How was Netflix able to overcome Blockbuster’s industry dominance in home video rentals?


Answer: Blockbuster, at its peak, was raking in $6 billion in revenues when Netflix entered the market as a disruptor with mail-in-DVD service. When Netflix arrived, Blockbuster was already a mature offering with no innovation. It had 6000 stores nationwide, and the customer service could have been better, especially with late fees. Blockbuster collected customers' $800 million in late fees in 2006 alone.

Netflix’s mail-in-DVD service offered a lower performance for the customers as they had to pick titles on their portal pre- and wait for 2 to 3 days before they arrived in their mailbox. However, disgruntled customers from Blockbuster’s late fees switched to Netflix, which was the initial trigger. At first, Netflix's beachhead audience was the dissatisfied customers from Blockbuster.

Netflix is led by Reed Hastings, a visionary who made a bet on video streaming on the internet. With scarce resources spent on technology, Reed Hastings incorporated a “Freedom and responsibility” culture within Netflix. This propelled Netflix into the new era of winning in the subscription video streaming business model. Blockbuster meanwhile had expensive operations with 6000 stores and 25000 staff, while Netflix operated with two data centers and a few warehouses with less than 500 staff. Blockbuster eventually launched its online business. However, the 2008 financial crisis and the mounting debt they incurred for their investments in their online business was too much for the company, and they eventually filed for bankruptcy.