Case Study For End Term Exam BBA-IV-BCom IV

Go through the case …and be prepared for questions on exam time tomorrow..
EXAM QUESTIONS WILL BE ON VLE
Blockbuster Inc. is a leader in the field of video and video disk rental. With approximately 27 percent of
the U.S. market share, Blockbuster operates about 6,500 video stores, serving more than 87 million
customers in the United States, its territories, and 25 other nations. Founded in the mid-1980s as an
alternative to small, local operations with limited video rental selection, the company grew quickly into a
nationwide chain, with other interests in the entertainment industry as well, including music retailing. In
1994, Blockbuster became a wholly owned subsidiary of Viacom Inc., allowing Viacom the financial
resources to proceed with its bid for Paramount Communications. Viacom retained total control of
Blockbuster until its 1999 initial public offering of 31 million shares (about 18 percent) of Blockbuster's
stock. In the late 1990s, Blockbuster faced challenges brought about by new ownership, increased
competition, and a relatively soft market for videos. Nevertheless, the company has coped admirably by
refocusing its efforts on its core video rental business. In 1999, Blockbuster boasted a store within a ten-
minute drive of virtually every major neighbourhood in the United States and strove to guarantee the
availability of new video releases in most markets.
The video rental business was hugely profitable from the get-go. It had grown organically, without
benefit of start-ups and VCs chasing the vague promise of future riches. Video gave consumers the
ability to time-shift programming, which was sort of like getting released from entertainment prison.
This meant that manufacturers could charge lots for VCRs. But the studios chose to price the tapes
ludicrously high (around $75), which didn’t work so well. Rental stores popped up to intermediate that
gap and, once a tape had been rented a few dozen times, it yielded 100% profit thereafter (porn titles
broke even faster). The business model was beautiful.
The Blockbuster business model provides an advantage over other large home video chains and
significant advantage over single store competitors. The key elements of this business model are to:
provide a large number of copies and broad selection of movie titles; operate conveniently located and
highly visible stores; offer superior and consistent customer service; optimize the pricing to local market
conditions; nationally advertise and market the Blockbuster brand name and its differences with the
competitors; use the extensive customer transaction database to effectively operate and market the
business; and improve the efficiency and lower the costs through self-distribution.
The model was also simple, as the right titles in the right stores at the right times meant more rentals, so
retailers could make even more money through improvements in distribution and inventory
management. When Blockbuster bought up those independent stores, it was able to pool their supply
and transaction data, which yielded some of those operational efficiencies (and let it profitably ignore
porn). After getting acquired by Viacom in 1994, the company recruited a handful of senior Walmart
executives to deliver more operational brilliance. The company applied Big Data insights about customer
needs before there was a term for it. In-store selections got better and better.
Only then the floor dropped out on Hollywood box office receipts, which had slowed by almost 2% in
1994, and barely recaptured three-fourths of that loss in 1995. It turned out that for all the talk of a
great branded offering, the main mover of movie rentals was box office popularity, not in-store
experiences. Visits were a necessity, not consistently a happy choice.
With traffic down, the company elected to focus on upping the value of each transaction “basket.” This
meant filling the stores with lots of candy, throw-away toys, and other “impulse” purchase items,
displayed at little kid height so parents would be forced to buy it. Then all the Walmart types were
thrown out (along with yours truly) and replaced by former executives from 7-Eleven. Blockbuster was
reimagined as a convenience store.
The video-rental company was at its peak in 2004. They survived the change from VHS to DVD but failed
to innovate into a market that allowed for delivery (much less streaming). While Netflix was shipping out
DVD’s to their consumer’s homes, Blockbuster figured their physical stores were enough to please their
customers. Because they had been the leader of the movie rental market for years, management didn’t
see why they should change their strategy.
Back in 2000, the founder of Netflix Reed Hastings proposed a partnership to the former CEO of
Blockbuster John Antioco. Netflix wanted Blockbuster to advertise their brand in the stores while Netflix
would run Blockbuster online. The idea got turned down by Antioco because he thought it was
ridiculous and that Netflix’s business model was “niche business.” Little did he know that Hasting’s idea
would have saved Blockbuster. In 2010 Blockbuster filed for bankruptcy and Netflix is now a $28 billion
dollar company.
(Source: 50 Examples of Corporations that Failed to Innovate and Missed Their Chance, valuer.ai)

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Go through the case …and be prepared for questions on exam time tomorrow..

EXAM QUESTIONS WILL BE ON VLE

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