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Source: TopAccountingDegrees.org

To war or not to war

Did Netflix really put Blockbuster out of business?

Gross Profit (Blockbuster):

[7]

1995– $430 million

1996– $267 million

1997– -$214 million

1998– -$359 million

1999– -$122 million

2000– -$67 million

2001– -$217 million

2002– $347 million

2003– -$805 million

2004– -$1.242 billion

2005– -$383 million

2006– $74 million

2007– $39 million

2008– -$293 million

2010– -$351 million

2011– -$128 million

Netflix: Earning Acceleration

Gross Profit:[6]

(net income)

1998– -$11 million

1999– -$30 million

2000– -$57 million

2001– -$38 million

2002– -$22 million

2003– $7 million

2004– $22 million

2005– $42 million

2006– $49 million

2007– $67 million

2008– $83 million

2009– $116 million

2010– $161 million

2011– $226 million

2012– $17 million

2007: Blockbuster brings in 7-11 execs to focus on “package” customer leaves store with (candy, cokes, etc.)1997: NF founder returns Apollo 13 to BB 13 weeks late, dismayed by his late fees, he starts his own company.

1997-2005: point to mostly unprofitable trend of BB

2000: Blockbuster declines to purchase Netflix for $50 million

Blockbuster was hurting long before Netflix became a player.

But it looks better to lose a war, than to lose from sheer incompetence.

You can’t make this stuff up

BlockBuster: A decade in decline[2]

1985–First Blockbuster opens in Dallas

1994–Viacom acquires Blockbuster for $8.4 billion

1997–Reed Hastings returns Apollo 13 to Blockbuster 6 weeks overdue, and is dismayed by the $40 late fee.

1998–Reed Hastings founds Netflix.

1999–Viacom holds Blockbuster IPO, valued at $4.8 billion

2000–Blockbuster declines to purchase Netflix for $50 million. Creates 20 year deal to deliver on-demand movies with Enron Broadband Services, subsidiary of Enron.

2001–Enron files for bankruptcy, in accounting scandal. Blockbuster kisses streaming deal goodbye.

2002–Blockbuster posts $1.6 billion loss.

2003–Netflix posts first profit of $6.5 million.

2004–Blockbuster enters online DVD rental market. Reed Hastings tells analysts “in the last six months, Blockbuster has thrown everything but the kitchen sink at us.” The following day Hastings receives package from blockbuster: a kitchen sink.

2005–Blockbuster launches “no late fees” campaign. Is sued for misrepresenting policy to customers.

2006–Blockbuster surpasses 2 million subscribers for online services. Netflix reaches 6.3 million.

2007–Blockbuster loses 500,000 subscribers just in the third quarter.

2009–Blockbuster rolls out kiosk system designed to compete with Redbox.

March 2010: Blockbuster advertises 28 day quicker access to new movies than Netflix. Reintroduces late fees.

July 2010: Blockbuster launches Droid X app. Blockbuster de-listed from the NYSE, shares at all time lows.

September 2010: $1.1 billion revenue losses, with a company value of just $24 million–Blockbuster files for bankruptcy.

Blockbuster at its height:

Blockbuster’s Peak:

9,000 stores

60,000 employees [3]

$8 billion value

Netflix at its height:[9]

Watched more than any cable network

Accounts for nearly 1/3rd of Internet traffic

$20 billion worth

Netflix didn’t shut down Blockbuster, but they did steal the market Blockbuster needed to move into.

2012-2017 Growth in Global Spending:

Change per year [#so in five years about -25% loss for physical home video]

Electronic home video delivery (Or, Streaming): +19.1%[10]

Physical Home Video: -4.9%

2013:1/2 of those (18-29)

Use OTT–(free streaming sites online)

To satisfy entertainment needs, showing massive early adopters to digital delivery.[10]

Is it really a choice?

Blockbuster:

Head into the store for choice of a few hundred mainstream titles

vs.

Netflix:

Thousands of titles:

Recommendations, ratings, all genres

Streaming to:

Roku DVR’s, Blue-ray players, smart tv’s, Xbox 360’s, Xbox One’s, Playstation 3 and 4, PLaystation Vita, Wii’s, Nintendo 2 and 3DS, Tivo’s, Apple TV’s, Computers, Iphones, Androids, Chromecasts, Tablets

With Netflix even taking over its own programming:

House of Cards

Hemlock Grove

Arrested Development (season 4)

Lilyhammer

Orange is the New Black

Aziz Ansari: Buried Alive

After Blockbuster dug its own grave, Netflix’s 40 million[11] customers are forging into a new era of entertainment.

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