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Question: Has the Blockbuster concept lost its novelty in the U.S. market? Can a subscription strategy help revive it?

Question: Has the Blockbuster concept lost its novelty in the U.S. market? Can a subscription strategy help revive it?

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
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Question: Has the Blockbuster concept lost its novelty in the U.S. market? Can a subscription strategy help revive it?

Closing Case A fter years of successful growth, Blockbuster, the world's largest video rental chain, sepa- rated from its parent company, Viacom. Video and DVD rental sales have decreased markedly, and new technology, including digital movies on demand, threatens Blockbuster's origi- nal core business. To survive, Blockbuster needs a new strategy. David P. Cook, a young entrepreneur, created the first Blockbuster video rental store. To capitalize on customer dissatisfaction with mom-and-pop video rental stores, which offered a limited selection of titles, short hours, and minimal customer service, Cook created the now-familiar video superstore: the large, brightly lit Blockbuster stores. He provided an environment where customers could browse through thousands of titles including classics, for- eign films, musicals, westerns, dramas, and animated films. Blockbuster expanded rapidly and broadly through acquisitions and by opening new stores. Eventually, almost 50 percent of its stores were franchised. Blockbuster had tremendous success, for several years but changes in the entertainment industry and new technology led to increased competition (such as satellite TV and digital-on-demand technology). Pro- ducts such as TiVo and Replay TV made recording and watching your own choice of movies at home an attrac- tive option for consumers. Firms like Netflix also created strong competition. Netflix doesn't charge late fees but rather has a monthly subscriber fee and customers can check out as many movies as they want. To counter Netflix, Blockbuster started its own online service and a flat-fee subscription service. Unlike Netflix, though, the company had the overhead costs associated with 8,700 brick-and-mortar stores. Blockbuster Is Fighting for Survival Blockbuster is currently in significant trouble. Netflix's stock price hovers around $70 per share and Blockbuster's is 30 cents per share. Blockbuster lost a to- tal of $932 million in 2008 and 2009 and continued to lose money subsequently. Many analysts predict it will have to file for bankruptcy in the near future. Although its recent actions may be too late, the company has made several moves to respond to compe- tition in an attempt to recapture lost market share. For example, it signed an agreement with TiVo to bring its online OnDemand service to customers through the Tivo set-top boxes. Blockbuster has signed an agreement with major movie studios for access to popular movies for in-store and online rentals. Finally, Blockbuster is of- fering to rent movies on SD cards. The desire here is to compete with the popular RedBox movie kiosks. Will Blockbuster be successful in avoiding bankruptcy and turning around its performance? It is unclear at this point. To some, it is the classic case of Schumpeter's creative destruction. Several competitors designed better systems, some using unique and new technology to better satisfy customer needs. Netflix was the original "disruptor" but a number of other competitors, such as Redbox, followed with additional new ideas and Blockbuster was very slow to respond. Questions 1. How successful do you predict that Blockbuster's re- cent moves (agreements with TiVo and major movie studios) will be? Please explain. 2. Can Blockbuster avoid bankruptcy and survive? Justify your response. 3. Should Blockbuster increase its entry into interna- tional markets where digital-on-demand technology is not yet available? 4. In what other ways can Blockbuster try to redefine its core business and pursue other options in enter- tainment or home electronics? What strategy would you recommend to save the business? Sources: R. Grover, "The Last Picture Show at Blockbuster?" Business Week, April 26, 2010, http://www.businessweek.com; "Blockbuster Makes Payment Deals with Movie Studios," Forbes, April 7, 2010, http://www.forbes.com; K. Eaton, "Blockbuster Goes Online with TiVo, Apple to Save Its Business," Fast Company, March 26, 2010, http://www.fastcompany.com; J. Tamny, "What Blockbuster Video Can Teach Us About Economics," Forbes, March 22, 2010, http://www.forbes.com; C. Dannen, "Blockbuster to Rent Movies on SD Cards, But Why?" Fast Company, November 9, 2009, http://www.fastcompany.com; S. G. Beatty, "Viacom's Blockbuster Rethinks Strategy," Wall Street Journal, November 20, 1995, Al; C. Taylor, "The Movie Is in the Mail," Time Canada, March 18, 2002, 40; S. Diaz, “Digital Video Recorders Challenge Television- Advertisement Makers," San Jose Mercury News, June 13, 2002; R. A. Munarriz, “Date Netflix, Marry Amazon, Kill Blockbuster," The Motley Fool, February 14, 2007, http://www.fool.com;
Transcribed Image Text:Closing Case A fter years of successful growth, Blockbuster, the world's largest video rental chain, sepa- rated from its parent company, Viacom. Video and DVD rental sales have decreased markedly, and new technology, including digital movies on demand, threatens Blockbuster's origi- nal core business. To survive, Blockbuster needs a new strategy. David P. Cook, a young entrepreneur, created the first Blockbuster video rental store. To capitalize on customer dissatisfaction with mom-and-pop video rental stores, which offered a limited selection of titles, short hours, and minimal customer service, Cook created the now-familiar video superstore: the large, brightly lit Blockbuster stores. He provided an environment where customers could browse through thousands of titles including classics, for- eign films, musicals, westerns, dramas, and animated films. Blockbuster expanded rapidly and broadly through acquisitions and by opening new stores. Eventually, almost 50 percent of its stores were franchised. Blockbuster had tremendous success, for several years but changes in the entertainment industry and new technology led to increased competition (such as satellite TV and digital-on-demand technology). Pro- ducts such as TiVo and Replay TV made recording and watching your own choice of movies at home an attrac- tive option for consumers. Firms like Netflix also created strong competition. Netflix doesn't charge late fees but rather has a monthly subscriber fee and customers can check out as many movies as they want. To counter Netflix, Blockbuster started its own online service and a flat-fee subscription service. Unlike Netflix, though, the company had the overhead costs associated with 8,700 brick-and-mortar stores. Blockbuster Is Fighting for Survival Blockbuster is currently in significant trouble. Netflix's stock price hovers around $70 per share and Blockbuster's is 30 cents per share. Blockbuster lost a to- tal of $932 million in 2008 and 2009 and continued to lose money subsequently. Many analysts predict it will have to file for bankruptcy in the near future. Although its recent actions may be too late, the company has made several moves to respond to compe- tition in an attempt to recapture lost market share. For example, it signed an agreement with TiVo to bring its online OnDemand service to customers through the Tivo set-top boxes. Blockbuster has signed an agreement with major movie studios for access to popular movies for in-store and online rentals. Finally, Blockbuster is of- fering to rent movies on SD cards. The desire here is to compete with the popular RedBox movie kiosks. Will Blockbuster be successful in avoiding bankruptcy and turning around its performance? It is unclear at this point. To some, it is the classic case of Schumpeter's creative destruction. Several competitors designed better systems, some using unique and new technology to better satisfy customer needs. Netflix was the original "disruptor" but a number of other competitors, such as Redbox, followed with additional new ideas and Blockbuster was very slow to respond. Questions 1. How successful do you predict that Blockbuster's re- cent moves (agreements with TiVo and major movie studios) will be? Please explain. 2. Can Blockbuster avoid bankruptcy and survive? Justify your response. 3. Should Blockbuster increase its entry into interna- tional markets where digital-on-demand technology is not yet available? 4. In what other ways can Blockbuster try to redefine its core business and pursue other options in enter- tainment or home electronics? What strategy would you recommend to save the business? Sources: R. Grover, "The Last Picture Show at Blockbuster?" Business Week, April 26, 2010, http://www.businessweek.com; "Blockbuster Makes Payment Deals with Movie Studios," Forbes, April 7, 2010, http://www.forbes.com; K. Eaton, "Blockbuster Goes Online with TiVo, Apple to Save Its Business," Fast Company, March 26, 2010, http://www.fastcompany.com; J. Tamny, "What Blockbuster Video Can Teach Us About Economics," Forbes, March 22, 2010, http://www.forbes.com; C. Dannen, "Blockbuster to Rent Movies on SD Cards, But Why?" Fast Company, November 9, 2009, http://www.fastcompany.com; S. G. Beatty, "Viacom's Blockbuster Rethinks Strategy," Wall Street Journal, November 20, 1995, Al; C. Taylor, "The Movie Is in the Mail," Time Canada, March 18, 2002, 40; S. Diaz, “Digital Video Recorders Challenge Television- Advertisement Makers," San Jose Mercury News, June 13, 2002; R. A. Munarriz, “Date Netflix, Marry Amazon, Kill Blockbuster," The Motley Fool, February 14, 2007, http://www.fool.com;
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