Accy303 - Blockbuster and Netflix

Accy303 - Blockbuster and Netflix - DEPARTMENT OF...

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DEPARTMENT OF ACCOUNTANCY UNIVERSITY OF ILLINOIS MEMORANDUM TO: Prof. Laura Li FROM: Yue Deng DATE: Feb. 9 th , 2011 SUBJECT: Financial Statement Analysis on Blockbuster and Netflix INTRODUCTION The objective of this memorandum is to analyze Blockbuster and Netflix’s financial statements and evaluate their financial performances. The analysis will include: competitive environment these two firms face, key financial statement accounts, and major financial ratios. COMPETITIVE ENVIRONMENT Headquartered in Dallas Taxes, Blockbuster Inc. is a leading global provider of rental and retail movie and game entertainment, with over 7,400 stores in 21 countries. Netflix Inc., on the other hand, is a California-based company that offers online movie rental subscription service within the United States. Blockbuster and Netflix are leading firms in the video rental industry and has competed furiously since 2000. Blockbuster was founded in 1987 when the movie rental industry was dominated by regional, small-scale operators. It adopted the traditional brick-and-mortar business model in the early stages of development. With the advantage of greater selections and quicker services than its competitors, Blockbuster soared in the 80’s and 90’s. As information technology radically revolutionized in the 2000’s, Blockbuster starts to diversify from its core business into movie and game retail due to declining revenue and anticipated consolidation in the in-store rental industry. Moreover, it expands its distribution channels by adding online movie rental subscription service and begins to provide alternative delivery methods, such as mail-in and digital downloading. These structural changes targets on obtaining greater market share and improving competiveness in the film rental industry. Nonetheless, the majority of movie rental income is still derived from in-store transactions. Unlike Blockbuster, Netflix is an online-based company which offers both online video rental and on-demand video streaming over the internet.
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Prof. Li Feb. 9 th , 2011 Page 2 Therefore, the company does not require tangible store sites. Distribution centers nationwide hold the DVDs and are responsible of direct delivery. Both Blockbuster and Netflix have unique success factors that enable them to compete in the movie rental industry. As I explained earlier, Blockbuster succeeded by elevating the industry standards through providing greater movie selection and quicker customer service. Stemmed from its initial success, Blockbuster managed to build brand reputation and customer
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Accy303 - Blockbuster and Netflix - DEPARTMENT OF...

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