How does Netflix add value for customers through distribution functions?
Baseball great Yogi Berra, known more for his mangled phrasing than for his baseball prowess, once said, “The future ain’t what it used to be.” For Netflix, the world’s largest online movie-rental service, no matter how you say it, figuring out the future is challenging and a bit scary. Netflix faces dramatic changes in how movies and other entertainment content will be distributed. So, will Netflix be among the disintermediators or among the disintermediated?
Less than a decade ago, if you wanted to watch a movie in the comfort of your own home, your only choice was to roust yourself out of your recliner and trot down to the local Blockbuster or other neighborhood movie-rental store. Blockbuster is still the world’s largest store-rental chain with over 9,000 stores in 25 countries and $4.1 billion in annual sales. But its revenues have been flat or in decline for the past few years. To make matters worse, it has lost money in all but one of the last 13 years—over $550 million in 2009 alone! Blockbuster’s stock price has plummeted to a mere $0.28 a share while the company teeters on the brink of bankruptcy.
This riches-to-rags story underscores the fact that the old model for distributing movies is simply not working anymore. One thing about the future is certain. The business of distributing home video is full of disruption and confusion. Things are really changing, and the dust is far from settling. HBO offers its classic subscription service as well as its new premium service, HBO On Demand. Then there’s Redbox, the Coinstar Company that rents DVDs for a dollar a day through vending machines in more than 25,000 convenience stores, supermarkets, and fast-food restaurants. That’s from a company that no one had even heard of just a few years ago. Adding even more chaos to the mix, Hulu leads the army of start-ups and veterans that show full-length movies, TV shows, and clips for free, as long as you’re willing to watch some ads.