Blockbusted

Today, I went to a old school video rental store in Abilene. After grabbing a torch at the entrance, I made my way into the ruins. No, but seriously, video stores are a rarity in the modern world. Services like Netflix and the wonderful Redbox kiosks that just give me one more reason to go to McDonald's are usually the way to go. This old rental store made me think, "What ever happened to stores like Blockbuster? It seems like they disappeared overnight." Netflix and Redbox both provided services that Blockbuster couldn't. Redbox offers a select bunch of bigger titles that you would probably be able to find at a store like Blockbuster. Their ringer however is that each movie is only $1 per night. That means that I can go rent Inception and drop it off on my way to work the next day for next to free.

We need to go deeper!

Netflix on the other hand is an entirely different beast. Their two sided business plan has a mail-in option and an instant streaming option. The mail-in option (which includes unlimited instant streaming) allows users to get a huge selection of movies delivered to their door for a fixed monthly amount of $10. This compared to an outrageous $5 to rent a single movie at Blockbuster seems like a pretty good deal. They can do this because of their distribution centers that are located throughout the country in strategic locations. This allows massive amounts of movies to be stored under one roof and then distributed to your door in about a day.

Map of Netflix distribution centers.

The other option that Netflix provides is unlimited streaming only option. This is what I use and I LOVE IT! For $8 a month the user gets unlimited views of Netflix's instant streaming catalog and you get to watch them on up to six devices. This means that I get to watch my show here at college while my parents back home can watch something completely different all on the same account. Granted, the movies available to stream are somewhat limited, I don't really mind since they include a ton of great TV series too. Users can watch the streamed videos on almost anything. Xbox 360, Wii, PS3, Computer, Blu-Ray player, internet TVs and i(Phone/Pad/Touch) can all use Netflix instant streaming. This means that as long as you have an internet connection (note that Netflix does not work on 3G) you can watch The Office wherever you please.

Umm.....no.

A concept that Netflix fully takes advantage of is called the long tail. The idea behind the long tail is that users will be able to watch movies that they would not normally find stocked on the shelves of their neighborhood Blockbuster. For example, take movies like Crash and The Last King of Scotland, which consistently are a couple of the top ranked movies watched on the instant streaming plan. These films would never be hits at rental stores the focus is on stocking their limited space with hit movies that the majority of people would like. Since the concept of physical space is something that instant streaming can bypass, Netflix can afford to include movies that only a small crowd is interested in. This also works in Netflix's favor since less popular movies cost less to obtain the rights to use.

The Long Tail.

The main mistake that Blockbuster made is that they didn't advance with technology. When the internet became a viable distribution method, they didn't adapt. Blockbuster now has an instant streaming plan, but its too late. Netflix has climbed in Blockbuster's windows and snatched its customers up. And since Netflix has over 10 million more customers using a streaming plan that costs about the same as Blockbuster's its easy to see why Netflix is so profitable. So big business be warned: even if you are top dog in your market, competitors can always catch you by surprise if you don't innovate and adapt to the world around you. As for the rental store I visited today, it stays in business by being super-inexpensive. All old movies are $1 for five days and new ones are $3 (I think) and include a free old movie to rent too. I just thought I'd give Box Office Video a shout out since I really like the place.