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Netflix vs Blockbuster

Posted on Wednesday, Apr 5th 2006

Wow, I just saw this news item that Netflix has sued Blockbuster and is demanding that Blockbuster shuts down its online DVD rental service.

Wedbush Morgan analyst Michael Pachter, who also is an attorney, said it was unclear whether Netflix’s challenge to Blockbuster’s online service would be upheld by the federal court.

“It’s my opinion that it won’t be,” Pachter said. “Blockbuster detrimentally relied on their silence as consent. If in fact (Netflix) feels so damaged they should have sought injunctive relief before Blockbuster rolled out its service.” [Reuters]

I am not sure I agree, nor do I claim to know what has been the level of correspondence between the two companies.

All I can say is that, indeed, Reed Hastings innovated fundamentally on the DVD rental category, and deserves some credit / protection for that. I am also happy to see that he did file process patents in the first place, and that two of those have now been granted.

Venture Capitalists always tend to ask whether the IP in a company is defensible. What we are seeing these days is that some of those startups have survived and blossomed, and are in positions to defend their IP. Furthermore, they now have the wherewithal to benefit from their innovation.

Don’t you think this is good news?

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[…] There has been a number of hot issues lately around patents, lawsuits, rights of inventors versus business builders. TVi vs Microsoft, Netflix vs Blockbuster, RIM vs NTP, eBay vs MercExchange. […]

Sramana Mitra on Strategy » Blog Archive » Invention vs Commercialization Wednesday, April 12, 2006 at 1:45 PM PT

A Side-by-Side Comparison and Conclusion

When comparing Netflix with Blockbuster Online, there are so many similarities that it may seem like a toss-up. The giants of the online DVD rental explosion are feeding off each other’s ideas, spawning lawsuits and smearing campaigns that rival the cola wars of the mid-1980’s.

Both programs allow us to pay a monthly fee, for which we receive DVD movies sent through the mail. When we return them in the postage paid envelopes, we receive more DVD’s. It’s an ongoing cycle that fits almost perfectly with the current American need to get the most out of the least — more movies for less money, less effort, and less time.

Side by side, they are almost identical, but here is how they stack:

Speed of Delivery
Netflix used to have the clear edge here, but expansion to include more distribution stores has brought Blockbuster up to par. Still, for those who rent less, Netflix “ramps” the movies to these higher priority customers, pushing the heavier renters further down the list. To this, they have admitted. Blockbuster has not admitted to this practice, but their denials are not firm. Still, Netflix will have a higher overall percentage of 1 day turns on movies than Blockbuster.
Edge: Netflix

There is not a current difference in cost, though this seems to change every few months. When one lowers, the other matches. When one raises, the other follows. It is similar to airlines manipulating the markets towards their own unintended dooms. In the short run, Blockbuster offers a free month while Netflix offers 2-weeks. Blockbuster also has a customer service crew that offers discounts and “mishap compensation” more easily.
Edge: Blockbuster Online

Netflix is approaching 60,000, while Blockbuster is closing in on 55,000.
Edge: Netflix

From talking to many users, it seems that while the concepts of listing movies on a queue and searching for movies in several different ways is the same for both, Netflix has the superior overall layout and useability. Its website seems smarter, though sometimes a bit slower during peak periods.
Edge: Netflix

Fringe Benefits
Netflix has none. What you see is what you get. The fact that Blockbuster offers a free in-store rental every week is extremely helpful in getting the newest releases. With both programs, you sometimes have to wait weeks to get the hottest titles, even if it is at the top of your queue. Being able to walk in and grab that week’s best title is something that Netflix cannot touch.
Edge: Blockbuster Online

Netflix has more experience with online DVD renting, both in regards to time and sheer mass of customers. Blockbuster, as mentioned before, has superior and more responsive customer service. Having a human being available at the local store to help during problems is a big benefit. If there was a large enough gap in any of the above mentioned criteria, I would say that they supercede the intangibles. In this case, there is no substantial difference. The more human aspect of Blockbuster makes it the choice.
Edge: Blockbuster Online

When all is said and done, Blockbuster online seems to be the choice. I would suggest doing like me – try both. Just email me and I’ll send you a promo code for a free month of either or both.

jim Thursday, June 1, 2006 at 4:57 AM PT

[…] Meanwhile, Netflix has sued Blockbuster. Does that mean, everyone else who copies the concept will get sued? Do their patents protect them internationally? […]

Sramana Mitra on Strategy » Blog Archive » Concept Arbitrage: Netflix Saturday, June 24, 2006 at 1:01 AM PT

With Blockbuster Total Access, it is really going to give Blockbuster one up on Netflix. With the convenience of exchanging the DVD at the store, something Netflix can not offer. It is going to put pressure on Netflix to step it a notch. I think this going to put Blockbuster ahead in the poll.

See for yourself:

Blake Sunday, January 14, 2007 at 2:55 AM PT