Our family recently decided to get back to renting DVDs after a somewhat long pause (we had a second child and could not find time to watch movies). I consider us pioneers in online renting – angered by a somewhat stiff late fee at the local video store (just like the ad :-)), we signed up for Netflix pretty early on. We loved the online renting model and enjoyed it for a long time until we found we were not really doing justice to the $20+ monthly fee we were paying. So we quit.
This time around, realizing there were other options besides Netflix, I took the opportunity to research all of them and found Blockbuster’s model the best by far. After struggling to find its place when Netflix became a significant player, I think Blockbuster has come back with a virtually unbeatable model – it has cleverly combined its online and in-store rental businesses to offer fantastic value and flexibility to customers. I pay around $10 a month. I get to rent one movie online and whenever I’m done with it, I get to exchange it for a free movie in-store and the next movie on my online queue is immediately shipped to me (no waiting for the movie to get back to their warehouse). Plus, I get to rent a bonus movie free from the store every month. Blockbuster does not come out a loser either; invariably, when I’m in the store, I pick up another movie, paying the normal fee for it – so they get some more revenue from me.
I think this is a great case study on how a company faced with disruption has been able to not only find a way to compete effectively but also get to a position of great strength. Of course, the new disruptor for all of these guys is video over the web …