Why NetFlix Trounced Blockbuster – It’s all about Consumer Power

Posted: September 24, 2010 in Consumer Power, Convergence

Today’s Bankruptcy Filing of former video powerhouse Blockbuster highlights the difference between a company that pays attention to the consumer and respects changing consumer habits and one that worried more about its own problems and not its customers, and instead kept to its existing business model way too long.

While Blockbuster tried for years to justify the bricks and mortar strategy that brought it to success in an era of VCR’s and few alternatives for customers, Netflix embraced the changing world and quickly morphed from sending discs to following the consumer to new distribution outlets and used strategic partnerships with studios and hardware manufacturers to quickly gain access to those customers. Netflix was able to be in the business of streaming video at the very moment that was becoming a favored way for consumers to view films.

In order to get rights to streaming titles, Netflix agreed to pay Paramount, MGM and Lionsgate $200 million a year. That’s a risky investment. But as Ad Age reported this morning, “That sounds like a lot of money until you realize that Netflix spends about $600 million a year on postage.” The idea is that as customers switch to digital delivery, those costs drop and fund even more future content deals. Even today, Netflix announced a new content deal with NBCU!

But Netflix didn’t stop with the content providers. By strategically partnering with hardware manufacturers and offering them easy access to content for their customers, Netfilx was able to put its product, in a consumer-friendly way, on TV’s, set-top boxes, video games, DVD players, smartphones, APPLE TV and even tablets. Any consumer can access the Netflix library, often with one click, from many platforms.

Once again the message is clear: The Consumer is gaining power. You can’t win trying to change the direction Consumer Behavior is going…You have to go with it.


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