Marketing Management Case Study

The Price War: Netflix vs Blockbuster

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Abstract:
Netflix, since its inception in 1997, was known for its revolutionary business model. The success that the firm gained in the online DVD rental market by 2003-2004 inspired several other players like Wal-Mart and Blockbuster to enter the market. The increased number of new entrants for the segment intensified the market competition. This led to a severe price war between Netflix and Blockbuster – a big player in the DVD rental market, which intensified in 2007. The price war kept potential new players from entering the market. At the same time, it reduced both the companies’ profits. Analysts felt that the severity of the price war would result in the operating incomes of both the firms dwindling for the next few years. It was felt that with such competition being detrimental to both the firms, they should instead, pool their strengths to form a strong duopoly. Analysts also felt that Netflix could merge with a strong player, like Amazon, till it was established financially to form a strong monopoly and block all new entrants from the online DVD rental market in the US.

Pedagogical Objective:

• To understand the concept of predatory pricing in duopoly markets
• To understand the business models of Netflix and Blockbuster
• To analyse Netflix’s pricing strategies and Blockbuster’s counter-acts
• To debate, how can a company grow (differentiate) when continuous price cuts finally start affecting bottom lines?

Keywords : Online DVD Rental in US, Price War, Netflix, Blockbuster, Wal-Mart, Subscription based annuity model, Business Model, Predatory pricing, DVD, Online Movie Rentals, Amazon.com

Contents:

• Netflix's Meteoric Rise
• Netflix vs Blockbuster: Tangled in the Price War