Understanding Netflix, its strategy,

competition, and the VOD challenge

Your own reaction

• Who would you bet on?

– Buy blockbuster stock?
– Buy netflix stock?
Initial entry of Netflix

• Netflix invented an entirely new market

– A blue ocean, if you will
• Does Netflix compete with the traditional
Blockbuster offering?
– https://www.youtube.com/watch?v=EkIDUB3SpPY&
feature=related
–
What were the key breakthroughs in
Netflix strategy?

• Pricing
• Promoting non-blockbusters
• Overnight distribution
• Inventory management
• Increase customer loyalty by making it easy
to leave
Copycats have imitated the business

• US
– Blockbuster, Walmart (now exited)
• UK
– Blockbuster, Amazon.co.uk, Lovefilm.co.uk
• See the 2007 FT news piece concerning
LoveFilm
Is anything unique in Netflix?

• Has Netflix some individual or interrelated

activities that cannot be copied by
Blockbuster
• Are there some trade-offs Blockbuster
cannot make?
Competitor Analysis

Customers / Product Offering

The Competition
of Netflix? Similar Dissimilar

Similar Direct Competition Potential Rivals

Blockbuster online Online retailers

Technological
solutions

Dissimilar Indirect Competition No relationship

Traditional video rentals

Why did it make sense for Amazon to
enter this business as well?
Unique activities, trade-offs, synergies?

• Pure play net rental:

– Netflix
– Lovefilm
• Bricks’n’mortar businesses
– Blockbuster, Walmart
• Online retailers
– Amazon.co.uk
• Alliances/hybrids
– Tesco in alliance with Lovefilm
”The good old SWOT”

Distinctive internal Changing fit

properties

Good things
Relative Unique
Strengths Opportunities

Relative Distinctive
Bad things
Weaknesses Threats
How to respond to VOD?

• What were the options suggested by the

Netflix CEO?

• Is there anything common with the activity

system of VOD business and Netflix?
– Critical tradeoffs?
– Mutually reinforcing activities?
Technological changes

• Disruptive technological changes

– Challenge the relevance of pre-existing structures and
routines
• Incremental technological changes
– Retains the relevance and fit of pre-existing activities

• E.g. VOD vs. HD-DVD/BlueRay