Netflix versus Blockbuster – The Original Disruption
Blockbuster, in its prime, had a stronghold on the U.S. video rental industry. It had brick‐and‐mortar stores in 2,800 locations worldwide in 1992 and 9,000 stores at its peak. Two years later, Viacom purchased Blockbuster for $84 million. During the 1990s, a Blockbuster store offered the latest releases and classic movie hits for the entire family in most neighborhoods. Besides revenue from rentals, Blockbuster also made significant income from late fees.
When Netflix arrived on the scene with a subscription‐based DVD rental business in 1997, Blockbuster did not see it as a worthy competitor. Netflix, known today for its streaming service, started renting out DVDs. For a monthly fee, subscribers entered a wish list of movies they wished to view, and Netflix sent the customer their first two DVDs. When the customer finished with the video, they sent the DVD back to Netflix, which would, in turn, send a different DVD from the subscriber's wish list. A subscriber could keep any DVD for as long as they wanted, thus eliminating the pressure to return a movie on time to avoid costly late fees.
Netflix infiltrated this market by utilizing technology to provide what the customer wanted – reasonably priced, convenient entertainment. Their model also eliminated late fees, which were the customers' least favorite feature of Blockbuster. As of January 2021, Netflix was worth over $230 ...