Case | HBS Case Collection | May 2007 (Revised April 2009)

Netflix

by Willy C. Shih, Stephen P. Kaufman and David Spinola

Abstract

Reed Hastings founded Netflix with a vision to provide a home movie service that would do a better job satisfying customers than the traditional retail rental model. But as it encouraged challenges it underwent several major strategy shifts, ultimately developing a business model and an operational strategy that were highly disruptive to retail video rental chains. The combination of a large national inventory, a recommendation system that drove viewership across the broad catalog, and a large customer base made Netflix a force to be reckoned with, especially as a distribution channel for lower-profile and independent films. Blockbuster, the nation's largest retail video rental firm, was initially slow to respond, but ultimately rolled out a hybrid retail/online response in the form of Blockbuster Online. Aggressive pricing pulled in subscribers, but at a price to both it and Netflix. But a new challenge was on the horizon: video-on-demand. How should Netflix respond?

Keywords: Business Model; Film Entertainment; Disruptive Innovation; Growth and Development Strategy; Distribution Channels; Service Delivery; Renting or Rental; Competitive Strategy; Motion Pictures and Video Industry;

Citation:

Shih, Willy C., Stephen P. Kaufman, and David Spinola. "Netflix." Harvard Business School Case 607-138, May 2007. (Revised April 2009.)