Netflix and Blockbuster Movie Rentals Businesses
Program Capstone
Abstract
This paper examines the corporate strategies of Netflix, Inc., the leading movie rental company in the United States. It compares this with its arch rival, Blockbuster, another profitable movie rental businesses in the country. The paper also compares the two companies vis a vis their legal, social and political environment, company culture and performance, promotion policies, strategic decisions making, decision-making style, management style, leadership style, communication style, use of SWOT tool, operations strategy framework, and the effects of possible change elements as they link to management functions i.e. the changing external environment.
Introduction
This paper takes a closer look at Netflix, Inc. and Blockbuster, two of the most profitable movie rental businesses in the United States. The two largest movie rental companies are fiercely competing for the US movie rental market, which is estimated to reach $412 million in 2012. (Zeidler, 2010) Netflix is the world’s largest online movie subscription service with about 13 million subscribers. (NetFlix Website, 2011) Its major competitor, Blockbuster, is also a U.S. based DVD, VHS, Blu-ray, and video game rental chain with more than 9,000 stores in 25 global branches. (Blockbuster Website, 2011) The legal, social and political environment for movie rentals is not very conducive for business. The rise of internet rentals and the drastic piracy sweeps the country and makes video and DVD rental business slow. There are various technologies that enable users to get movies from the internet to their personal computers or home television.
Company Culture and Performance
Netflix’s management philosophy is very responsible yet liberal. It believes in the promotion of a corporate culture that is free but responsible. Part of their work culture is the fulfillment of one’s work tasks and empowerment and individual responsibilities while also being free to decide on one’s vacations, work related decision making and optimum performance. (Blodget & Spector, 2011) Blockbuster, on the other hand, misses out on the relevance of a strong corporate culture with its performance. According to critics, the company’s corporate culture is still stuck in the 19080’s. (Ibid.) The staff do not have a uniform mindset on how to serve the customers.
Promotion Policies
Netflix often make promotions which is really value added for its loyal and new customers. It has since invested in an aggressive marketing and advertising strategies to capture the growing movie rental markets. It also offers a wide range of subscription plans, with unlimited picks and streaming which are very attractive to online customers. (Thompson, 2008)
Blockbuster is following up the cues from Netflix and has been decreasing its rental prices. To illustrate, when Netflix differentiated its streaming and mail-order DVD subscription plans, Blockbuster also offered a similar promotional package only that it featured an added value of allowing customers to choose between mailed DVDs and access to real store rentals. The catch is to bring with them a piece of their Netflix DVD envelope to be able to avail of their promo.
Strategic Decisions Making
One of the best strategic decision making Netflix did was when it maintained its excellent relationship with movie and TV moguls. It has become a significant distributor of movies to clients online. Netflix co-opted with outfits like Universal Studios, 20th Century Fox, CBS, Disney, etc. It has also maintained a good relationship with large cable channel such as Starz Entertainment. (Netflix Website, 2011)
However, the company has been recently criticized for its strategic decisions of separating its DVD and video streaming rental services. The CEO and Founder, Reed Hastings, has gotten a lot of flacks and criticism for the company’s decision of separating these services and increasing the prices by 60%.
Meanwhile the corporate strategic moves of Mr. Keyes are slowly pulling together Blockbuster. He likened it with a house remodeling. His strategic decisions are founded in the vision of making a world-class cross-channel distribution platform. This is going to be different from Netflix and which Netflix cannot copy.
Decision-Making Style
The sole humility of the CEO of Netflix in admitting his mistake attests to the central and highly individualized decision making style, which is apparent in the leading movie rental company. While the CEO has made several shifts in his decisions, his explanation also made sense as to why he let the price up and divided the digital and the video streaming parts of their business. This focuses on the CEO’s vision for the company which reflects that the company’s decision making style is centered on the top executive of the company. Blockbuster is also showing the same type of management style as they let their CEO takes the overhauling job to salvage Blockbuster.
Management Style
Congruent with their corporate culture, the management style of Netflix is freedom with accountability. This is true of the workers and their managers. Their managers try to exert excellence not by controlling their workers but in establishing context. They are focused on their startegic goals and how they each contribute to achieve them.
Meanwhile, Blockbuster has been criticized with their type of antiquated management style and their seemingly brash approach to management. In reality, their CEO is results-oriented, very strategic and highly creative. The company is keeping up with the fierce market competition.
Leadership Style
This is how Barusch (2011) described the Netflix board leadership:
“The Netflix Board assumes that the combination of the role of Chairman and Chief Executive Officer supports the flow of information between management and the Board and they believe this promotes strategic development and good execution. Hence, the Board has not elected a lead independent director. It otherwise maintained its smart independent oversight by several governance practices such as open and direct communication with managers, inputs on meeting agendas, yearly performance evaluations, and regular management meetings.”
Blockbuster has depicted crisis management type of leadership at this point through its CEO Jim Keyes. He is the one taking the flacks for the company’s slow earnings, shareholder in-fighting, and their inability to out compete Netflix and Redbox.
Communication Style
According to critics, the company’s comunications style is less than being forthright. To illustrate, they pointed out the pricing change to be beneficial for their clients. However, this was not true. Hence, the company should improve its communications with its customers. They must be able to hurdle the crisis in their communications and must always relay the major changes in their business operations directly to their audience.
Likewise, the comunications style of Blockbuster is also discreet and they are trying to keep their shortcomings as confidential as possible. For instance, they are not clear about why they urged their stockholders not to grant Mr. Greg Meyer a seat in their Board of Directors.
Use of SWOT Tool
Netflix knows that their clients can always rent movies by the popular rental store, online DVD or no-return DVD rental services. Convenience is the number one factor for success. The rental company needs to offer the widest selections to constantly meet demand. They have to rely on the techological tools to keep up with on-time delivery and easy fulfillment system. By knowing that there is a strong supplier bargaining power as there are just some movie moguls to source out from, Netflix try to out compete its rivals by making the most of their deals with these movie outfits. Blockbuster fails to heed the industry’s threats and has encouraged competition by being unable to rapidly reform its marketing practices and rental policies and procedure. While Netflix has strengthened its customer base and loyalty, it has encountered a lot of challenges.
Operations Strategy Framework
The operations strategy of Netflix is rooted in its efficient marketing competencies and its savvy management competence and fine image and reputation as a market leader in their industry. The company has always fulfilled its competitive edge in customer satisfaction through a wide selection of movies, quick service delivery, extra period in returning DVDs, and an easy mail subscription system. Netflix has constantly focused in aggressive marketing and advertising to reach the rapidly growing movie rental markets. (Thompson, 2008)
Netflix needs to be present in all its market while Blockbuster needs to win orders in the market which they are slowly losing to Netflix. This is the major difference in these two businesses’ operations strategy framework. The later needs to define their market strategies more clearly.
Potential Change Factors
Becaus eof their ideal corproate culture and their focus on customer service, the potential change factor of the company is excellent. They can rapidly conform to the demands of the market and they can serve the market efficiently. The company can also potentially dominate the makret as it continues to explore the techological advantages in their movie services. Netflix also has to develop greater distribution points against the usual ones.
Blockbuster is also embracing several changes in his historic reforms towards reclaiming its market. It alsonneds to focus its startegies to serving the larger part of the custoemr base very efectively, either through their physical outlets or via online.
References:
Blockbuster Website. (2011). “Investors Relations.” Retrieved on January 12, 2012 from, http://investor.blockbuster.com/.
Barusch, R. (2011). Dealpolitik: Time for Netflix to Stream Some Grown-Up Corporate Governance? Retrieved on January 13, 2012 from, http://blogs.wsj.com/deals/2011/10/25/dealpolitik-time-for-netflix-to-stream-some-grown-up-corporate-governance/.
Blodget, H. & Spector, D. (2011). Revealed: The Secret to Netflix’s Success. Retrieved on January 13, 2012 from, http://www.businessinsider.com/netflix-culture-management-presentation-2011-7.
Netflix Website. (2011). “Company Overview.” Retrieved on January 12, 2012 from, http://ir.netflix.com.
Thompson, A. (2008). “Competition in the Movie Rental Industry in 200: Netflix and Blockbuster Battle for Market Leadership.” Found in Thompson, A., Strickland, A., & Gamble, J. “Crafting and Executing Strategy (Case 5). 17th ed. New York: Mc Graw Hill.
Zeidler, S. (2010). “Convenience is golden in video rental market.” Reuters Website. Retrieved on January 12, 2012 from, http://www.reuters.com/article/idUSN2861176820080228.
