Podcast: Netflix vs Blockbuster
By: Business Wars
In the early 2000’s, Netflix’s DvD by mail business model was eating into Blockbuster revenue. Blockbuster spent 25 million dollars and took 6 months to copy the Netflix model as exactly as they could from the website to their distribution center, even using dirty tricks like sending covert agents to go on tours of the facilities and take pictures.
Blockbuster’s new service (Total Access) was an immediate success, but it was priced lower than Netflix and also came with vouchers that allowed people to drop off their DvDs at the brick and mortar stores and then immediately get a new DvD as well. It was estimated that they needed 5 million subscribers to turn a profit but they were on their way, and it was eating into Netflix’s subscription numbers.
Carl Icahn bought a huge portion of Blockbuster as a corporate raider and hated John Antioco and eventually pushed him out, and replaced him with someone who wanted to undo everything he did, including Total Access. They raised the price and reduced the vouchers and immediately started losing customers back to Netflix.
Initially the streaming library on Netflix was very sparse. Netflix knew they needed content, and so for years would buy the rights to the digital content from the major studios/media outlets. Many were reluctant to sell the rights, but the Great Recession of 2008 worked in Netflix’s favor and many companies became more willing to negotiate that year.
For a while Netflix and the companies that sold it digital rights enjoyed a mutually beneficial relationship where they would give Netflix rights to their older seasons, which gave Netflix better content and then brought in more viewership to some of the series, and people went to the source for the new seasons.
With their success, Netflix knew it was just a matter of time before the companies selling them the digital rights wanted to go into the streaming services themselves, so they focused on obtaining original content. House of Cards became their first major success.
This was modelled after HBO, and for a while it was race between Netflix and HBO to determine which one would copy the other’s model more successfully first. HBO had a streaming service called HBO GO but it was locked behind the pay wall of having HBO and a cable service, so it was far more expensive to use.
One of Netflix most valuable assets is their underlying algorithms and data on what users watch, what they’ll enjoy, how they like to watch. They employed this time and again to stay ahead of the competition, doing things like introducing binge watching because of the way it affected users in such a positive manner.