Novice Investing - Netflix Busts Blockbuster Online

Date: Friday 29th 2008f August 2008 02:09:42 AM

Netflix Busts Blockbuster Online - 04/06/2006

By: Novice Investing Staff

After blocking blockbuster's threat, Netflix decided to go on the offensive. Netflix sued Blockbuster for violating its patent on online movie rental. That sure will put Blockbuster on the defense. Blockbuster launches its online rental on 2004 and it has since generated $ 300 Million in revenue. While Blockbuster had an annual revenue of $ 5 + Billion, Blockbuster online is the fastest segment of revenue growth for Blockbuster. Furthermore, it allows Blockbuster to compete against online offering from Netflix. If Netflix win this lawsuit, it will create barriers for other competitors to enter this arena. Thus, it will strengthen its position in online movie rental or other online entertainments for that matter.

What should Blockbuster do? Its brick and mortar stores are losing visitors as online movie rental grow. But, Netflix will not win the suit easily. For one, Blockbuster online had been around for 18 months. Lawyers might question why it took Netflix this long to bring the suit. It was reported that Blockbuster had spend $ 300 Million to build the brand for its online operation.

Blockbuster and fellow brick and mortar Movie Gallery has been feeling the pinch of online movie rental for a couple of years now. Both stocks had fallen more than 50% and their balance sheet is highly leveraged. If Netflix won this suit, it will be the last nail in the coffin for both Blockbuster and Movie Gallery.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Netflix Inc. (NFLX) or any other securities.

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