Netflix V/s Blockbuster

Netflix NFLX has fallen 14%, while its arch rival Blockbuster BBI is up 67%. So what changed? Let us first understand what do they do and what are their business models.

What does Blockbuster do ?
Blockbuster is one of the largest movies and video games rental chain in the world. However they lost $1.6 billion in 2002, almost $1.0 billion in 2003, and $1.2 billion in 2004. In 2004, they introduced an online DVD rental service just like Netflix. Currently they have a collection of 65,000 titles and has about 2.2 million subscribers.

What does Netflix do ?
Netflix is the largest online DVD rental service, renting DVD's at a flat monthly rate depending on the plan. They have a collection of 70,000 titles and has about 5 million subscribers. Currently, Netflix spends about $300 million a year on postage to ship 1.4 million DVDs a day.

What changed at Blockbuster ?

* Blockbuster launched its Total Access program in November '06, which enables subscribers to return movies rented online to a local store and in return, pick up a free in-store rental. As soon as the trade is made, the online store knows automatically that you have returned the rental in the store and without waiting to receive it at their distribution center, they send you the next movie in your queue. So you could potentially have 6 movies out at a time while signed up for 3-at-a-time service.

* Additionally, Blockbuster still gives subscribers two coupons for free in-store rental of a movie or video game every month. This has helped Blockbuster add 700,000 new subscribers, which is a 47% increase over their previous subscriptions.

* Additionally, through their media campaigns outlining the benefits of Total Access over Netflix, they have managed to snatch some of Netflix's casual customers over.

* With their success of Total Access program, Blockbuster has also managed to increase the traffic to their stores (which was their basic business to begin with) which adds to higher retail sales of DVD's, magazines, video games and movie munchies.