Netflix and Blockbuster: Battling for Sole Control

Some sectors are composed of literally tens and hundreds of stocks, while others only have a few. On the one hand, the Semiconductor sector is broken down into multiple groups, like Specialized, Memory or Equipment, each with its own group leaders and laggards. In other groups, there are only two companies to choose from. Competition and choice are two dynamic forces with a huge sway over the market; interesting things begin to happen when the consumer is only presents with 2 choices.

Consider when Apple and Microsoft were vying for control of the PC world, or when Sirius and XM Satellite Radio radio were both launched. In both situations, consumers could distinguish between 2 major competitors, and had to choose which product or service to buy. Even today, the Apple/Microsoft ads on television go a long way in proving that this type of dichotomous market structure can have a huge influence on what we buy and how we think.

Now that we are thinking on the same page, let's take a look at the Music & Video Store sector. Using our PowerRatings (for Industries) sector breakdown, we count only 2 companies in this sector, both of them household names. Blockbuster (BBI@BBI | Quote | Chart | News | PowerRating) and Netflix (NFLX@NFLX | Quote | Chart | News | PowerRating).

Blockbuster and Netflix are currently battling for control of the DVD rental market. For many years, Blockbuster was the veritable king of the VHS and DVD rental sector. Some competitors appeared on the market, but none of them could put a real dent in Blockbuster's market share. Netflix was launched in 1999, and by the end of the year had over 200k subscribers. Netflix reinvented the way people rent movies, and Blockbuster's profits, market share and stock price plummeted as a result. Since making record highs in 2002 (the year Netflix went public), Blockbuster has fallen around 75%.

The Music & Video Store industry has a PowerRating (for Industries) of 10. From 1996-2006 industries with a PowerRating (for Industries) of 10 have achieved an annualized return of 35.27% based on 3-month historical returns. A PowerRating (for Industries) of 10 is the best rating achievable, so it would be a good idea to check out the stock charts and research the group to determine if there are any opportunities for you.

Blockbuster (BBI@BBI | Quote | Chart | News | PowerRating) has a PowerRating (for Investors) of 5.

Netflix (NFLX@NFLX | Quote | Chart | News | PowerRating) has a PowerRating (for Investors) of 4.