Breaking Blockbuster

The drastic increase in digital media distribution has greatly changed the direction that traditional brick and mortar retailers can take when attempting to sell media. This is apparent with the increasing success of Netflix and other similar services, at the expense of businesses like Blockbuster. To complicate the issue further is social media giants Facebook and Youtube dipping their toes into the market of streaming feature length movies. Looming over all of this is the ever present issues of P2P and illegal downloading. and the legislation that is being put forward concerning them.

To give some insight into the quick fall of Blockbuster inc., in 2009 it had revenues of approximately $4 billion, on September 23 2010 Blockbuster filed for chapter 11. After this Blockbuster set up a restructuring plan, in which the amount of debt it had was greatly reduced. It then tried to implement strategies similar to Netflix, particularly by mail rentals and streaming video. However it was too weak of an effort, too late in the game. Now this month Blockbuster has been put up for sale. What led to Blockbusters downfall was it's inability to change it's RVP to capitalize on the change in the market, or to even realize there was a major change. Blockbuster's most recent RVP focus was on selection, specifically having the newest movies the day they were released guaranteed. However; with the new methods of distribution available to consumers, it was becoming increasingly unattractive to pay as much as blockbuster was charging and inconvenient to have to go to the store to get movies.

On the other hand services such as Netflix and hulu have been thriving. I will focus on Netflix. Netflix started out as a mail order DVD rental service. The initial driver for Netflix's success was the high level of convenience associated with this business model. The consumer sets up a preference list, the highest selection is sent, then after the customer is finished with the movie they send it back and get the next one on the list. This system eliminated the need for late fees. The other important driving factor was the price. For a relatively low monthly fee consumers could get the movies they wanted. In 2007 they offered a combined mail order/streaming service that even further increased the convenience and price advantage. In 2009 Netflix offered a standalone streaming service, but what really allowed this to take off was the amount of platforms that partnered with Netflix for distribution. It became viewable not only on the P.C. but all three major gaming consoles, many Blueray players, some t.v.'s, and Apple's iPod/iPad. This strengthened Netflix's RVP even more, further increasing convenience and lowering price. Also Netflix's selection is improving as it gets more popular. As I mentioned before, Blockbuster's major decline corresponds very closely with Netflix's new offering.

What has been interesting recently in this market is that both Youtube and Facebook have started providing feature films. This is a problem for Netflix because of the sheer size and popularity of these services. If streaming full length movies catches on on Facebook and Youtube, Netflix is going to have to change it's own RVP to differentiate itself from these giants.

Of course following all of these pay services is competition from peer to peer sites and illegal downloading. The pay services must watch legislation regarding this activity, particularly bill c-32 in Canada. If passed this could give a big advantage to the pay services in this market.

Overall there has been a very quick transition in this market and traditional brick and mortar stores are probably not going to be able to compete

Sources
http://mashable.com/2010/09/23/blockbuster-bankruptcy/
http://thecopypasteblog.com/watch-full-length-movies-youtube/
http://blockbuster.mediaroom.com/index.php?s=119&item=929
http://news.cnet.com/8301-31001_3-20014895-261.html
http://www.socialtimes.com/2011/03/netflix-destroyed-blockbuster-infographic/
http://www.pcworld.com/article/160276/netflix_will_offer_streamingonly_subscription_plans.html
http://nexus404.com/Blog/2011/03/08/warner-bros-to-make-facebook-movie-rentals-the-next-big-thing-wb-starts-renting-the-dark-knight-to-facebook-users-facebook-credits-accepted-as-payment/
http://www.thestar.com/entertainment/music/article/892432--bill-c-32-no-crossing-the-great-divide-over-creative-rights