The consumer simply selects the film using the hand-held remote for the cable box and watches it right away. Some systems are able to empower the viewer to pause and rewind as well, just as if he or she were watching a DVD and not a signal from a central location. This is very convenient and immediate, and it may also be cost-effective when compared to driving to the video store and renting a film. This competitor is still limited in each, for not everyone is on a cable system that has this capability, though more and more will be in the coming years. Blockbuster has to be prepared for that eventuality. An even greater threat might be found in the possibility of downloading films onto a home computer for burning or playing, though this technology so far is too slow for most uses. Even a small movie file can take more than two hours to download even with a cable connection, and larger films can take many hours. This is far too slow for most consumers and not convenient at all. However, as the bandwidth increases so that downloads become more viable, Blockbuster will have to recognize this as a real threat and will have to incorporate this competition into its business model. One way would be to crate its own download service.

Indeed, that is how Blockbuster has met competition from another source, that being Netflix. Netflix pioneered a system by which the consumer selects a list of DVDs from the company website and then the company sends a set of DVDs to the consumer. The consumer watches these and then returns them in the prepaid envelope. Blockbuster saw its rentals diminishing because of this system and undertook corrective action. First, Blockbuster stopped charging late fees, on the theory that part of the appeal of Netflix was that the consumer could keep the films for a while before sending them back and was not faced with any late fees. Then, Blockbuster developed its own mail-order system, using its website and sending films just as Netflix does. Indeed, recent television commercials state this openly, noting that Blockbuster...

However, Blockbuster has also sought to increase its share and reduce that of Netflix by having an added element to appeal to consumes. On one level, Blockbuster online works the same way Netflix works. However, Blockbuster has something Netflix does not, that being actual brick-and-mortar stores. These have been seen as a liability, but in this case, Blockbuster has managed to make them an asset by giving consumers the option of taking the films received in the mail to a store, turning them in, and receiving a rental for each DVD for free. The returned DVDs are then input into the system so that the online store sends out replacement films immediately. This effectively gives the consumer twice as many rentals for the money, with added convenience for the movie-lover of getting films right away. In effect, Blockbuster has turned the liabilities of going to the store, renting films, and having to return them to the store into positives.
Strategic Recommendations

Analysts still believe that the brick-and-mortar rental store is doomed in the long-term, but Blockbuster has mounted an effective challenge to the new competition from Netflix and so may be in a better position to cope with the next threat to develop in this market. As noted, the company may be in a good position to begin offering more fare for download once that possibility is realized more widely. Even if the physical stores lose their appeal as some believe they will, the company may survive by adapting to a changing market. Blockbuster has to monitor public tastes to recognize when a different business model will serve. The company must also monitor new technologies to know what to provide and in what form as the battle over such new formats as Blu-Ray and HDVD try to gain traction. Backing a technology too early can be harmful as well, as Blockbuster discovered when it tried to support the DivX format, a DVD that could be viewed only a limited number of times before it locked up. Consumers did not want it, and the format died.