Netflix Fights to Stay Ahead CASE

of a Rapidly Changing Market*

Synopsis: In the face of changing technology and shifting customer preferences with respect to
movie distribution, video rental giant Blockbuster fell to its ၊petition. Meanwhile, Netflix has
grown to become the top rent-by-mall and video streaming company, while other strong competitors
have emerged to dominate movie distribution via kiosks (Redbox) and online (Apple, Amazon, Hulu,
and others). Looking to the future, Netflix's survival depends on its ability to adapt to and adopt new
technology am ma*eting practices-issues Blockbuster failed to navigate due to its reactive, rather
than proactive, stance toward a rapidly changing market Netflix faces an uncertain future as the
DVD rental sector approaches the end of its life cycle. However, the company is poised to dominate
the video streaming sector for the foreseeable future. The problem is that the future changes rapidly
in this industry.
Themes: edging technology। changing consumer preferences, competitioni competitive advan∣
tage∣ product strategy, product life cycle, seMces marketing^ pricing strategy, distribution strategy,
non-store retailing, customer relationships। value, implementation

Technology has played a leading role in the evolution of the movie and rental indi
try٠ Several of the major movie production companies have now opted to bypass the
theater experience and instead promote a selection of their movies dừectly to the
home viewing audience via on-demand services, broadband downloads, or online
streaming. Through increasing disinteidation (bypassing theaters and rental
chains), movie studios stand to increase profit margins dramatically. Today there
are at least 20 major competitors in the sales and rental industry that compete with
Netflix. These include mąjor retail firms such as Walmart, Target, Best Buy, Amazon,
and Time Warner. In the rental sector, Netflix faces intense competition from Red~
box, and a variety of onlinepnly services such as Apple, Amazon, Google, and Hulu.

NETFLIX'S HISTORY
CEO Reed Hastings told F0Ế^ he got the idea for the DTO-by-mail service after
paying a $40 late fee forΛpo‰ 13 in 1997. Alŵough VHS was the popular format at
the time, Hastings heard that DVDs were on the way, ฟ he knew there was a big
market waiting to be tapped. At first he and fellow software executive Marc Ran■
dolph attempted a rent-by-mỂ service that didn't require a subscription> but it was
very unpopular The company launched the subscription service on September 23,
1999 with a flee trial for the ^rst month and found that 80 percent of customers
renewed after the trial ended. Netflix turned its first profit in 2003 HI the same quar­
ter that it reached one ion subscribers. Hastings said the company was named
Netflix because they saw the industry's future moving from the DVD format to Inter­
net streaming in the long run. Netflix introduced streaming services m 2007 after
reaching more than 6.3 ion members.

*Kelsey Reddick, Florida State University, Jacqueline! Trent, University of New Mexico, and Jennifer
Sawayda1 University of New Меисо, prepared this case under the direction of Michael Hartline and
O. C. Ferrell. This case was developed for classroom discussion, Ểer than to ilustrate either
efifective or Ìnefíective handling of an administrative situation.

碗
466 Case 14 ٠ Netflix Fights to Stay Ahead of a Rapidly Changing Maritet

Intense competition from Netflix was a n٦ģ reason that Blockbuster dropped
its late-fee program in 2005 (a shift that led to a $400 million loss in revenue for
Blockbuster). In 2006, Hastings set a goal of reaching 20 million subscribers by 2012
—a goal they would exceed. Its launch in Canada տ September 2010 helped them
reach the 20 nullion subscriber goal sooner than expected. Quarterly sales topped
$320 million in late 2008, foUowed by $394 mülion during the first quarter of 2009.
Even more in٦pressive‫ و‬Netflix managed to increase sales at a time when the entire
movie rental industry experienced an 8 percent รฝ6ร decline.
Today, with more than 62 iTÓllion members, Netflix touts itself as the world's
largest online entertainment subscription service, ฟth operations ๒ more than 50
countries. It also announced it was making its streaming video service available in
Cuba in light of the improving relations between the United States and Cuba.
Although ■is is more of a soπτι⅜ since Cubans do not have credit cards and the
island has low-quality hternet service, Netflix predicts that Cubasi economic condi­
tions will improve and become a viable market for the organization.

EARLY STRATEGY
Netflix built its success around online movie rentals with expedited delivery of
DVDs. DVDs were first introduced to the United States in March of 1996. In 1997,
few ⅛erican households owned DVD playe1*s as they cost more than $1,000 at the
time. In addition, few movie titles were available on DVD. However, Hastings and
Randolph successfully predicted that the format would quickly replace the compara‫־‬
tívely low quality, bulky, æ٦d cumbersome VHS format among American consumers.
A key factor in Netflix's strategy was that the DVD's compact size made the U.S*
Postal Service a viable delivery method. It experimented with 200 different mailing
packages in order to perfect the packages for disc safety, shipping cost, and reliabil­
ity. On April 14, 1998, Netflix officially opened for business with 30 employees and
925 titlebthe majority of DVDs rn print at the time. Initially, Netflix offered a 7-day
rental for S4 plus $2 in shipping, with per item prices decreasing with each additional
title. They offered no-hassle “time-extensions” rather than punitive and costly ulate-
feesJ which had been the mdustry standard and a big revenue generator.
During the initial period, when demand was low, Netflix fomied strategic rela­
tionships that were important in expanding the DVD market and ensuring its early
success. The company forged cross-promotional agreements with DVD hardware
manufacturers and studios, offering free NeỄx rentals with purchases of DVD
players from manufacturers such as Toshiba, Hewlett-Packard, Pioneer, Sony, and
Apple to help get DVD players in American homes. It also teamed with studios to pro­
mote high-profile films and with online movie information∕review providers to funnel
movie-interested Internet traffic directly to Netflix. The company ฝร0 erijoyed signif­
icant positive publicity in 1998 when it offered videos of President Bill Clinton's
grand juty testimony for 2 cents, plus $2 shipping and handling.
In September of 1999, Hastings announced that Netflix had achieved economies
of scale and could now offer subscription services, A few months later m early 2000,
it dropped the pay-per-title model entirely and began to market itself as an unhmited
subscription service, completely free of due dates, late fees, shippmg charges, and
per-title fees. At that time, Netflix charged $19.99 per month for three DTOs at a
time and added its less expensive one- and two-DVD options a short time later.
Bob Pisano, a former MGM executive and sitting president of the Screen Actors
Guild, jomed the Boaιd of Directors of Netflix in 2000. Pisano cultivated relation­
ships with the studios, and in December, Netflix signed revenue sharing agreements
with Warner Home Video and Columbia Tri٠Star٠ This enabled Netflix to consistently
and more profitably fill the short-lived new release demand peak. Agreements with
other studios would soon follow.
 Case 14 ٠ Netflix Fights to Stay Ahead of a Rapidly Changing Market 467

OPTIMIZING DISTRIBUTION
In 2002, Netflix reached the roestone of 500,000 subscribers. It made its mitial pub-
lie offering in March, raising $82.5 million on 5.5 million shares. On June 20, 2002,
Netflix announced the opening of 10 additional warehouses throughout the country.
The company situated its warehouses to supply as many c≡tomers as possible with
overnight first-lass DVD delivery because its per-capita subscription rates were
much higher in markets with overnight delivery. As competitors entered the market
over the next couple of years, Netflix was already refining its processes and opening
more distribution centers to better serve its expandmg subscriber base more pro£
itably and quickly.
The location of these distribution centers has always remained a mystery. Net-
flix employees sign 8nfidentiaHty agreements when hired, and the exterior of the
warehouses themselves are nondescHpt and are designed expressly to camouflage
the building's function. Although Netflix was conceded with trade secrets early on,
fo≡r Vice President of Communications Steve Swasey explained in 2009 that Net.
flix was akeady so ahead of the competition that it was not woιτied about industrial
espionage. Rather, it is more worried about the possible Iruption of processes
when customers show up and expect to be able to drop off the DVDs directly at the
warehouse, rather than through the U.S. Postal Service.
In 2003, Netflix hit one million ¡subscribers. C^tomers appreciated the low-cost
subscription fees, the ease of returning DVDs, and the eiimination of late fees. In
2003, Netflix was awarded a patent for its preference tracking software and by ^d-
summer possessed a library of 15,000 titles.

TAKING DOWNAGIANT
Entrepreneur David Cook opened Blockbuster, foιrly the dominant movie rental
company, in 1985. Noting the opportunities in the rental market, investor Wame Hui-
zenga invested $18 million in the startup and helped the company expand from 130
stores to more than 1,500 in about 3 years. When former Walmart CEO Bill Fields
took over in 1996, Blockbuster was repositioned as a retail establisbent. This
vision, as well as Fields's tenure, was short-Hved. John Antioco, Fields's successor
who took over in Éd٠1997, refocused the company on video and game rentals; this
strengthened and soHdified the firm's strategy and aliowed Blockbuster to success-
fully navigate the transition from VΗS to DVDs in the late 1990s through the early
2000s.
The home entertainment business continued to evolve, and Blockbuster's
revised mission was to be "the complete resource for movies and games." Recogniz-
ing the growing threat posed by Netflix, Blockbuster began to experiment with a
nonsubscription online rental service with a postal deHvery component in the United
Kingdom. Most of Blockbuster's success during this period was attributed to its sue-
cessftιl positioning as the market leader, combined with strong growth trends in the
gaming industry. In 2004, Blockbuster finally entered the online movie rental busi-
ness in a bid to compete more directly with increasin^y competitive Netflix. How-
ever. Blockbuster continued its focus on its bricks-and mortar stores by offering
Qnline renters the option of two free in-store rentals each month, designed to cater
to impulse home entertainment demand. The mix of in-store rentals and Blockbus-
ter,s new önüne offering was considered a competitive advantage over Netflix.
Antioco unexpectedly left Blockbuster in 2007 ^d was replaced by James Keys,
previously the "turnaroιmd artist" for 7-Eleven. When Keyes began as CEO, Block-
buster was racing serious dicữes: its stock price had fallen more than 83 percent
in me years between 2002 and 2007, and it had made the strategic decision to close
nearly 300 stores in both 2007 and 2008. Netflix had quickly become one of
Case 14 ∙ Netflix Rghts to Stay Ahead of a Rapidly Changing Market

Blockbuster's most serious competitors. Due to competition from Netflix, Block-

buster chose to drop its late fees; this resulted in an astogdi∩g $400 ion loss
for Blockbuster, as well as legal problems. Even as the movie rental industry began
to lose its growth trajectory ฟ move into the decline phase, Netflix enjoyed strong
growth. Netflix's advantages over Blockbuster's offerings included renters' access to
an unlimited number of movies upon subscribing; convenient, automatic, and free
shipping once a movie is retumed via the postal service; extremely fast tumaround;
and a broad distribution network.
In the end, Bbckbuster failed to adapt to the changing market and declared
bankruptcy in 2010 after facing $1 billion in debt. That same year, Netflix reached
20 ion members, up 63 percent from 2009, and launched Services in Canada
Blockbuster was eventually purchased by Dish Network, but this ^iled to save the
fi1٠ Blockbuster shuttered its final 300 stores, although it continued offering Block-
buster on Demand video streaming.

NETFLIX CHANGES ITS BUSINESS MODEL

Netflix CEO Reed Hastings correctly anticipated the new technology entering the
home entertainment industry. A study from IHS Screen Digest suggested that by
2012, online movie streaming in the United States would exceed both DVD and Blu-
ray use Hastings expected that Netflix's DVD subscriptions would decline steadily
over each quarter as new technology diffused into cons≡ers' homes. At that point,
Hastings made a strategic decision that he woωd later regret.
In 2011, Netflix attempted to move its DVD-by-таИ business into a new subsidi-
ary called Qwikster that would focus solely on DVD∙by∙mail services. This move
would free Netflix to focus on the streaming side of the operation. 1ie this sup”
ported Hastings's vision of an all-streaÉg future, it led to a price increase of 60 per-
cent and took away the convenient and valued one-stop shopping experience for
subscribers who used both DVD-by-mail and streaming.
Netflix suddenly announced the decision to split the services in 2011. Ironicky,
in the past, Netflix had used focus groups to research how the market might respond
to a pỂcular decision. This time, however, Netflix reHed on data showing that 75
percent of consumers preferred streaming, íe this data is likely true, it failed to
account for how consumers would react to the change. In addition to spotting into
two companies, Netflix announced a price Ecrease for one of its most popular sub-
scription packages. Instead of paying $9.99 per month to receive movies either via
streaming or DVD-by-mail service, interchangeably, customers would now pay $7.99
per month fbr each service. Netflix implemented the price adjustment and started
the process of spinning off Qwikster in August 2011.
The customer backlash was swift and dτamatic. Customers were angτy at what
they perceived to be a drastic price increase. The outrage worsened after e-mails
were sent to Nel subscribers containing an apology from Hastings for not explain-
ing the reasoning behind raising prices. The e-mail also announced the splitting of
the two companies. Rather than placating customers, many became angrier. They
did not like the idea of moving between two websites—Qmkster for DVDs and Net”
flix fbr streaming. The company lost 405,000 paid subscribers in a matter of weeks.
Investors doubted the move, and Netfüx's stock price plummeted by 26 percent in a
single day following the release of the thỉrd^uẾr fîniíal report.
Qwikster was given the boot after only 3 weeks as Netflix finally acknowledged
that the change would be inconvenient for customers. Yet, the blunder cost NeẾ
its status as a W^ Street darling. The company ⅛aded at almost $300 per share
before the Q٦vikster announcement. By the thừd quarter of 2012, it traded in
the $50 to $60 range. Although Netflix chose to stay as one company, it maintained
the price increase for its subscription package, forcing customers who only want to
 Case 14 ٠ NeWix Πghts to Stay Ahead of a Rapidly Changing Martot 468

pay $7.99 per month to choose either DVDs or streaming. Despite the Qwikster fail-
ure, the price increase has led to modest success for the company. In 2012, Netflix
reported a 1.7 percent decrease in paid subscriptions and an 11.9 percent increase
in revenue per customer. This resulted in a net increase in revenue of 10 percent
and a 15.4 percent increase in proat margin.
Nel was able to recover from this debacle，finishing 20]] with eamings above
expectations. Yet the smpany received another blow when it settled a class action
lawsuit over consumer privacy issues. The lawsuit claimed that Netfĩix was retaining
records of subscribers' DVD and streaming videos 2 years after subscribers can-
ceUed. According to the lawsuit, this vhlated a provision of the Video Protection Pri‫־‬
vacy Act stating that personally identifiable infomnation must be deleted after 1 year
of cancellation. Nel reached a $9 Ểon settlement without admitting guilt.

INTENSE COMPETITION IN THE MOMIE RENTAL INDUSTRY

In the movie rental industry, many companies have come and gone since the 1980s.
Netflix has always been the number one DVD-by-maU rental company, but as the
market continues to evolve and steaming becomes the preferred format, the com-
pany finds itself in an ever-changing market. The onset of competitors in both the
DVD rentai industry and the oỀe streaming industry has created new chaΠenges
for Netflix to address.

REDBOX
Whether you are getting gas at 7-Eleven, buying groceries at Walmart, or picking up a
prescription :from Waigreens, your favorite movie or video game maybe available for
a few do□ars at a Redbox kiosk. Each kiosk holds 630 discs, with about 200 different
movie titles. Customers pay around $1.50-$3.00 for video games-and can return
movies to any Redbox kiosk anywhere in the country. Customers can even reserve
movies onJine before visiting a kiosk. Since its initial launch with just 12 kiosb, Red-
box has grown to more than 40,000 kiosks nationwide. That level of penetration max-
imizes convenience for customers, who now rent movies while they are out doing
other things.
Surprising, the idea fbr Redbox began as a new business venture for McDo֊
nald's in 2002. At that time, McDonald's was experimenting with vending machines
to sen a variety of different items. After the concept proved to be a success, Redbox
was sold to Coinstar—a Bellevue, Washington, company that also operates coin-
counting machines and gift cam dispensers. Soon after. Coinstar developed deals
with Walmart, Kroger, Winn-Dixie, Wa⅛reens, Kangaroo (gas stations), and other
national outlets to place Redbox kiosks in high-traffic locations. As it turned out,
the timing couldn't have been better. As a consequence of the most recent economic
recession, customers who began to reconsider their $15 per month Netflix plans or
$5 DVD rentals from Blockbuster suddemy saw the $1 Redbox rentais as a bargain
(prices later increased to $1.50).
Redbox has achieved strong sales growth in a short time: from 200 million cumu-
lative гепЫз in 2008, to 500 ioπ in 2009, to 1.5 bin total rentals in 2012. How-
ever, Redbox's growth has remained relatively flat since then as DVD rentals have
declined due to the increase in streaming services. In 2014, Redbox responded with
a new customer loyalty program caιed Redbox Play Pass. The program gives fre-
quent users one free night's rental for every 10 rentals.
After Blockbuster declared bankruptcy in 2010, NCR acqmred the company's
Blockbuster Express kiosks. NCR then sold Blockbuster Express to Redbox for
$100 гаШоп in 2012. Meanwhile, to remain competitive with streaming, Redbox
470 Case 14 ∙ Netflix Rghts to Stay Ahead of a Rapidly Changing Market

attempted to introduce a streaming sernce cỀd Redbox Instant by Verizon, How·

ever, the service failed to catch on and was shut down in less than a year.
InteresỀgly, when Redbox initially announced a 20 percent price increase from
$1.00 to $1.20, the company experienced a far different outcome than Netflix experi­
enced. Redbox handled the announcement more smoothly than Nel, stating that
the change was necessary due to new regulations on debit card fees passed in the
Dodd-Frank Wall Street Reform and Consumer Protection Act (consumers pay
using their credit or debit cards). The regulations increased the cost of using a debit
card for small purchases. However, Redbox actually raised its prices higher than
what was needed to offset the debit card cost increaề Yet, by positioning it as a пес-
essary move, Redbox avoided consumer backlash. While it is currently struggling to
maintain growth against streaming services from Netflix and other competitors. Red­
box maintains a 38 percent stake in all movie rentals. One major benefit that custo­
mers appreciate is that Redbox receives new releases nine to 10 months before they
are available for streaming.

FULLY DIGITAL COMPETITORS

If trends ե the movie rental industry continue，digital downloads will replace DVDs
as the de facto standard for movie rentals. While Netflix clearly recognizes this trend
and is making changes to establish a, competitive advantage, so are many of its com­
petitors. Recently, the market has become crowded with offerings from Apple, Ama-
Z๐Ո‫ و‬Hulu, YouTube, and Google Play.
A number of well-known firns offer downloadable movie rentals, Apple, for
example, offers thousands of tides in both standard and high-delon fomiats via
its iTunes store. Apple's key advantage is that iTunes works seamlessly with the mil­
lions of iPods, iPhones, and iPads that have sold in recent years. What Apple is miss­
ing, however, is an easy way to connect its handheld devices to older televisions-
many of which do not have wireless connectivity or even HDMI ports.
Amazon offers titles for rent via its Instant Video service. Amazon's original
advantage was its partnerswp with Roku's Digital Video player that allows consu­
mers to wirelessly stream Amazon movies to their televisions. The Roku, starting at
$49, now supports Hdu Plus, Netflix, Amazon Instant Video, HBO GO, and more.
Amazon Prime Instant Video can be streamed via Internet> Kindle Fire, Roku, PlayS.
tation 3, and on connected TVs and Blu-ray players. With the addition of their sub­
scription Service Amazon Prime, which provides members with free 2-day shipping
for $79 annuaUy, customers can also enjoy Prime Instant Video titles.
In 2007, NBCUniversal, Fox Entertainment Group, and Disney∣ABC Television
Group joined forces on a new venture called Htdu (www.hulu.com), which has expe­
rienced a steady groỂ since its inception. Hulu is an ad-supported, web-based ser­
vice that provides access to movies and traditional broadcast shows such as ^eyis
Anatomy The Qj^ce, Gleei and 3ORock free of charge. Hulu also offers a video menu
exceeding 350 content companies including such names as ABC, NBCj FOX, MGM,
and Sony. The company launched Hulu Plus, an ad-supported subscription service,
in November 2010 for $7.99 a month. Unlike its free online service，Hulu Plus allows
users to watch programs on connected TVs and Blu-ray players, gaming consoles,
set-top boxes Uke ๒๒, mobile phones, and computers with liimted advertising.
While Hulu.com typically offers the five most recent episodes of a series in standard
deloni Hulu Plus generally offers ah episodes in the current season, տ high defi٠
nition when available. Its competitive advantage is that it offers access to more tele­
vision programming than Netflix (its television catalog consists of over 2,900 TV
series).
YouTube and Google Play rental serace are other major competitors in the digi­
tal realm. Paramount Films added 500 filn^ to the site, which now sits at thousands
 Case 14 ♦ Netflix Fights to Stay Ahead of a Rapidly Changing Market

X
of titles. Paramount joined Disney, Sony, Wir Brothers, NBCUniversal, id 20th
Century Fox in partnerships with YouTube. Google also began to seH movies through
Google Play, a new one-stop entertainment shop. With Google Play, users can rent or
purchase high definition movies, accessible via any Android device or through the
web. Users can also purchase music, download AndroM apps, and purchase
e-books to read on a tablet, phone, e-reader, or the web. Googte Play stores all
music purchases and up to 20,000 songs from the purchaser's iTunes, Windows
Me^a Player, or folders with the help of the Goo^e Play Music Manager.
While Netflix might have had first-mover advantages, other companies seem to
be catching up in terns of their digitai product offerings. Nel will need to con-
stantly innovate in order to remain one step ahead of the competition.

ANALYZING NETFLIX'S MARKETING STRATEGY

Netflix's target market includes consumers with internet access and a penchant for
movies. Nel has been moving away tan its DVD-by-mail service—although it is
still an important part of its strategy—and emphasizing its streaming services. Its
website promotes its streaming services for $7.99 per month, while its DVD services
seem more se8ndaιy. Netflix currently has 62 ion subscribers for streaming in
the United States, Canada, the United Kingdom, Ireland, Latin America, and more.
Netflix is also eyeing the Chinese market, which would significantly boost its number
of subscribers.
Many analysts now consider Netflix's mωtiplatfoπn streaỂg capability to be
one of its major 8mpetitive advantages. Nel streaming can take place on televi-
sions, iPhones, Nintendo Wii, iPads, Xboxes, or online. The process is seamless,
meaning that a consumer can easily move from one platfbrm to another. A study
jointly conducted by CBS, The Nielsen Company, and The Cambridge Group found
that two segments, amounting to 40 ion U.S. households, have high demand for
multipla^omι streaming content. The demand for r∏ωtiplatfom streaming continues
to grow, making this a high potential growth segment for Netflix.
Netflix continues to expand the 8ntent it offers to subscribers. While Netflix
must wait a certain peHod fbr new DVD releases, it has developed lucrative partner-
ships with movie studios and content providers. DreamWorks began licensing its
films and shows to Netflix in 2013 and agreed to release its new animated series
exclusively through Nel According to Lanciai reports, Netflix spent approxi-
mately $3 billion on television and film content in 2014. Considering the rising cost
of content licensing and the ability of original cable television programming to
attract subscribers, Netflix is adding original programming to its streaming offerings.
Unlike with Qwikster, however, Netflix has retumed to its роНсу of ρerfbmιing mar-
ket research. For instance, it conducted an experiment addmg an original program to
its streaming service. The program received enoι^h views for NetfHx to declare the
experiment a success and commit to more programs. Netflix released its popular
television series Orange む the New Black and has begun to partner directly with
producers to develop fams such as ‫سج‬٠ Тїдем Hidden Dragon: The Green
LegỂ
While competition for Netflix has been increasing, Netflix is showing that it
will not give up market share without a fight. According to a recent consumer sat-
isfaction survey, Netflix rates higher than video-on-demand and premium broad-
cast channels because of its comparatively low cost and viewing flexibility.
Although the company's market share in physical DVD rentals is dwindling (Net-
flix did not allocate any money to market its DVD business in 2014), it has about
58 percent of the video streaming market share. The cost and multiplatfoι*m flexi-
bility benefit that Netflix offers is significant enough to affect consumer
decisions.
472 Case 14 ٠ Netflix Fights to Stay Ahead of a Rapidly Changing Marke⅞

NETFLIX'S FUTURE
As Nei lo0ks toward the future, the decline of the DVD will continue to present a
challenge- Although Qwikster was an instant flop, the company พผ eventually have
to phase out its DVD-by-mail business when it is no longer profitable. The continued
growth of streaming options, from Amazon Instant Video to Google Play, and rental
kiosk giant Redbox offer increases m movie-renting convenience for consumers.
However, Netflix continues to maintain its competitive edge with significant rnÉet
share in online videos, streaming, and video rentals. Its decision to develop its own
ongmal content demonstrates its willingness to embrace market opportunities.
The backlash that Netflix experienced after its price increase and failed plan to
split the company shews that the company must carefully evaluate its marketing
strategy. Failing to accurately predict consumer reaction could lead to future deba­
cles. Netflix will also have to foster various content provider relationships and proac­
tively search for newer, better opportunities. The heart of this ch^enge is simple in
concept but difficult to execute in practice: Will Netflix remain innovative enough to
compete in such a highly saturated market?

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QUESTIONS
1. What role wW Redbox play in the development of Netflix's strategic plans? How
threatening is Redbox to Net‰'s future
2. How will new competition from digital content providers force Netflix to alter its
strategy?
3. What new opportunities do you see in the movie streaming business, or the
entertamment industry as a whole?
4. Do you think Netflix WÜ1 remain the dominant force in both streaming and movie
rentals? Why or why not?
5. What could Netflix have done differently to ensure Qwikster's success?