The Battle of Blockbuster and Netflix

QUESTION:

Comment on revenue, profit, and loss of key industry players.

SUMMARY:

We all know the rivalry between Netflix and Blockbuster. Netflix is undoubtedly the stronger contender, but for a while there (mid-2000s), it looked like Netflix and Blockbuster were neck-in-neck. Basically, Blockbuster started out as a DVD rental/retailer. It was doing pretty well; it was essentially the only one of its kind and dominated the market. In 2004, Netflix was born, and with it, the rise of DVD by mail. Now, in 2009 Blockbuster tried to jump on the bandwagon and rent out DVDs this way--by mailing them to consumers. But it was just too late. Netflix had already snatched up many of Blockbuster's old clients and created a name for itself in the movie distribution business.

In 2010, Blockbuster filed for Chapter 11 bankruptcy. Bankrupt, essentially defunct, and very sad, Blockbuster was bought by media provider giant, DISH Network. Thus, Blockbuster became an entity under DISH and no longer exists by itself as a company anymore.

OPINION:

It's hard to say whether Netflix bought about the demise of Blockbuster. Would Blockbuster still have gone bankrupt without the rise of Netflix? I think it's safe to say that it definitely wouldn't be making as much money as it was in the 1990s--but primarily due to the rise of piracy and illegal downloading on the internet.

What is most interesting to me, however, is that DISH Network acquired Blockbuster. Why would they want control over a dying company? It's still somewhat of a mystery--DISH believed it could resurrect the DVD rental store, it thought that Netflix was just a trend, it thought that it could compete price- and service-wise with the new Netflix? Regardless, DISH disregarded (or at least discounted) Blockbuster's consistent losses in revenue and decided to go ahead and take over the company. Now, Blockbuster is trying to steal Netflix's customers through Twitter campaigns and the like, but I don't actually think Blockbuster will ever be more profitable or desirable than Netflix.

SOURCES:

http://blogs.wsj.com/digits/2011/09/29/blockbuster-takes-to-twitter-after-netflix-stumbles/?KEYWORDS=blockbuster+netflix

Outsourcing and Overseas Manufacturing

QUESTION
Do players in your industry manufacture overseas? What aspects of their operations do they outsource?


SUMMARY
In the media industry (particularly for media providers), it is near impossible to "manufacture overseas," as the companies usually provide services rather than products. For example, Netflix recently began offering its services to customers in Canada and Latin America, but all services are provided by Americans in the United States. On the other hand, Verizon is a good example of a media company that outsources to other nations in "Europe/Middle East/Africa, Asia/Pacific, and Latin America." But Verizon outsources its customer service, not its production. In short, different media companies choose to operate solely in the US or all over the world depending on the types of services they provide.

OPINION
For some companies, it is profitable to outsource operations such as customer service. (This is why there's often a foreign employee on the other end when you call your cable provider for help in the middle of the night.) Having customer service employees in different parts of the world also ensures that the proper language and time zones are represented--meaning more customers can receive help.
Verizon, self-described "global leader in communications," has buildings in different countries so that its customers can always reach a representative when there's an issue. Netflix does not provide this service because it operates mainly within the US, and its services are very different (Netflix doesn't do phone/internet/wireless).
Some companies would benefit from establishing overseas bases but other would not. Traditional providers like Time Warner, Comcast, and Verizon would stand to benefit from outsourcing customer service. Other companies, such as Netflix, Redbox, and Hulu, don't need to outsource because they provide a service that isn't usually consider a necessity (whereas television/cable is crucial to most people's comfort). In other words, online media providers don't need to manufacture abroad/outsource, but more traditional media distributors oftentimes do to help the bottom line.

SOURCES
http://www22.verizon.com/jobs/whoweare_vzbglobal.html
http://ir.netflix.com/#
http://www.webosroundup.com/wp-content/uploads/2011/04/verizon-world-phones.png

Differentiation in the Media Industry

Question:

How do companies in this industry differentiate themselves from one another?

Note: 

This post is essentially exactly what I wrote for my section of the draft paper. It's about how different media providers market their services/products (specifically how they choose to price them).

Summary*:

This article sums up Netflix's new marketing move: dividing online streaming and DVD sales into two separate services, each for $8 instead of the 2-for-1 package for $10. Customers, shareholders, and stockholders were not happy. Netflix stock dropped after the announcement, and the vast majority of Wall Street Journal readers said in an online poll that the marketing move will harm the company.

The most intriguing quotation in the article came from Wedbush Securities analyst Michael Pachter: "...streaming-only customers are more profitable to Netflix than its DVD customers. But he believes that state of affairs won't last as studios charge Netflix more for the digital licensing deals it relies on. 'On the DVD side the studios have zero ability to raise price. [...] On the streaming side, the studios have 100% leverage.'"

Opinion:

There are many companies that offer similar services to those of Netflix. I will describe their differences here (in almost identical language to the opening paragraph of my Marketing section draft).

Since Netflix, Inc. was founded in 1997, companies in the media distribution industry have all been following its example by offering easy DVD rental delivery to their customers. The fad today is to offer online streaming of movies and television programming for a monthly or yearly fee. Netflix was the first to do this, charging $10 per month for both services—DVDs and streaming. Blockbuster caught on—too little, too late—and began offering the same delivery service in 2004, also for $10 per month.

Redbox, founded in 2002, lets customers rent movies from kiosks in supermarkets and drugstores and return them in any convenient kiosk for as little as $1 per DVD. Websites, such as Amazon.com (e-commerce) and Hulu.com (online streaming) have also caught onto this trend: In 2011 Amazon launched Amazon Instant Video to customers already paying the Amazon Prime fee, and Hulu introduced Hulu Plus for $8 per month, to offer more services and maintain a higher profit margin.

Sources:

http://www.amazon.com/gp/help/customer/display.html/ref=hp_3757_wipiv?nodeId=200572880

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/09/blockbuster-files-for chapter-11-bankruptcy-sets-plan-to-reorganize.html

http://www.hulu.com/plus

ttp://ir.netflix.com/

http://www.redbox.com/history

https://www.blockbuster.com/signup/m/plan

http://www.theklaus.com/images/portfolio/editorial_cartoons/Netflix_Defeats_Blockbuster.jpg

*http://online.wsj.com/article/SB10001424053111903374004576581000189433470.html