How Netflix has Replaced the Video Rental Industry-
By: Ian Petoskey
Back in the late 1990’s, when the idea of Netflix was spreading the owner Reed Hastings wanted to team up with the owners of Blockbuster (video rental store) but, they turned him down thinking it was a horrible idea. As time went on Netflix started off slow, but when it hit 2007 the major video rental stores like: Blockbuster and Hollywood Video, the firm they had turned away had turned into a $2.2 billion company. As you can see in the chart below the audience of Netflix grows exponentially every year. Netflix gets closer and closer to knocking out video rental stores by providing similar services that takes less effort to receive, they are becoming the fall back to customers in the market. Netflix lets their customers watch whatever they want for a low of $7.99 a month and Netflix provides their own series to cheapen their average total cost. Netflix having such a low price that allows customers to watch any movie or show anytime they want had impacted the video rental industry by replacing the services that caused other businesses to lose profit.
“The number of video rental storefronts in the U.S. has dropped dramatically, to 6,122 in 2012 from 28,000 in 1999.”(Fairchild) Blockbuster believed with Netflix being in the market, families wouldn’t want to come out and rent movies for a higher price because users that use Netflix don’t have to leave their house and spend money on each individual movie. Blockbuster and other video rentals were forced to lower their prices which decreased their profits and total revenue. In the long run their business had started to have their average total cost above their marginal revenue forcing them to shut down. It was costing more to keep them running than it was to produce or sell the service because they weren’t making enough money. Hollywood Video was forced to cease their operations in 2010 right before Netflix started to be known internationally. Blockbuster had to cease their operation during 2014. Blockbuster had their breakeven price help them through four years of business until they had given up and didn’t see the point of selling their services if they weren’t making profit and Netflix was getting more popular every year. Overall, the strong recognition of Netflix has diminished the video rental industry by replacing the time and effort it takes to use the service.
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