If you have had a chance to read the Q3 Earnings Reports for both Netflix and Blockbuster you undoubtedly noted the glaring difference in strategies between the two competitors. While Netflix continues to concentrate on growing subscriptions, Blockbuster has decided to less narrowly focus on the online channel and continue to use the brick-and-mortar stores as its competitive advantage. Both camps, however, plan to further invest in the new digital delivery medium.

To summarize the two reports, below is a CEO quote from each company’s Q3 Earnings Transcript.

“At a high level, our strategy is to build a very large DVD rental subscriber base and to bundle in the ability to watch those movies online.” - Reed Hastings - Netflix, Inc. - Chairman, CEO

“…our pursuit of by-mail subscribers was a bit overzealous. Clearly our spending on that one channel was exceeding our returns.” - James Keyes - Blockbuster Inc. - CEO

Compete data reflects the combating strategies of the two DVD rental giants. Since June 2007, site traffic of Netflix.com and Blockbuster.com has further divided as Blockbuster reels in its online channel marketing spend. In October, Netflix hosted four times the site traffic of Blockbuster.

Despite differing strategic blueprints, both Netflix and Blockbuster agree on the importance of the up-and-coming distribution channel; digital delivery. Netflix rolled out Watch Instantly (formerly Watch Now) in early 2007 and has managed to garner a significant volume of early adopters. Although download interest peaked in August of this year, actual usage of the product continues to climb month-over-month. There are currently 450,000 Watch Instantly users each month in the US.

Following suit, Blockbuster has announced plans to integrate the recently acquired movielink.com into Blockbuster.com as early as Q1 2008.

If DVD rental market share were a war, there have been several clear battles fought thus far. The first, being the brick-and-mortar battle, was won by Blockbuster. Netflix came on the scene and quickly declared victory in the second battle, online subscriptions, when Blockbuster waved the white flag in their Q3 Earnings Report. An imminent third battle is on the horizon, and the platform is digital delivery. Thus far Netflix has had success in the space but it is far too early to name a victor as Blockbuster’s counter attack has not yet been rolled out.

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