Netflix vs. Blockbuster or the Race for Instant Gratification

By January 23, 2007

As most of us were still recovering from the New Year’s celebrations, Blockbuster Inc. was proudly announcing that it had ended 2006 “with approximately 2.2 million online rental subscribers, including approximately 2 million paying subscribers”. Of particular significance was the fact that the DVD rental giant had recruited 700,000 new online subscribers between November 1 and December 31. Total Access, the reason behind this success, is a program that lets online customers exchange their online movies for free in Blockbuster stores. As John Antioco, Blockbuster’s chairman and CEO, explained at the 17th Annual Global Entertainment, Media & Telecommunications Conference in early January, Total Access provides “all the selection and convenience of an online program and the immediate gratification of a movie right now.”

Having spent two years laying the groundwork and invested $20 million in the last quarter to launch Total Access, Antioco felt that the effort was now paying off. “Blockbuster has been operating and today still operates at significant consumer awareness dissatisfaction to our N° 1 competitor. We intend to close that gap,” he vowed.

When it comes down to it, Antioco believes that his company can provide customers a service that is as good as Netflix’s and then something else that its competitor can never offer: a movie available right now at a store near you.

Admitting an erosion of its customer base in the past five years, Blockbuster started 2007 on the attack. Antioco promised to reverse the trend and to double the number of online subscribers by the end of the year. Of Total Access, he said: “We are going to ride it hard in 2007.” Netflix, be warned.

Netflix fires “Watch Now”

Meanwhile, Netflix made news of its own in mid-January when it announced “Watch Now”, a new feature that will allow its subscribers to watch hours of streaming video for free every month. After achieving enormous success, Netflix’s star has dimmed with reports of its impending demise regularly surfacing. Still, according to The New York Times, the company “was expected to end 2006 with 6.3 million subscribers and nearly $1 billion in revenue, or about 12 percent of the $8.4 billion annual DVD rental market.”

Now Netflix has taken a big step to reinvent itself as an online delivery service. Video-on-demand has been slower to take off than anticipated. But customers, their high-speed connexions and Hollywood execs might finally be ready to make it happen.

Netflix’s new service is launching with just 1,000 titles and for now it is only offered to subscribers who have signed up for the $17.99 a month program for three rentals at a time. These customers will be able to watch 18 hours of video at no extra cost. By the end of June, all Netflix customers will have access to the service. Movies and TV shows will be streamed down to their PC, not downloaded, which means that customers will not keep a copy on their computer.

Online digital delivery is saddled with many technical obstacles from requiring recent versions of Windows and Internet Explorer to potential mishaps with the connexion while streaming the movie. In addition, Netflix is facing a crowded market with competition from the likes of Apple, Amazon and cable companies offering video-on-demand services.

But as Reed Hastings, Netflix’s CEO, stated in announcing the new feature, “We named our company Netflix in 1998 because we believed Internet-based movie rental represented the future, first as a means of improving service and selection, and then as a means of movie delivery. While mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles, the time is right for Netflix to take the first step.”

Besides expanding the selection, Hastings vowed to bring movies to “every Internet-connected screen, from cell phones to PCs to plasma screens. The PC screen is the best Internet-connected screen today, so we are starting there.”

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