenge of Netflix but soon copied the business model of Netflix
and entered into a price war with the much smaller Netflix. The Total Access system of Blockbuster
was a huge hit. Blockbuster amassed, in 4 months, same number of viewers as Netflix acquired over
4 years.
However, Blockbuster retaliated with an online streaming system that had 1000+ tiles. It
immediately launched set-top box services which allowed customers to stream content on TV sets.
This set Netflix on a path of success and Blockbuster was always left playing catch-up. Eventually
Blockbuster couldn’t compete with Netflix.

Q2

Blockbuster earned money through late fees and discounted sale of VHS tapes. Netflix started with
this model but soon changed to a subscription based model. This meant that Blockbuster was
dependent on mistakes from the viewer for its revenue and also had to miss out on revenue in case
the video was not in stock.
Netflix on the other hand was not dependent at all. It had successfully managed to create a system
in which there was an incentive for the customer to return the video as soon as possible. Viewers
were hungry for content and to see more they had to return more. The late fine imposed by
Blockbuster was a major irritant to viewers. Netflix’s pricing model had removed that problem and
was more acceptable to people.
Netflix’s revenue was assured while Blockbuster’s revenue was dependent.

Because of such pricing models Blockbuster had to carry a huge inventory and was averse to newer
technologies while Netflix which owned relatively very less assets was welcome to newer
technologies. Netflix’s website eliminated the need of owning and operating huge stores. Thus we
can see that Blockbuster’s strategies were always to resist change while Netflix not only embraced
the change but itself became the change

Q3 No

Q4

Blockbuster should have focused on improving its services. Blockbuster had a great advantage in its
brick and mortar stores. It could have leveraged that with its online platform Blockbuster Online to
improve its services for the customers. Even today the greatest online giants are looking at a
combination of offline and online business models. In fact, Blockbuster’s Total Access had a better
value proposition for the viewers and was outperforming Netflix for a large period, but the
unnecessary price wars led to their ruin. Blockbuster had huge collection of DVDs and could have
used that to serve a larger number of customers. Blockbuster could have easily converted its stores
into experience stores like offering movie viewing cabins for individual customers etc.

Q5 Yes

Q6

It is a disruptive innovation because it satisfies all the characteristics of disruptive innovation.

Netflix started as a low cost alternative to Blockbuster. It improved its product to appeal to a greater
number of viewers. The incumbent Blockbuster ignored the rise of Netflix and soon Netflix was
overtaking the market. Soon Blockbuster also copied the business model of Netflix. Netflix was able
to create a new market and reshaped existing market as well. It was more responsive to customer’s
behavior and needs and also used Data to improve their experience.
And just like all innovations it seems an obvious idea only after the fact

Q7

Netflix must stay alert and not be swooned by its existing product. It must always be on the lookout
for new developments not only in its own industry but also on complimentary industries and
alternatives. Netflix must remember that its own success came when it was able to perceive the pain
points of the viewers therefore, it must perceive their needs.
Google’s Stadia is a great challenge to Netflix. It is not even a traditional competitor. Netflix is in the
battle for content and it must ensure quality content is being delivered to its viewers in newer
forms. AR/VR/MR are new frontiers of consumer’s viewing experience. Netflix must be on a lookout
for them as well.
Netflix must realize that it should not only focus on content but also its delivery.
The biggest challenge for Netflix will continue to be proprietary ownership of content for which it is
hugely dependent on production houses. With large production houses, who own this content,
coming up with their own platforms, Netflix must find ways to offer value not only to the viewers
but also to the content providers. The biggest benefit for Netflix is its user base and it must leverage
that. Production houses have access to fewer viewers as compared to Netflix. Netflix is an
aggregator of viewers of different types of viewers. Hence Netflix can use that advantage.