Friday, April 23, 2010

"The Model Has Changed" aka Creative Destruction: Netflix (+100%) vs. Blockbuster (-60%)

SACRAMENTO BEE -- First, people decided they didn't want to drive to the movie theater. These days they aren't too keen on driving to the video store, either. In a sign of the times, Netflix saw its stock price top $100 a share Thursday after posting blowout earnings – the same week that another Blockbuster outlet closed, this one on 29th and K streets in Sacramento. Blockbuster and Hollywood Video are closing local outlets as nationally, both companies feel the heat from game changers like Netflix and Redbox, which rents movies for $1 a night out of vending machines in supermarkets.

Brick and mortar video stores are under pressure from the online world, just like record stores and booksellers before them. We want to rent DVDs quickly by mail or pick them up at the supermarket. And that's if we bother handling a physical disc at all. Increasingly, we just stream movies on laptops and smart phones or download them right to our PlayStations or Xboxes, so we can watch them on our flat-panel TVs.

"The model has changed," said Maithu Bai, owner of Awesome Video, an independent video rental store on Freeport Boulevard. "It's not just here; it's across the nation. In these times, people want something new."

MP: The chart above shows that since last September, Netflix stock has more than doubled while Blockbuster's stock has declined by more than 50%.


At 4/24/2010 9:29 AM, Anonymous morganovich said...

an interesting sidenote to this is that when NFLX came public, the overwhelming concern was that VOD would put it out of business.

fast forward to now, and NFLX is rapidly becoming a leader in VOD.

creative adaptation.

At 4/24/2010 10:19 AM, Blogger sethstorm said...

That isn't a captive market. Also, there was a clear follow-on product that wasn't simply higher-volume/lesser-quality(scratched discs aside).

At 4/24/2010 11:06 AM, Anonymous gettingrational said...

Who might save rental stores from creative destruction?

Answer: The United States Postal Service

Netflix's business model is very dependent on the USPS for six day a week delivery. The biggest movie day is Saturday which the Post Office is seeking to eliminate to cut costs by 1/6th. Also postage fees are expected to soon rise again.

Ahh; What about Netflix streaming movies so they are less reliant on USPS? The movie studios greatly limit streaming because of the 80% they collect on the sale of dvds.

Netflix is very well run and so expect a creative update to their dvd strategy.

At 4/24/2010 4:34 PM, Anonymous Anonymous said...

1)The physical stores simple can't carry the inventory of Netflix.

2)And they caused their own death when they stopped the unlimited rentals for $20 - $25 per month.

Under the old pricing model, if you didn't like the beginning of a movie you just went back and got another.

Under the new model, you had to think is it going to be worth it to risk spending 5 non refundable dollars on a movie.

Once the new policy was in effect, it end my business with the rental stores.

At 4/24/2010 5:59 PM, Anonymous Anonymous said...

A year ago, we dropped satellite TV (dishnetwork) entirely and now ONLY watch TV thru the internet on for news and for movies and TV shows. ALL FREE on our big screen monitor.

Of course we get 6 or 7 local channels via rabbit-ear antenna.

At 4/24/2010 9:04 PM, Blogger Anon A. Mus said...

Blockbuster did themselves in. 7 years ago, I could get movies from their Internet store, turn the movies in at my neighborhood store for more titles while waiting for the next round of DVDs to be shipped to my house. For $17 a month, I would have a new movie or two a day. Netflix was not even a close option. Then Blockbuster started raising their fees and cutting back on the service. Soon their movie lists started classifying titles as 'long wait' and 'unavailable'. That was followed by sending me movies that weren't at the top or even in my list. Customer service was pretty poor. Two years Netflix became a very attractive option. So I've been using Netflix now and reduced Blockbuster to bare minimum pricing. After this last go-around with Blockbuster, I'm ready to just discontinue service. The marketplace in action.


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