Differences Between Netflix And Netflix

When Reed Hastings discovered an overdue movie in his closet and paid the subsequent exorbitant fees associated with it, he realized that something needed to change. Having already started and sold a software business, this entrepreneur contemplated about alternate video service ideas that would better satisfy customers. Netflix entered the market in 1997 when the market leader was rental giant Blockbuster Inc. At the time, Blockbuster attempted to grow by opening new locations in order to expand geographic coverage and to increase penetration and share in existing markets. Their shelves mainly carried hit movies and placed importance on the newest releases. They were hesitant to carry many older or independent films due to inconsistent demand.

In 2006, they had established a major presence in the US with 5,194 locations, of which 4,255 were company owned. Overhead for this many locations and payroll represented a major percentage of their total costs. In comparison, Netflix had a mere 44 distribution centers scattered across the US, yet they could deliver to more than 90% of their subscribers within a single business day. Their low overhead costs paired with a superior business model resulted in revenues of nearly $1 billion, generating free cash flow of $64 million by 2006-year-end. Another difference between the two companies involved their video focus. As mentioned before, Blockbuster concentrated on providing hit movies and new releases to their customers since traditionally these would make up over 70% of total rentals. In contrast, Netflix offered an expanded selection of movies where new releases represented less than 30% of their total rentals in 2006. One similarity between these two companies was their elimination of late fees. Netflix was the first to do this in 1999 and Blockbuster followed years later. This benefited Netflix greatly as their customer satisfaction and loyalty increased. However, Blockbuster suffered a loss as 10% of their revenues came from the late fees they charged their customers. Blockbuster was slow to adapt and were stuck in their brick-and-mortar business model. Netflix aggressively worked on improving their business model by implementing useful features, which can be seen to this