Back in September, Netflix CEO Reed Hastings announced plans to bring the Netflix movie rental service to the PS3, Wii and iPhone. That should go a long way toward making the streaming video service ubiquitous (Netflix has already been available on Microsoft Xbox 360 consoles for nearly a year).
Hastings’ announcement came only days after Blockbuster announced that it would be closing hundreds of its rental outlets. What has caused Blockbuster, a company that was once the undisputed king of movie rentals, to see its share of the market significantly erode in recent years?
The challenge for any company that wants to build an online distribution business is overcoming the large investment in fixed costs. That means attracting as many subscribers as possible, something that Netflix has done by making its service available on multiple platforms. In addition to receiving movies by mail, subscribers can download movies to their PCs, Xbox 360s, Roku players, TiVos, or even directly to their TVs and DVD players. With the addition of the Sony PS3 and Nintendo Wii to the Netflix family, virtually every home in America will be equipped with a Netflix capable device.
Not only does Netflix provide subscribers with access to its library of titles from almost anywhere, subscribers also do not have to worry about incurring extra fees if they don’t like a movie. For as little as $9 per month, users can download as many movies as they want and as often as they want.
Contrast this with Blockbuster. The same monthly fee would only cover two movies on Blockbuster’s $4 per movie online rental service. To make matters worse, Blockbuster only offers movie downloads through its clunky movielink player, a software that streams standard definition movies to a limited number of PCs. Attempting to access the service from an Apple computer or PC with Firefox yields the following error message:
Warning: our system does not currently support downloads for your browser/operating system.
Downloading and playing movies requires Internet Explorer 5.0 (or newer) and a PC running Windows XP or Windows Vista. Please load this page in Internet Explorer or
install the IE Tab Extension in Firefox (IE installation required). Thanks for downloading from blockbuster.com!
When Microsoft announced a one year exclusive partnership with Netfix in 2008, Blockbuster could have used the opportunity to reverse its decline by negotiating similar agreements with Sony and Nintendo. Unfortunately, Blockbuster has not demonstrated an ability to think outside the box, nor is it certain that the company has the funds to invest in the infrastructure needed to make a Netflix-like business model work. Now that window of opportunity is closed in what could turn out to be the last nail in Blockbuster’s coffin.
Blockbuster’s problems do not stem from a lack of selection or availability of new movies, but from the company’s unwillingness to simplify the process for its customers. The company’s recent foray in kiosks, an effort targeted at Redbox, appears to be too little and too late. In contrast, Netflix success stems from the fact that they have taken all the guesswork out of renting movies. Instead of worrying about how they are going to download movies and how much it is going to cost, Netflix subscribers can just sit back and enjoy the show.
Prof. 
