Read the video case and answer the three questions at the end.

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Chapter 13 Video case

Netflix was originally an online version of a traditional video rental store, a website where customers chose the films they wanted to rent and paid $4 for each, along with a $2 shipping fee and late fees if applicable. This model wasn’t very price competitive, or even very efficient compared to brick and mortar video rental retailers. So, to gain a competitive advantage, the company slowly transformed itself, focusing on technological advances and improving product offerings. Today Netflix is membership-based, has over 1 0 million subscribers, and relies on a unique business model. Members subscribe to various packages based on the number of movies they want to rent per month, from two all the way to an unlimited number, which allows them to keep up to eight films at a time. Online, they list the movies they want to see in order of preference, and Netflix delivers them. Customers can keep any movie as long as they like, with no late fees, but they are not sent a new one until they have returned an old one to their local Netflix distribution center, using the company’s special prepaid mailers. As its service became more popular, Netflix expanded its film and television show collection to include Blu-Ray disks. To stay ahead of the competition, it added a Play Instantly feature, which allows subscribers to download movies from the Netflix website and watch them on their computers. This service gives customers instant access to a wide selection of films and saves Netflix shipping fees. Recently, Netflix started offering a direct-to-television streaming box rental option. To gain access to more than 12,000 movies and television shows from the Netflix library, customers must purchase a box that hooks up to a television set and sign up for a plan. The box costs around $100 and streams video directly to television via high-speed Internet. Customers must sign up for a plan, but rather than wait for DVDs to come in the mail, they can watch movies instantly on their televisions. Apple and Vudu offer similar products, but their boxes cost two to three times Netflix’s price. Netflix also recently formed a partnership with Microsoft to stream movies through Xbox systems to the television. Most recently, Netflix partnered with TiVo to provide movies directly through the Internet. Netflix subscribers who also subscribe to TiVo (and have a Series 3 or HD DVR connected to broadband) can use this service. Netflix has a number of competitive advantages over companies such as Movie link, Blockbuster, and Wal-Mart. First and foremost, it offers more selections— as many as 100,000 titles— including more independent and foreign films, documentaries, and television shows, than anyone else. Walmart attempted to compete with Netflix starting in 2002 but admitted that Netflix had won and bowed out of the race less than three years later. Blockbuster, a company that lost market share as some customers moved away from traditional brick-and-mortar video stores, continues to be Netflix’s strongest competitor. The company, which remains the largest in-store movie rental chain in the world, entered the online rental competition about five years ago and originally tried to compete with Netflix on price. The two eventually settled on similar prices, but their competitive battle also landed in court when Netflix sued Blockbuster for infringing on two of its patents. The suit was settled a year later, but competition between the rivals remains fierce.

For more information about this company, go to www.netflix.com.

Questions

1. What type of retailer is Netflix?

2. To compete more efficiently with Blockbuster, should Netflix open brick-and-mortar retail stores? Why or why not?

3. Should Netflix consider other forms of non-store retailing along with its current distribution activities? Why or why not?