Blockbuster Case Analysis
BUSA, 3280 Strategic Management
December 11, 2010
Blockbuster Case Analysis
Blockbuster is a company that was started in Dallas, Texas in 1982. It was incorporated in 1985 and reported revenues of $5.5 billion in 2006. It is known as a leader with in-home movie and game rentals. In 2006 it launched a new way to rent movies by introducing a program that gives customers the option to exchange the movies through the mail or return them to the store and exchange them for another movie. By doing this they are the only company to offer the option of a store rental or on-line/mail rental. According to Blockbuster web site, “Blockbuster has been the preferred source for media entertainment for the last 25 years, and we fully intend to keep it that way” (Blockbuster, 2010)
James Keyes was appointed CEO of Blockbuster in 2007 and has made some significant changes in the leadership team. He has the customers concerns as his top priority, along with the vision of success for Blockbuster. Since the inception of Blockbuster in 1982, there have been some serious technological advancements which have allowed other companies to arise and offer different ways of renting movies. The major growth of the internet brought about the era of being able to rent movies over the internet and then receive them in the mail. You never had to leave your house. When the movies became available they were sent directly to you. This was especially appealing to the younger generation which is very technologically savvy and they found it much easier to rent a movie on-line rather than go to a brick and mortar store, walk around the store, find a movie they wanted, hope it was in stock, stand in line to rent it and then come back home.
In 2006, Blockbuster invested in their online rental service called Blockbuster Total Access. This allowed on-line customers the option to exchange their DVD’s through the mail or to exchange them in a Blockbuster store for free in-store movie rentals. (Blockbuster, 2010)
Along with the domestic market, Blockbuster also started expanding internationally in 1991. The first international store was in Australia, followed by Hong Kong in 1998. (Ireland, C-33) According to the company’s web page, Blockbuster now has over 2,600 stores outside of the United States where they “look at diversity awareness and goals”. (Blockbuster, 2010) When you look at the threat of new entrants, a few competitors names come to mind: Netflix, The Movie Gallery, Redbox, and any other local rental companies. Although Blockbuster is still the largest movie rental company in the United States, the customer has a choice on where to rent their movies and games. They would be willing to switch their costs and purchase from a new company if it was more convenient and less expensive. From a competitors standpoint it would be costly to imitate Blockbuster by having both retail stores and online services. Usually you would pick one or the other. The products that Blockbuster offers are easily duplicated. They do not specifically own the product. They distribute a product that is owned by a movie studio. All other video and game rental companies offer the same products. What Blockbuster has to do to compete is to keep the prices low, and eliminate late fees which they did on January 1, 2005. (Blockbuster, 2010) The key suppliers to Blockbuster are the major film companies such as : Fox Entertainment, Paramount Motion Pictures, Sony Pictures, NBC Universal, etc. ( Ireland, C-33). Blockbuster has to continue to come up with different strategies on how they are going to remain a key player in the industry. One of the current bargaining powers that Blockbuster used with suppliers was obtaining new movie releases 28 days ahead of Netflix and Redbox. According to a press release on March 23, 2010, Blockbuster entered into an agreement with Warner...