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"Yet, Netflix continues to lead. It's not copying anyone."

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By wdipaolo
August 10, 2007

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I believe the acquisition of Movielink belies the desperation that surely exists in Blockbuster's boardroom.

Over the years I've watched Blockbuster compete by attempting to copy its competitors. Huizenga did an amazing job rolling up mom and pop video stores to create the nations dominant video rental chain. And, using a pure mass and scale strategy, it was able to limit completive erosion through sheer brute force. Worked like a charm.

Enter Netflix.

Blockbuster, for perhaps the first time in its existence needed to compete...to differentiate...to define its value and hold on to customers. Instead it did nothing - and clients left for the cheaper, more convenient alternative Netflix offered. And still Blockbuster did nothing - a strategy that had always served them well in the past.

But this time mass and scale weren't helping. Customers were leaving in volumes never before seen. Something had to be done. It was time for management to prove its mettle, to assess the market and COMPETE. Yet...when the big, bloated, out of shape company tried its first competitive move all it could muster was...copying what Netflix offered. And copy they did - from its five star rating system, to its subscription pricing and even its queue based movie selection system.

And with that the company sat down to wait. But nothing happened. Customers still flocked to Netflix. Blockbuster began losing money. So Blockbuster devised its next competitive strategy. It gave away a three-out program called Total Access - which the first step toward killing what was by now a rather old golden goose. Stores would function as mere drop off points for an online distribution model. No attempt or strategic alliance was made to increase the value of its retail locations - or create other compelling reasons for people to drive to their stores. After all their planning and strategizing - management believed the only way to get people to our stores was offer free movies.

And it worked. Turns out people love free stuff.

But the nasty problem of hemorrhaging red ink continued. And that leads us to the Movilink purchase. Should we be surprised that Blockbuster decides to buy a completely unrelated technology that even Keyes admits doesn't provide the streaming capabilities that Blockbuster really needs? Since Netflix has video on demand capabilities, then Blockbuster must get something similar. The past predicts the future.

Yet, Netflix continues to lead. It's not copying anyone. It's assessing the market - and using its technology to better serve it. It's innovating and creating benchmarks. Its Watch Now is being rolled out slowly and with great success - into a market which majority may not even be familiar with the DVD by mail concept.

I would encourage all Netflix longs to be comforted by the fact the market is still developing - and that Netflix is the leader by nearly every metric. I sense no panic or desperation from Netflix management. Instead we see a steady methodical plodding toward achieving what must surely be their mission: Flix on the Net.

Be well,

W


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