Has Netflix Killed Blockbuster?

Ever since Netflix came onto the scene back in 1999, Blockbuster has been feeling the heat to catch up with the changing times. No longer would people put up with the insanely-high late charges or even trips to the store to rent a movie. Netflix brought it all to the web with no time restrictions or motions towards the car.

Since then, Blockbuster has tried eliminating late fees and its own online service with Total Access, but all of this still has not proven to be enough. As of September 30, 2007, Total Access had just 3.1 million subscribers compared to the 7.03 million people using Netflix. After third-quarter earnings for 2007 were released, Blockbuster saw a 5.7% decline in revenue with a net loss of $35 million, while Netflix revealed a 22.7 percent gain in net income with $15.7 million in profits.

As Don Reisinger has reported today that Blockbuster as we know it may now be nearing its end, it seems that Netflix is reveling in its glory as Blockbuster switches back to a focus on its retail business and overall membership as it struggles to survive.

“Going forward, we are focused on protecting our core rental business, developing new retail opportunities,” said Jim Keyes, Blockbuster Chairman and CEO. “To this end, we have launched a series of initiatives centered around product availability and increased emphasis on our retail business.”

At the same time as Keyes' realization, Netflix is surpassing analysts earnings expectations, and Netflix CFO Barry McCarthy even stated that “faster subscriber growth in Q3 was accompanied by significantly lower marketing spending… Subscriber acquisition cost of $37.91 was the lowest it?s been in eight quarters, and total marketing expense decreased by $10.2 million.” If this company was able to post impressive stats during a time of heavy competition from Blockbuster, then there is no telling what the future may hold.

Meanwhile, Blockbuster's stock price continues to drop, it has already closed a total of 526 stores this year, and it will soon reduce its staff to offset high overhead costs. This is definitely not a good sign for the company of a CEO who stated , “I am pleased with the progress we have made both strategically and financially and believe we are on our way to transforming Blockbuster into a company that is able to generate total revenue growth.”

Netflix has its future planned out, which includes offering more online, downloadable content and making it easier and more cost-efficient for users to view that content on a television set. As Don Reisinger wrote at CNET, Blockbuster's only option may be to “spend huge sums of cash on research and development and strategic partnerships with distribution companies to make downloading movies a viable alternative to Netflix.”

Don't expect Netflix to fall off of its rightly earned pedestal anytime soon though. “It took several years for us to turn our DVD rental business profitable and our online video expansion may take just as long,” said Netflix CEO Reed Hastings.” We now have more resources, bigger competitors, and a much bigger prize to earn.”

What do you think? Can Blockbuster survive or is the company really on its last leg?