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STRATEGY

Netflix vs. Blockbuster

How should Netflix fight back against Blockbuster? CEOs weigh in.
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When it launched in 1998, Netflix (NASDAQ:NFLX) threatened to make the video store obsolete. Boasting quick turnaround and no late fees, the DVD-rental-by-mail company, which is based in Los Gatos, California, zoomed to nearly a billion dollars in revenue. Now, however, the company finds itself losing market share to a resurgent Blockbuster (NYSE:BBI), which began offering a cheaper DVD-by-mail service last year--one that also lets users pick up new DVDs at any of the company's 5,000 stores. In a bid to keep up, Netflix matched Blockbuster's lower pricing this summer, only to see its stock price drop. Can the onetime matinee idol find its way back into the limelight? We asked some entrepreneurs what they would do if they ran Netflix.

Work with music labels

Jamie Cheng, co-founder of Helium Report, an online guide to high-end vacation real estate, based in San Francisco

"Netflix perfected fulfillment. They figured out how to mail that little envelope fast, and to get customers to send it back. So what else can they put in the envelope on a shared basis? If I were them, I would sign licensing deals with developed music artists who are having a harder time selling music these days. CD players are still the norm in most cars and Netflix could help music labels tap into the drive-to-work market."

Rethink the price

Jim Hughes, founder of the Brand Establishment, a training company for ad agencies, based in Blue Jay, California

"Lowering the price was a mistake because it positioned Netflix's service as a commodity, one for which price is the only measure of value. Netflix needs to focus on offering a higher quality service both from a technology perspective and in terms of customer service. And when they make clear improvements in these key areas, they should charge more. The top brand in most industries should enjoy at least a 10 percent price premium over the No. 2 brand. Netflix created this category and it needs to reclaim its status as the market leader."

Find a new CEO

Bill Troy, president of Troy Research, a market research firm in Gahanna, Ohio

"Netflix needs a management change. This countermove by Blockbuster was pretty obvious and Netflix should have seen it coming. And dropping prices suggests to me that the company is now trying to fight back by creating a more efficient buggy whip, rather than by focusing on innovation. Focusing on physical media is not thinking ahead. They need to think about delivery, including movie downloading, and how they can get entertainment in front of people whenever they want it. All of that goes back to the management team. This company needs a new one."

Go beyond Hollywood

David Straus, co-founder and CEO of Withoutabox, a Los Angeles-based website that links independent filmmakers with film festivals

"Netflix should distribute more obscure films. It started down this path last year when it helped to distribute The Puffy Chair, which got raves at Sundance. Targeted niche outreach of this kind is harder to do than mass outreach, but if you develop a lot of loyal little audiences over time, in the way that eBay did, you often end up with a larger audience than if you go after the mainstream."

Pursue a cable suitor

Samuel Mangiere, co-founder and chairman of From Bags to Riches, a Web-based handbag-by-mail rental service in St. Paul

"Netflix needs to remind customers through aggressive advertising and marketing why it's the easiest and most convenient service out there. In the longer term, it should move more quickly into video on demand by locking up relationships with two or three large cable operators, which can offer access to capital, personnel, and large pools of customers. The company might even consider merging with a partner that can help it get into video on demand faster. Today, the technology isn't perfect but with the right investment, it can be dramatically improved."

Last updated: Oct 1, 2007




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