Implications of Revenue Sharing• Traditional video rental model based on sales to rental company. This meant large up-front costs which limited the number of titles purchased and available to the customer.• Revenue-sharing means: – Lower up-front costs for rental company – Delayed revenue capture by movie producers – More title selection for customers – More rentals• Strategic understanding: given more titles, the customer would rent more.• Would not work without 3rd-party independent tracking of rentals via an MIS system: Rentrak.
Netflix – Rapid Growth due to new Business Model Netflix Figure 1. Netflix subscription and Revenue growth. Source: Business 2.0 “How Netflix is Fixing Hollywood”
Blockbuster’s Response• Expanded online offerings – More games and Wii• More revenue-sharing agreements – Convinced major studios to not sell new movies for 28 days after release. This increases the number and prices for rentals.• Better utilizing stores: – Technology “try-out” centers – Repair and setup of Wii and game machines – Advice and assistance to digital device users – Sales of used/new DVDs, games and equipment
Netflix’s MistakesProblem is the increased adoption by customers of internet streaming. DVD rentals are declining and will disappear.• Offered free streaming to subscription holders. – Undercuts competitors who only offer streaming – Creates unfullfillable expectations in the customers• When Netflix added price for streaming, customers left.
Referenceshttp://seekingalpha.com/article/302579-netflix-s-classic-mistake-is-irreversible-and-life-threatening?source=yaHow Blockbuster is Updating Its IT Infrastructure:http://www.cio.com/article/481813/How_Blockbuster_is_Updating_Its_IT_Infrastructurehttp://www.forbes.com/sites/panosmourdoukoutas/2011/10/26/the-return-of-the-customer/?partner=yahoofhttp://finance.yahoo.com/q/bc?s=NFLX&t=1y&l=on&z=m&q=l&c=http://businessmodelinstitute.com/how-the-mighty-can-fall/http://mgmtclarity.files.wordpress.com/2010/04/capstone_final_report.pdfhttp://www.woodlandmarketingmanagement.com/Portfolio/Strategic%20Planning.pdfNetflix Distribution Channel:http://electronics.howstuffworks.com/netflix2.htm