Value Proposition: Netflix vs. Blockbuster

Megan McArdle’s post Netflix Nation reminded me of this post about my extremely late adoption of the online DVD rental service.

Megan’s post explores why Netflix may have achieved such an advantage over a company like Blockbuster, when other innovators have failed.  She offers Netscape, TiVo and cat scans as big innovations that changed the market, but were ultimately copied and outdone by established players.

I think it’s a great question.

A fellow I met through work earlier this year had previously managed some Blockbuster locations.  He shared with me his view.  He said that Blockbuster execs couldn’t understand the Netflix value proposition.  They thought of movie or game rentals as impulse purchases and that the bricks and mortar model was better than having to sign up and wait to get something through the mail.  I thought that myself until earlier this summer.  I couldn’t imagine why I would want to do that. I moved late.  I could afford to. Blockbuster execs moved much too late.  They couldn’t afford it.

Repeated conversations with a co-worker and facing a summer of bad television got me to pull the trigger.  I chose Blockbuster Online.  I hope they don’t go out-of-business because I’m very pleased with the service.  After about three months with the Blockbuster Online, here’s what I think:

1.  The online queue is an excellent innovation. This reminds me of my online access to my library account where I’m able to load books into my queue when I hear about them and then the library sends me a nice e-mail to let me know the books are ready to pick up.

Now I can do the same thing with movies and TV shows.  When I hear or read about one that sounds interesting, I can log into my Blockbuster Online account and add it to my queue and know at some point in the future I’ll get it in the mail.

I have found this to be superior than store rentals in two ways.  First, I don’t have to remember anything.  Inevitably when I went to the store to pick up something, I forgot all the things I wanted to see and ended up picking a movie off the rack.

Second, I’m not faced with comparing my desire to watch something with the price.  Often I’d find DVDs that I might want to see, but I wasn’t willing to fork out $4 for it.  Now, with the online queue, I find myself more amenable to those marginal choices.

2.  The online rental service is a great way to catch up on tv shows. There’s a lot of good television that I’ve missed over the last decade or more.  This summer I caught up on a few shows.  Online rental is a good way to watch TV shows because you get one or two DVDs to watch at a time, there’s no late fees, you have the DVD lying around for backup.

In fact, I’ve only watched three movies through the service.  Most of what I’ve rented has been tv shows.

3.  DVDs are excellent to have handy. I can watch them on a plane with my laptop, I can watch an episode or two of a tv show after the kid goes to sleep or while I’m working out on a stationary.

Overall, I’m pleased with the service.  As the new season of TV kicks off, I may watch more DVDs and less new shows and just catch up with them later.

I chose Blockbuster Total Access because of the value add of being able to combine the mail service with the store service.  I can go in 5 times a month and trade a DVD from the mail service for an in-store DVD to satisfy my impulse movie rentals.  I find that almost pays for the service itself.

I have found value prop in this “new” model as have many others.  Time will tell if Blockbuster will be able to hold on.  The bricks-and-mortar is under attack not only from online but from the DVD kiosks as well. It’s tough to predict exactly how it’ll pan out.

This is a great of example of Joseph Schumpeter’s idea of creative destruction and the idea that in capitalism, markets respond to consumer preferences.  Ultimately, Blockbuster simply didn’t give customers what they wanted for long enough for a new competitor to get a strong foothold in the market.

Interestingly enough, Netflix is innovating to bring the impulse purchase back with instant streaming to digital devices.

If you were to venture a guess, I’d say network and cable channels should watch out.  I can see a day coming where TV programming is set much like podcasting – folks do it themselves on their computer and have the shows they want to watch downloaded.


12 thoughts on “Value Proposition: Netflix vs. Blockbuster

  1. Pingback: Value Proposition: Netflix vs. Blockbuster « Our Dinner Table | DVD Kiosk Information

  2. I switched from Blockbuster to Netflix because of the streaming feature. Blockbuster might have had a shot at regaining some old glory had they done that at all. The future of media is cloud/streaming, so with blockbuster not doing that, they have in effect signed their own death certificate.

    • I may not be far behind you on that. How’s the quality of the streaming? I saw it on my brother’s Blu-Ray and thought I’d stick with the DVDs for awhile.

      I’m amazed and disappointed that my cable/DVR provider has not yet got into this market.

      • Its actually not that bad. As long as you have a decent internet connection, you can stream the newer movies at HD quality. We watched the new Star Trek in HD from streaming Netflix the other day. Of course I couldn’t have done that in Little Rock, since DSL sucks but now that I’m on cable internet I can.

        I can e-mail you a free month subscription voucher if you want.

      • If you live outside a big city and no COMCAST or AT&T; the providers are not as good…ie…if you live in Cabot there cable provider (and I think DSL) is by a Charter Cable ®.

        I live in Sherwood AR, (North or North Little Rock and my AT&T while less than advertised 6Mbs only get 5.10Mbs.

        I have no trouble with my DSL connection where I live in Sherwood (AT&T). Of course my DSL is a pro-Rated at 6Mbs. The problem with your DSL is that you have have signed up for a package deal; and DSL speed might be to slow if rated at only 1.5Mbs.

    • Excellent. Thanks. I might give it a try. I watched the first two seasons of Arrested Development on my Blockbuster account this summer. I’ve enjoyed it.

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    I’m starting a blog soon but have no coding skills so I wanted to get guidance from someone with experience. Any help would be greatly appreciated!


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