The document discusses the impact of digital technology proliferation on media institutions and audiences. It notes that digital technologies have led to increased content distribution through methods like online streaming and downloading. This has disrupted traditional media industries and business models. The document also examines case studies of how digital technologies transformed the movie rental industry, with Netflix succeeding over Blockbuster by embracing streaming delivery. Overall, digital technologies have provided more choices for audiences but also more challenges for media companies to control content and revenue streams.
This presentation will introduce to the key term convergence and offer you some information that will help you answer a short essay question on the likely effects of film piracy on audiences and institutions.
[The Impact of the Internet on the Video Rental Industry.docxdanielfoster65629
[The Impact of the Internet on the Video Rental
Industry: Blockbuster vs. Netflix]
2
Table of Contents
INTRODUCTION 3
VIDEO RENTAL INDUSTRY ANALYSIS 5
BLOCKBUSTER BUSINESS DESCRIPTION 7
BLOCKBUSTER BUSINESS MODEL 7
BLOCKBUSTER HISTORY 8
BLOCKBUSTER SWOT ANALYSIS 10
NETFLIX BUSINESS DESCRIPTION 14
NETFLIX BUSINESS MODEL 14
NETFLIX HISTORY 15
COMPETING ONLINE SERVICES 16
FINANCIAL ANALYSIS 18
THE FUTURE OF THE VIDEO RENTAL INDUSTRY 24
CONCLUSION 25
REFERENCES 26
3
The Impact of the Internet on Video
Rentals: Blockbuster vs. Netflix
Could Brick and Mortar Video Rental Stores be a thing of the past? The Internet has
challenged the way movies are rented in the United States. Blockbuster, one of the
biggest video rental companies, has completely restructured its operations to meet the
market demands due to the emergence of the Internet and companies like Netflix. The
first impact the online video rental industry made on Blockbuster was making late fees
obsolete. Blockbuster enacted a “no late fees” policy in 2004 to remain competitive in the
industry. The company gave up about $450 million in late fee revenue and $250 million
to $300 million in operating income the first year the policy was enacted (Halkias). This
is not counting the increased number of new releases the company needed to purchase to
meet customer demand due to the policy. Under the "no late fees" program, a customer
was charged the purchase price for a movie if it was kept longer than 14 days. The charge
was dropped if it was returned within 30 days, and the customer was then charged a $1.25
restocking fee (Halkias). Blockbuster then created Blockbuster Total Access in attempts
to compete in the online video rental market. With Blockbuster Total Access, customers
would pay a subscription fee of $24.99 a month and rent up to 2 movies online at a time.
4
Netflix, the online DVD rental pioneer, sold a similar service for $21.99 a month.
Company CEO, John Antioco, said the overall online subscriber market is about 3
million to 5 million households, and he believes Blockbuster can attract a 30 percent
market share (Halkias). Blockbuster spent between 70 and 90 million dollars on the Total
Access program in hopes of reinventing itself. Program costs and continued decline in
rentals caused the company’s 2004 earnings to fall about 10 percent below the $1.48 a
share earned in 2003 (Halkias). The company will have to continue developing in this $8
billion dollar a year industry as it continues to change. Within another four years,
customers are expected to spend about $1.7 billion getting movies from cable to watch at
their convenience (Cohen). The video rental industry is also moving to legal downloading
sites such as CinemaNow Inc. Founded in 1999, the service lets people download movies
as a rental with a viewing window, or buy the film outright and burn it on a di.
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Technology - proliferation of hardware and content
1. There are seven areas that you could be given a question about. They are:
1. The issues raised by media ownership in contemporary media practice.
2. The importance of cross media convergence and synergy in
production, distribution and marketing.
3. The technologies that have been introduced in recent years at the
levels of production, distribution, marketing and exchange.
4. The significance of proliferation in hardware and content for
institutions and audiences.
5. The importance of technological convergence for institutions and
audiences.
6. The issues raised in the targeting of national and local audiences
(specifically, British) by international or global institutions.
7. The ways in which the candidates’ own experiences of media
consumption illustrate wider patterns and trends of audience
behaviour.
2. The significance of proliferation in hardware and content for
institutions and audiences.
Just a decade ago, Blockbuster ruled the movie rental business, with 25,500
employees at 8,000 stores dispensing movie rentals and a parallel distribution
system of 6,000 DVD public vending machines, it had $500 million in annual cash
flow and was valued at $ 3 billion. About 2005 it was valued at $ 8 billion.
Meanwhile, Netflix was using the postal service to distribute DVDs, and it didn’t
seem to have a chance. Founded in 1997 by Reed Hastings, its prospects of surviving
battles against Blockbuster, Wal-Mart, Amazon, Google, Microsoft, and other
competitors looked so poor that a Wall Street analyst labeled its stock “a worthless
piece of crap.”
In January 2013 it was announced that the
company had gone into administration. Many
have argued that the rising popularity of
internet film rental services like iTunes, Netfilx
and Lovefilm have taken their toll on
Blockbuster's 528 high street video rental
stores.
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
3. Yet Blockbuster soon filed for bankruptcy, while Netflix gained leadership of the industry.
Blockbuster lost $518 million in 2010, running $ 1 billion in debt, and is closing most
outlets. Netflix gained 16 million subscribers by running a well-executed operation and
streaming movies online. The company earned $116 million in 2010.
Netflix executives understood that an emerging technology was rapidly changing the
delivery of movie rentals. Reed Hastings, the founder of Netflix, developed a strategy of
Internet streaming, convenient customer service, and a virtual organization to deliver it
cheaply and flawlessly.
Consider the convenience that LoveFilm and Netflix have over a company like
Blockbuster.
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
4. Formed in 1989
Wants to challenge the multiplex cinema model and provide
cinemas that serve their communities in city centre locations.
Have a total of 21 cinemas, mostly, in university cities.
According to their website they’re the fourth largest in the UK.
Show both independent and mainstream films.
Picturehouse cinemas feature “stylish café-bars, which host art exhibitions and
events such as live music, comedy and quizzes.”
Run Kids’ Club, parents and babies’ screenings and senior citizens’ matinees.
Slackers Club, set up by E4, for students.
Transmit live material from stage to screen including interviews with Quentin
Tarantino, Ang Lee, Ken Loach, Shekhar Khapur, Terence Davies and many others.
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
5. The key benefit of the digital network will be an increase in the distribution and
screening of British films, documentaries and foreign language films.
"Access to specialised film is currently restricted across the UK," said Pete
Buckingham, head of Distribution and Exhibition at the UK Film Council.
“It can cost up to £1,500 to make a copy of a print for specialist films. "In the digital
world you can make prints for considerably less than that. Distributors can then
send out prints to more cinemas and prints can stay in cinemas for much longer.
A cinema will often book a 35mm print in for two weeks - even if the film is a
roaring success they cannot hold on to the print because it will have to go to
another cinema. With digital prints, every cinema will have its own copy."
The Digital Screen Network was a UK Film
Council funded project (£12 million) to equip
up to 240 screens in up to 210 cinemas with
digital projectors capable of displaying high
definition images. These cinemas would then
have to show specialised films alongside
mainstream.
UKPioneersDigitalFilmNetworkArticle
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
6. Picturehouse was the first exhibitor in the UK and Europe
to install a nationwide satellite network encompassing all
its cinemas to show ‘live via satellite’ events.
First satellite event was in October 2006, Amnesty
International’s The Secret Policeman’s Ball. Screens sold-
out and audiences quickly embraced the new concept of
'cinecasts'.
Since then, they have broadcast music, comedy,
filmmaker Q&As, red-carpet premieres and productions
transmitted in High Definition from The New York
Metropolitan Opera and Royal Opera House.
For the 2008 return to the big screen of Amnesty
International’s Secret Policeman’s Ball, they were the
worldwide theatrical digital distributor, and delivered the
live show via satellite to over 100 cinemas, including
screens in Canada and Australia.
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
7. Benefits of digital
Choice – more ‘product’ and the ability to match it to customer
demand
Quality – better sound and image, no deterioration of the print
Alternative content – cinemas diversifying through live concerts, sport
Spectacle – higher resolution, new 3D technologies (Avatar)
Consider the audience that this cinema chain appeals to. Middle class,
slightly older, further education. The chain prides itself on being a
different cinema experience for audiences.
In December 2012 Cineworld bought the Picture House cinema chain.
This has led many to claim that the independent spirit and ideals of the
chain will change. It will be interesting to see whether this will be the
case.
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
8. The significance of proliferation in hardware and content for institutions and
audiences = Impact of Digital Technology
• Downloading – itunes, ipod,
• Digital Piracy – DVD’s, filesharing
• Social networking sites – marketing
• Accessibility – everywhere??
• Control – industry/audiences
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
9. • Movie piracy costs US film studios $25 billion annually.
• Over 70% of Americans feel that sharing movie and music files with family
members is okay.
• Over 50% of Americans feel that sharing movie and music files with friends is okay.
• Hundreds of millions of dollars are spent on anti-piracy campaigns annually.
• 70% of 18-29 year-olds have downloaded illegal content.
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)
10. What significance does the continuing development of
digital media technology have for media institutions and
audiences?
To be able to explain new technology in the film industry (level 2)
To be able to analyse new technology’s impact with reference to case studies (level 3)
To be able to evaluate new technology’ impact with reference to detailed case studies (level 4)