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Blockbuster&Netflix

In: Business and Management

Submitted By jrddorado
Words 2065
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Project Proposal

The proposed organizations for this project are Netflix and Blockbuster. This research project will demonstrate why the two companies changed to stay in competition. Additionally, this research project will demonstrate how technology obligates organizations to change their business model.
Blockbuster opened their first store in 1985 in Dallas, Texas and expanded to operate 6,500 video rental stores (Blockbuster, n.d.). The organization was a competitor in the small video rental stores by providing a wider selection of movies and game rentals. Because of the positive, public acceptance Blockbuster expanded quickly and opened stores across the nation, London and Canada (Blockbuster, n.d.).
Netflix was founded in 1997 in Scotts Valle, California. The organization website was launched in April 14, 1998 providing to the public online-per-rental model. Netflix introduced the monthly subscription concept in September, 1999. In February, 2007 Netflix introduced the video-on-demand via the Internet. At the present time Netflix provide services in Canada, Latin America, the Caribbean and Europe. Netflix is recognized to be one of the most successful dot-com ventures (Funding Universe, 2011).
ORGANIZATIONAL CHANGES Blockbuster was purchased by Dish Network after filing for bankruptcy in late September 2010. The company has closed a large number of stores at it works to create an online video-streaming outlet (Merced, 2010). Blockbuster’s edge over its competitors is that it is allowed to carry videos as soon as they are released. With the use of interactive media and other successful media outlets, Blockbuster should be able to regain the public that it has lost over the years due to the success of Netflix (Blockbuster n.d.).
Netflix decided to separate the subscriptions models of its streaming and DVD services. Additionally, Netflix decided to divide the two services by completely separating DVD mailing services into a separate website and brand from its streaming service. The public did not have a positive reaction to the changes and went back to their original business model of using one organization for video streaming and DVD services. Netflix was correct on making that change because the future in movie rental is in streaming media but the majority of the public is not ready for that change (Empson, 2011).
Images Of Change
According to the research done for this thesis both organizations fail to execute the required changes. Blockbuster fail to execute the change because the directors did not believe that the dot com venture was a temporary event and decided to sail thought the storm and when the directors noticed that the change was required it was too late and the boat was already under water. Netflix fail to execute their organization change because the directors just imposed the change and did not instructed to their costumers about the change. Netflix imposed the change and the customers reacted by canceling their subscription.
Based on the nature of the companies the following images of change are the best-suited for the organization change; director, navigator, and interpreter. Because the employees these organizations are used for a few persons making the decisions and them implementing the changes according what is dictated to them the director image is critical on order to have a successful change. The director image is based on management as control and of the achieved outcomes. The director image will be able to make decisions based in order of importance in order to realign the organization to change the environment by introducing the new procedures thought the organization.
To make the organizational change flow more easy, behind the director will be the navigator, and interpreter. The interpreter will work directly with the organization employees and will provide support to the changes directed by the director. The interpreter will also work directly with the organization employees and will evaluate their moral, and help them accept the changes. Further more the interpreter will work with the customers and evaluate their acceptance to the new changes. The navigator and interpreter will report regularly to the director about the progress on implementing the changes.
Six-Box Organizational Model The diagnostic model that best fits to analyze Blockbuster and Netflix is the Six-Box-Model because according to the research done both companies did not consider using an elaborate method for to change an organization. This part of the document will present how both companies where leadership oriented, how the leaders fail on implementing the organizational change and how the organization could have implemented a successful change.
Business Six-Box-Model Change
Blockbuster
Leadership
The organization was totally dominated by the CEO Jim Keys. All decisions were anlalyzed, and executed by the CEO.
Purpose
Provide to the customer with convenient locations, and wide selection of video rentals.
Structure
Blockbuster Headquarters
Physical Store
Consumer
Rewards
Blockbuster was able to release the new movies earlier than their competitors.
Helpful Mechanisms
Blockbuster provided all of their stores with software that used bar codes and made the transition or renting movies much easier.
Relationships
According to the research Blockbuster provided a poor relationship with their customers. Blockbuster was used to implement the rules of the organization between the organization and customers and the customers had to accept the rules.
Strengths, Weakness, Opportunities, Threats (SWOT)
Blockbuster
Internal Strengths
World Largest Selection of DVDs.
Internal Weakness
Leader did not understand the opportunities of using the Internet and mail to extend the service.
Leaders did not understand that it was required to change with the advancements of technology.
External Opportunities
Online Distribution.
Other types of rentals (video games, educational, institutional).
Expanding video game rental.
External Threats
Other larger retailers launching into similar space.
Online digital distribution.
Online distribution.
Non profit websites that provide free video streaming.
Hulu, Amazon, and HBO are all investing in their own original productions.
Business Six-Box-Model Change
Netflix
Leadership
The organization is dominated by the CEO Reed Hastings.
Purpose
Netflix does not have definitive purpose. On October 2011 the CEO added the following to the organization web page as a mission statement “Becoming the best global entertainment distribution service.” (Netflix Inc. n.d.)
Structure
Validate mem-ship & rental plan, & determine the need to dispatch videos/DVDs sitting on que
Select videos/DVDs - On Que
Membership/ Rental Plan
Online Interface
Consumer
Warehouse
Netfix ships videos/ DVDs from consumer’s que to consumer mailbox
Consumer can return videos via free postage to Netflix warehouse
Rewards
No late fees.
Helpful Mechanisms
Video Rental by using the Internet.
Relationships
According to the research Netflix will use the social media as a source to evaluate the relationship between their customers and Netflix
Strengths, Weakness, Opportunities, Threats (SWOT)
Netflix
Internal Strengths
Despite increasing competition, per member viewing is on the rise.
Voluntary churn is the lowest it has ever been.
Netflix has the clearest brand identity ("Watch TV shows & movies anytime, anywhere") and greatest brand awareness among its competitors.
Netflix out-paces its peers in improving personalization algorithms due to its larger membership base from which it can learn from.
Compelling value proposition: $7.99 per month for the largest streaming library in the world.
Exclusive Content: Of Netflix's top ten TV shows, six are only on Netflix, and not available on Hulu owned by Disney, Amazon Prime Instant Video, or Time Warner's, HBO Go. The ratio is even higher for Netflix's top 50 TV shows.
Netflix's DVD subscription service is extremely profitable, with contribution margins around 50%.
Unlike competitors, Netflix's subscription services allow members to go all the way back to the pilot of the first season for TV shows, resulting in a more wholesome experience and increased convenience and control.

Internal Weakness
DVD subscriptions, Netflix's most profitable segment, are taking a nose dive: 8.47 million subscribers in Q3, 2012 compared to 13.81 million subscribers 1 year ago.
Original content might not pan out to be as profitable as expected.
Netflix's brand took a hard hit when they changed pricing on members. Hastings estimates that it will take three years for a full brand recovery.
Netflix's streaming subscription contribution margins are much lower than the contribution margins of its declining DVD subscriptions segment.
Non profit websites that provide free video streaming.
External Opportunities
International expansion: Though still running at a loss, Netflix's international subscriptions are growing fast--up nearly 200% in Q3 (year over year).
Original productions offer a way for Netflix to potentially increase their streaming contribution margins and connect emotionally with members. Netflix is currently in full production of four original TV series to debut exclusively on Netflix in 2013.
Lack of use of debit and credit cards is a major factor holding back further growth in Latin America. A simple cultural and technological transition resulting in increased use of credit cards could greatly propel subscriptions in this region.
Internet TV clearly seems to be the future of television, and Netflix is leading the change.
External Threats
As Hastings pointed out, "With big markets comes competition" - There is a clear transition from linear TV to Internet TV and competitors want in on the profits.
Contracts with Disney, Sony, and Universal all come up for renewal within the next five years--losing any of these big contracts could have a negative affect on Netflix's value proposition.
Hulu, which Netflix recognizes as its most meaningful competitor in the U.S., offers its members TV shows immediately after they are aired for the first time.
Hulu, Amazon, and HBO are all investing in their own original productions.
The U.K. remains a very competitive market in which it will take "materially longer" to reach profitability than it took in Canada.
SWOT Analysis Blockbuster most immediate threat came with the organization. In 2008, Blockbuster CEO Jim Keys was quoted saying “I’ve been frankly confused by this fascination that everybody has with Netflix…, Netflix doesn’t really have nor do anything that we can’t or don’t already do ourselves”. (Sidhu,2010) This quote demonstrates how out of touch the Blockbuster’s leader was with the situation that the organization was facing. The CEO was no keeping in tune with the needs of the customers and not properly analyzing with merchandize management and cause to open an opportunity to capitalize for Blockbusters’ competitors. This business culture caused for Blockbuster file tor bankruptcy several years later. According to the research done Blockbuster had the required resources to make the required arrangements to make a organizational change plan with the result of coming in front of Netflix but the CEO Jim Keys just did not wanted to do the change. Blockbuster was doome to a crash course with this business culture. There was no other way to clear away from this road block and let the organization crash and when the CEO did not had more power to control the organization then pick up what was left of the company and rebuilt from the bottom up. Netflix tried to change their organization by separating the DVDs rental and the video streaming. To the surprise of the CEO Reed Hastings the customers opposed by posting 12,000 negative comments in the social media and due the comets the CEO decided to cancel the plans. The organizational change was correct but the public was not ready for such a drastic change. The best way to address this opposition could had being by educating the consumers and probably executed the change at a time when video streaming was more popular. Blockbuster and Netflix are two different companies with different business models but both organizations have the same weakness the leadership controls the organization and the leaders could bring the organization to collapse. Further more, both organizations are facing the same external threat like video streaming. Video Streaming is becoming more popular because other organizations are providing a better price and some times is even free. Blockbuster and Netflix could had survived the leadership control but both organization are facing steep completion in the near future.

References
Blockbuster Inc. (n.d.). Retrieved from SWOT analysis http://www.yousigma.com /comparativeanalysis/blockbusterinc.html Merced, M.J. (2010). Retrieved from Blockbuster, hoping to reinvent itself, files for bankruptcy. http://www.nytimes.com/2010/09/24/business/24blockbuster.html
Funding Universe (2011). Netflix, Inc. History Retrieved from http://www.fundinguniverse.com/company-histories/netflix-inc-history.html Empson Rip (2011, July 220). Ouch: The Netflix Price Change Hangover. Retrieved from http://techcrunch.com/2011/07/22/ouch-the-netflix-price-change-hangover.html…...

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